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Joshua Brown
03-13-2013,
?Tis the season. In a world full of noise, a great gift is noise-cancelling headphones. The Wirecutter recommends the Bose QC20 Acoustic Noise Cancelling Headphones for the in-ear crowd.

Quote of the day

Monish Pabrai, ?When we look to make an investment, the greed part of the brain is turned on?A checklist is like a circuit breaker that helps prevent the brain from being able to flip that switch.? (WSJ)

Chart of the day

Joshua Brown
04-02-2013,
Potentially good news for gold lovers.

Hard to believe, but a recent article in the illustrious Wall Street Journal actually deigned to bash the almighty Eric Sprott ? Oz, Alexander and Nimrod of the gold world, a man who?s every word is precious to the oro-phile among us.

Details of the article are of less interest. The fact that it was printed we take to be a potential contrarian signal, indications (albeit early) of a coming bottom to the shiny metal?s collapse.

Hooeeeee!!!

Nevertheless, it was a damning sight. The Sprotter?s record was trotted out by the world?s most widely read paper and exposed for the dirty underwear it was.

This was the well-heeled Canadian?s ugly chart ?

Joshua Brown
04-02-2013,
Although the conventional wisdom is that the choice to purchase a home is the most important and expensive economic decision the average person or couple will make, there is another choice that is even costlier and more important -- the choice to have children.

Raising children is an extremely expensive undertaking. This is particularly true if both spouses work and outside child care is necessary. One recent study found that annual child care costs varied by state, ranging from $4,863 to $16,430 per child. In addition, the Census Bureau reported in 2011 that child care costs have increased dramatically since the 1980s.

No matter how you slice it, this is one huge expense. The fact that the rising costs for families hasn't translated into increased salaries for child care workers (per the Census Bureau's report) can mean only one thing: Someone is making huge profits in the child care business. After recovering from the shock of these figures, I went to work to discover a way to profit from them.

The child care business is primarily a fragmented industry of small-time operators ranging from home-based centers to regional chains. However, a newly public player in the space has expanded its child care system internationally.

Specializing in employer-sponsored child care, Bright Horizons Family Solutions (NYSE: BFAM) had its IPO on Jan. 30. Boasting a market cap of $2.2 billion, Bright Horizons consists of 880 child care and early-education centers in 42 states and a variety of other nations, including India. It boasts the capacity to care for nearly 100,000 children, an increase of 13% from the same time last year.

The company's third-quarter results were strong: Revenue was up 15% from a year ago, to $309 million; adjusted net income soared 119%; and earnings per common share rose 75% after dilution and adjustments. In addition, operating cash flow in the first nine months of this year was just over $120 million, up from $93 million from the same period last year.
Bright Horizons is an active buyer of other child care centers, with one recent acquisition being Children's Choice, a chain of 49 employer-sponsored day care centers in the United States.

Share price jumped on the IPO date to a high of $28; the price then eased into the $38 range and consolidated between $34 and $38. Starting in November, shares started selling off down to the current $33 area.

Joshua Brown
04-02-2013,
Michael Bloomberg?s first election for the New York City Mayoralty took place just a few weeks after 9/11 and he saw the city through its rebuilding. He had also taken over during the midway point of a recession that began with Wall Street?s post-millennial crash. A short-lived boom followed beginning in 2003 but within five years, the Mayor was back in crisis management mode again. This time, the financial sector ? which accounted for an enormous chunk of the city?s tax base and about 230,000 jobs ? was quite literally melting down. Some of New York?s most crucial employers, like Bear Stearns and Lehman Brothers, were vanishing right before our eyes. The effect of this, our worst market crash and financial crisis since the Great Depression, was harrowing. The streets, restaurants and stores were eerily quiet for a long time, there was an emptiness everywhere that just a year early would have been unimaginable.

And despite all of this historic tumult, concentrated as it was in the New York City area, Hizzoner never blinked.

Crime stats actually improved throughout the Great Recession and real estate values have since rebounded everywhere. Under Mayor Bloomberg, some 12,000 blocks, or 40% of the city, have been aggressively rezoned for modernization and development. And while many have nitpicked about some of his nanny-esque leanings on social and health issues, there?s been a shockingly small amount of true controversy on his watch. Bloomberg?s had quite a run through some incredibly difficult times, with barely a scratch on him to show for it.

His support for New York?s financial sector ? which wasn?t exactly an easy stance for a public official to take ? has meant a great deal for our recovery and the ongoing prosperity of the city in which we live and work. That was Mayor Mike having burgers with Lloyd Blankfein at Goldman HQ in the wake of the Greg Smith NYT op-ed that opportunistically trashed the entire workforce of that firm. And there was Mayor Mike once again, clearing out the Occupy Wall Street disaster after allowing it to run its course and make its point (it didn?t have one, turns out).

A lesser politician might have felt compelled to adopt the anti-finance rhetoric of the times and pile on to The Street at its most vulnerable moments. But Bloomberg understands how important the money business is for all New Yorkers, the enormous amounts of wealth it brings in for everyone. Roughly 20% of the nation?s securities industry jobs are located in New York City. The financial sector employs 9% of all NYC workers and we make up 31% of the tax base. Supporting the financial industry through the clean-up of a terrorist attack, two recessions and a firestorm of populist outrage may not be the legacy that Bloomberg is most proud of, but it may turn out to have been his most important achievement over his three terms in office.

I had the chance to say farewell to Mayor Bloomberg on behalf of Wall Street in today?s New York Post. They?ve got a special pull-out section called Bloomberg: The Legacy if you can get your hands on a print copy.

Joshua Brown
04-02-2013,
Random Thoughts

As I preach, when a market isn't too far away from new highs, one or two big up day can make all the difference in the world. Monday was "one day" but we're going to need a little more.

The Ps ended off their best levels but they still managed to hold on to well over ?% of their gains.

The Quack also tailed off its best levels. It still finished up nearly ?%.

The Rusty was the big star of the day. It tacked on nearly 1 ?%. No tailing action here.

Monday's action is much better than a poke-in-the-eye but we going to need some follow through. Follow through is key-stop me if you've heard that before.

So where are we? Net Net, the indices haven't made much forward progress in quite a while. So, Monday notwithstanding, the market has lost some momentum. This is perfectly normal as long as it is just taking a breather.

The next question is, so how do you know that the market is just taking a breather? Obviously, if it goes on to make new highs then your question is answered. It's anything in between that you have to watch for. If support-see recent columns---gets taken out and/or we start getting sell signals, then we'll know that it more than just the pause that refreshes.

Overall, Monday was a good day. The action internally was still a little mixed though.

Major Airs turned back down and still look questionable. You know my system here, right? Short them when they make new highs. I'm half kidding. It's just a tough business. Give me something like a little biotech with the promise of curing a horrid disease vs. an airline with all its associated problems.

Speaking of Biotech, it was off to the races there but it then fizzled out. Still, it managed to hold on to just around 1/2%.

Areas such as Health Services, Energies, and Medical Instruments bounced but they still look questionable at best. They have formed Bowties and/or First Thrusts down. Email me if you need these patterns.

Regional Banks put in the mother-of-all rallies, coming back from their recent slide with a vengeance.

Resorts & Casinos banged out new highs as did the entire Leisure sector.

Ditto for Brokerages, Selected Defense, Manufacturing, and several others.

Areas like the Semis put in a decent rally-up around 1 ?%---but still remain range bound.

Again, it was a good day but things are still mixed.

So what do we do? I'm still seeing a few speculative longs setting up. These high volatility (or what some would call Beta) stocks can often trade contra to the overall market (come to the chart show and I'll give you some current examples). This is a good thing while the market finds its way. I'm still seeing few shorts setting up but I think if you already have a few on, there's no need to add. The caveat is always, unless you really really like a setup. I think for now we are in a "really really" type of market. Be super selective in your stock picking. Unless you think you have the mother-of-all opportunities, walk away and wait for follow through.

Joshua Brown
04-02-2013,
The 30-year Treasury is quite possibly the worst investment option out there right now... even your Uncle Dave's coin and baseball card collection might offer better long-term returns.

Let's forget for a moment about the Federal Reserve's intention to taper quantitative easing, which has already begun to place upward pressure on interest rates (and thus downward pressure on bond prices). And let's forget that the longer a bond's duration, the greater its sensitivity to interest rate movements. So with every basis point uptick, nothing will feel the pain more acutely than the 30-year "long bond."

Let's even forget that Uncle Sam's credit rating has already been downgraded by at least one ratings agency.

Even if interest rates don't rise and Congress miraculously balances the budget -- a best-case scenario -- you're still tying up your capital for the next three decades at a paltry rate of around 3.5%. But here's the kicker: When your principal is finally repaid in the distant future, those dollars will have lost much of their purchasing power.

Just ask anyone who bought one of these bonds back in 1983. Maybe they lent the government $30,000, enough money to buy three average new cars at the time. Now, when they get that money back at maturity, it will only get them one new car.

How much do you think your $30,000 will have eroded by 2043?

So if lending money out for 30 years is one of the worst things you can do, then borrowing it for 30 is quite possibly the smartest.

Instead of locking in today's paltry rates as the payee, you're locking in as the payor. Oh, and the lender can't refinance if interest rates move against them, but the borrower can.

Finally, instead of lending full-valued dollars today and then receiving devalued dollars back tomorrow, you'll be doing the exact opposite: receiving full-valued dollars upfront and then repaying with depreciated ones later.

That's the opportunity you have with a 30-year mortgage right now. Taking out a 30-year loan is essentially like taking a short position in the 30-year Treasury.

But here's the thing... You can even take it a step further and buy real estate as an investment, specifically single-family homes.

Here's why I think this is one of the best investments you can make...

1. While the overall national housing market has made great strides toward recovery, thousands of quality homes are still listed at bargain (if not fire-sale) prices. Why not take advantage and make those borrowed dollars stretch even further?

2. Real estate is a durable hard asset that should appreciate in value as the dollar slowly weakens. A maturing bond only gives back what you paid in. No more, no less. Meanwhile, an average home that sold for $75,300 in 1983 is worth $247,900 today.

3. That house won't be a vacant, idle asset. Find a tenant and generate steady monthly rental income along the way.

So you could park $200,000 in a long-dated Treasury and collect about $7,000 in annual interest. And that's all you'll get -- capital appreciation potential is nil. Or you could invest that cash in a four-bedroom/three-bath Victorian home with a corner lot and rent it out for maybe $1,000 a month, or $12,000 per year. And it's not a stretch to say the home might appraise for $300,000 within the next decade.

Of course, these numbers are purely hypothetical. But scenarios just like this are playing out in thousands of cities across the country. Many of the best deals (the luxurious beachfront condos selling for pennies on the dollar) are long gone. But there are still plenty of attractively priced homes that can generate impressive rental yields of 10% or more.

But don't just take my word for it. Listen to Warren Buffett. The Oracle himself said it would be smart for affluent investors to purchase not just a second or third home, but "load up" on "hundreds of thousands" of single-family homes.

The "smart money" is already following Buffett's advice. You see, for decades single-family homes were the exclusive realm of local landlords with a handful of properties. But for the first time, it has attracted heavy buying interest from large institutional investors.

Private equity groups, hedge funds, and others have already scooped up more than 100,000 properties, investing $17 billion in the process. By itself, Blackstone Group (NYSE: BX) has sunk $5.5 billion into purchasing more than 32,000 homes.

Goldman Sachs compiled some numbers and determined that the single-family home rental market could actually be the newest major asset class. Nationwide, there are 14 million rental homes with an aggregate market value of $2.8 trillion.

Unfortunately, most of us lack the spare cash to buy up entire neighborhoods or invest in new residential developments. Most of us would only be able to buy one or two rental properties to get started at best.

That's why I've been telling readers of my High-Yield Investing newsletter about a special asset class that allows regular investors to get in on the action. I call them "Eisenhower Trusts." That's because, thanks to an obscure law signed under President Dwight Eisenhower, smaller investors have access to a "loophole" which allows them to use the same wealth-creating tools as America's wealthy elite.

- Nathan Slaughter

Joshua Brown
04-02-2013,
361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing
December 16, 2013
Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA

Joshua Brown
04-02-2013,
Tuesday links: die-hard discipline

?Tis the season. From Science Friday some science book picks from 2013 including Clive Thompson?s Smarter Than You Think: How Technology is Changing Our Minds for the Better.

Quote of the day

Rick Ferri, ?Multi-factor investing isn?t for tourist investors. The strategy requires die-hard discipline, which means a complete understanding of all risks.? (Rick Ferri)

Chart of the day

Joshua Brown
04-02-2013,
In the aftermath of the Fed?s first hint at tapering this past spring, mortgage rates shot up a bit along with the entire complex and the narrative was that the Fed just opened its stupid mouth too soon and staked the housing recovery right through the heart. ?That?s the end of the cycle,? we were told. The new home sales data softened concurrent with the rise in mortgage rates and the pundits drew a line between A and B to explain it.

But just-released data from the month of October tells us we may have been premature ? it could be that the housing market is digesting these (minimally) heightened rates and plowing on ahead. If this is the case, there are positive implications for the rest of the economy as QE begins to unwind ? an affirmation that we can, in fact, tolerate rising rates without stumbling.

Here?s Bank of America Merrill Lynch?s US Economics team this morning:

New home sales: Sales of new single-family homes climbed 25% in October, reversing the weakness in summer and early fall. This mini-downturn in sales was seemingly in response to the spike in mortgage rates this spring and the gain in October suggests it was transitory.

Joshua Brown
04-02-2013,
There is a dangerous malady sweeping the United States.

According to the Centers for Disease Control and Prevention, over a third of American adults -- more than 72 million people -- suffer from this ailment. It is a well-known cause of killers like heart disease, stroke, certain cancers and Type 2 diabetes.

Unfortunately, here in the U.S., many aspects of advertising and the general culture actually seem to promote this condition, even though it costs Americans an estimated $147 billion in annual medical costs -- nearly 10% of all U.S. medical spending. The American Heart Association has gone so far as to call this issue an epidemic and has projected that 44% of the U.S. population may be afflicted with this condition by 2030.

If you haven't guessed, I'm referring to obesity. While the causes of this malady are many, society does little to curtail the constant promotion of factors that eventually result in an obese population. High-fat and high-sugar foods are not only usually among the least expensive, they are the most readily and easily available, not to mention the most heavily advertised.

Fortunately, many companies are focused on solving the obesity epidemic. The leading names in this space are Nutrisystem (Nasdaq: NTRI), Medifast (NYSE: MED) and Weight Watchers International (NYSE: WTW). Out of these three, I think Weight Watchers will make the best investment for 2014.

I can hear some of you now: "Are you kidding me? Shares have plunged nearly 50% this year, and the chart looks absolutely terrible." Well, you are 100% correct -- but that's the reason I like the stock right now. Let me explain.

Founded in 1961, Weight Watchers is an international health-oriented company that provides nutritional, exercise and behavioral modification tools to facilitate weight loss. The company boasts more than 1 million members who attend weekly meetings, and consumers spent over $5 billion on Weight Watchers branded products and services in 2012.

Given the current obesity epidemic, one would assume that Weight Watchers would be a thriving business. However, the company's stock price has been in a downward spiral. In the third quarter, revenue dropped 8% from a year ago, to just below $394 million, but still beat consensus estimates of just under $387 million. In addition, earnings per share came in at $1.07 for the quarter, beating consensus estimates of $0.83.

Weight Watchers has been hurt by a decline in the number of subscribers, a result of the availability of free smartphone applications that provide similar weight loss guidance. However, it's important to note that despite offering online community encouragement, those free apps don't provide the critical one-on-one counseling that Weight Watchers does.

Weight Watchers recently took the bold step of suspending its dividend in an effort to increase liquidity. In addition, the company recently appointed a new technology officer and president to bring fresh ideas, and a new CEO took the helm in August.

In my view, Weight Watchers needs to overhaul its marketing and integrate technology into personalized programs. Combining the constant reminder of a smartphone app with weekly personal meetings would create a powerful weight loss system. Remember, the personalized network of meetings and advisors is what sets Weight Watchers apart. Competition will have a difficult time replicating this network.

The new management remains decidedly downbeat into 2014. CEO James Chambers said, "While we are working aggressively on both near-term commercial activities and longer-term strategic initiatives, 2014 will be a very challenging year."

I think due to its strong branding and unique value proposition of the support network, Weight Watchers' share price will soon turn around. In addition, the technical picture is indicating an approaching oversold condition and support in the $31 range.

Joshua Brown
04-02-2013,
While December 2013 may seem like a pretty quiet end to a strong year for U.S. stocks, the VIX is actually on a tear thus far through the month. It closed out November at 13.70, and is up some 17% since then to close at 16.03 today. Against the average decline of 3.1% we noted, that?s a visible bump. And considering that the typical move from now through year end is another 1.1% increase, it looks like the rally in expected volatility may be around to ring in the New Year.

Is volatility on the rise? You?d never know it unless you were looking at the Vix itself ? the market commentary of late is quite complacent with only tomorrow?s Fed meeting standing in our way of closing out the year quietly.

And yet vol is having a big month, unbeknownst to most.

Here?s Nicholas Colas, chief market strategist at ConvergEx Group with his take on what we could be seeing:

The historically anomalous move for the VIX in December 2013 forces one question to the fore: is this the beginning of a return to more ?Normal? volatility, or just some year-end insurance buying by active managers looking to lock in their gains? There are good arguments for both camps:

We?ve experienced a remarkably quiet year for volatility in U.S. stock markets, and even at its current reading of 16 the CBOE VIX Index is still well below its long run average of 20. We chalk that up to the Federal Reserve?s interest rate and Quantitative Easing policies. Aside from a few weeks of doubt in June, these have been the market?s best friend and constant companion throughout 2013.

How long will the Federal Reserve and equity markets be able to hold onto their friendship? That?s the question for 2014, and it makes sense that options investors would want to hedge their portfolios ahead of Wednesday?s FOMC meeting as well as those in Q1 2014. It has been a great run from the lows in March 2009, equity valuations are fair (if not a little full), economic fundamentals are only slowly improving (and about time, too) and corporations are not yet fully out of their foxholes and hiring.

Of course you?d start to hedge with options ? makes all the sense in the world.
At the same time, there is a strong correlation between the year-to-date performance for the sectors and asset classes in our study and the recent moves in their Implied Vols. Options players aren?t bidding up the VIX for gold or silver because, well, who cares about precious metals these days? Same for corporate bonds for that matter.

Given this relationship between performance and Implied Vol, it is equally easy to write off this year-end rally in the ?VIX of? winning equity sectors and market caps to risk aversion in the final days of the year.

You?ve had a great year ? of course you?d hedge out your risk. Makes all the sense in the world.

The truth is BOTH these explanations resonate. Volatility got way too cheap ? and complacency too high ? in 2013. There?s a great temptation in market commentary to call everything either a ?Bubble? or a ?Generational low?. Life rarely hit such extremes, so I am reluctant to hitch my wagon to either train too often. Still, reversion to the mean ? in this case ?20? on the VIX ? is a powerful force in life and markets. As old time TV detective Baretta used to say, ?You can take that to the bank.?

Joshua Brown
04-02-2013,
I don?t know that the retail investor matters anymore. They didn?t come back to the market after the 2000 crash. The idea that the individual investor believes in the stock market now is challenged. We have a market that is increasingly institutional investors trading back and forth with each other?, said Dan Greenhouse, chief global strategist at BTIG.

Joshua Brown
04-02-2013,
I rely on hundreds of ?moles? around the world whose job it is to watch a single, but important indicator for the world economy. One of them checks for me the want ads in the manufacturing mega city of Shenzhen, China, and what he told me last week was alarming.

Wage demands by Chinese workers have been skyrocketing this year. The biggest increases have been at the low end of the spectrum, where migrant workers from the provinces are earning up to 40% more than a year ago. Wage settlements of 20% or more for trained workers are common. One factory that gave staff only a 10% increase saw many of them fail to return after the recent Chinese lunar New Year.

Of course China?s blistering 8% GDP growth is the cause, which has pushed inflation well beyond the government?s 4% target. So the cost of living in the Middle Kingdom is rising dramatically. The problem has been particularly severe with imported commodities, such as in food. Hence, the increased demands.

This is important for the rest of us because low wages have been the cornerstone of the Chinese economic miracle. In just the last decade, average monthly Chinese wages have climbed from the bottom rung to the middle tier. That seriously erodes the country?s cost advantage, which has gained it such enormous shares in foreign markets, like the US. Take away the country?s price advantages, and demand will wither, slowing growth globally.

What will they be demanding next? Collective bargaining rights? In the meantime, keep checking those Craig?s List entries for Shanghai.

Average Monthly Salary
$3,099 Yokohama, Japan
$1,220 Seoul, South Korea
$888 Taipei, Taiwan
$235 Shenzhen, China
$148 Jakarta, Indonesia
$100 Ho Chi Minh City, Vietnam
$47 Dhaka, Bangladesh

Joshua Brown
04-02-2013,
The Chart of the Day is DigitalGlobe (DGI). I found the stock after sorting the New High List for frequency, skipping over the stocks that did not have positive returns for the last week and month and also reviewed the charts using the Flipchart feature. Since the Trend Spotter signed a buy on 11/1 the stock is up 22.58%

It is a global provider of commercial high-resolution earth imagery products and services. The company's products include DigitalGlobe System, QuickBird satellite, ImageAtlas; and GlobeXplorer. DigitalGlobe System offers collection and archival of geospatial information data and QuickBird satellite, which provides commercial resolution imaging systems. It operates a constellation of high resolution earth imaging satellites, possesses a growing aerial imagery network and offers a comprehensive geoinformation product store - DigitalGlobe.com - that allows quick access and order a wide variety of imagery and derivative information products. They conduct business through two segments: 1 - defense and intelligence, and 2 - commercial.

Joshua Brown
04-02-2013,
?Tis the season. Check out Brenda Jubin?s favorite books for 2013 at Reading the Markets including Building Reliable Trading Systems: Tradable Strategies That Perform as they Backtest and Meet Your Risk-Reward Goals by Keith Fitschen.

Quote of the day

Joshua Brown, ?I sure hope the US stock market pauses or corrects soon ? because otherwise it?s going to be a complete and total permabear massacre.? (The Reformed Broker)

Chart of the day

Joshua Brown
04-02-2013,
Stocks were headed higher on Monday morning after non-farm productivity increased at its highest rate in almost four years for the third-quarter in the US. The Labor Department announced that productivity was up 3% during the quarter, following a 1.8% rise in the second-quarter. A level this high has not been seen since the fourth-quarter of 2009. This large increase was partially attributed to a 4.7% gain in output. The data released surpassed analysts expectations of a 2.8% gain for the index. Productivity takes into account the hourly output per worker. In the same report the Labor Department said that unit labor costs were down at 1.4% rate during the same quarter. This measures the labor-related cost for a given unit of output. This is more than double the drop analysts were expecting. During the fourth-quarter last year, there was a 2% gain for the index. Despite the seemingly positive information, the broader data is showing slower productivity growth. There was only a mere 0.3% increase in productivity over last year at this time. This is largely attributed to a slowing investment in equipment and machinery by business?s in recent years. Oxford Economics had this to say in a note to clients, ?Businesses are finding it increasingly difficult to squeeze more output out of their existing workforce.?

Honda Motor Co (HMC) announced that they would be recalling nearly 7,750 Acura?s due to a possible loose bolt problem. The company said that their Acura RLX sedan?s that were sold in the United States and Canada will need to be recalled so they can replace rear suspension bolts that may have been improperly tightened. HMC said that any of the eight bolts that secure the rear suspension of their 2014 models could loosen over time and fall out which could cause a disruption to the vehicles alignment and increase the risk of a crash. They said to date they have not been made aware of any crashes due to the problem. The notifications for recalls will begin being sent out in January.

The new target of the budget cuts has been announced and it will be pensions of federal employees. The federal workers pensions are quite generous when compared to those employees who work in the private sector but not for long. For federal employees that were hired after 2012, changes are being made. In order to cover their pensions, employees hired starting January of this coming year will begin paying 4.4% of their pay to help cover their pensions. Those hired in 2013 will pay 3.1% and any employees prior to that will pay 0.8%. Jackie Simon, policy director for the American Federation for Government Employees, who represents nearly 630,000 federal employees, said, ?It?s insane they should be expected to fund government. It?s a big country. The burden should be spread more broadly.?
That?s all for the day.

All the best,
Jack Aubrey, Oakshire Financial

Joshua Brown
04-02-2013,
Technology is all around us and in everything: our homes, cars, offices -- and even in our clothing.

Apparel companies are looking more and more like technology companies these days. Wearable technology has become one of the fastest-growing markets over the past year, with apparel companies pushing the limits on recording our physical activity and then transforming it into useful data.

One of the fastest-growing and most innovative companies in the apparel space, Under Armour (NYSE: UA) is at the forefront of this trend. Under Armour has the insight of real-life athletes, the look of an apparel company and the feel of a tech company.

Under Armour's products are sold to a number of teams and athletes, from colleges to the pros. The company's founder, Kevin Plank, came up with the idea of performance apparel during the mid-1990s as the special teams captain of the University of Maryland football team.

When you look under the hood, Under Armour operates a little like a tech startup, hosting contests to improve its products and hiring more developers to build and improve their technology. And even though Under Armour has a well-recognized brand by now, it's still a growth story.

Its market cap is $8.9 billion, a small fraction of Nike's (NYSE: NKE) $69 billion. But in addition to the growing market for wearable apparel, Under Armour still has a huge growth opportunity overseas, seeing as almost 95% of its revenue comes from North America.

Joshua Brown
04-02-2013,
I sure hope the US stock market pauses or corrects soon ? because otherwise it?s going to be a complete and total permabear massacre.

China is stabilizing. Europe is growing ? peripheral Europe is growing! Japan is percolating. US manufacturing is back above pre-recession levels and household net worth is too. American politicians are introducing bipartisan budget deals. Iran is talking peace. The gold investment complex is collapsing.

None of this was supposed to happen! It was all meant to unravel. WTF?

The pessimists have been absolutely routed this year, it?s becoming uncomfortable to watch. Their intellectual leaders are abandoning the cause or, worse, switching sides. None of their formulas or equations are working, they?re just losing more people more money every month. Those who answer to clients have run out of excuses, they?re now lashing out at everyone else to make themselves feel better.

Because they can?t have been wrong, just early ? and it?s not their fault anyhow. It?s the Fed?s fault, or the fault of other financial commentators or the fault of foreign central banks.

But they?re sticking to their ?process? ? and don?t you ever dare question their process, no matter how poorly it works and for how long.

I am not incorrect for four years running - the entire world is incorrect. You?ll see.

Surely this can?t continue for much longer, can it? I hope not.

May the fates order a ceasefire on the Permabear Alamo, and soon.

Joshua Brown
04-02-2013,
Random Thoughts

Housekeeping: Thanks again to all who attended the webinar on Saturday. Based on the feedback, it looks like we had a great show. The recordings have been processed and uploaded. These will be going out later today. If you would like to get them earlier, send me an email and I'll reply with the link.

The market continued to stabilize from its recent slide.

The Ps ended in flatsville. Net net, they haven't made much progress since late October. So far, they have found support right at their prior breakout, circa 1775. It also looks like the 50-day moving average will soon be there too. Often multiple technicals can come together at the same point. It's like the Cajun joke about the Thermos. It keeps the hot things hot and the cold things cold. "How do it know?"

The Quack started strong but ended weak. It still managed to close in the plus column nonetheless. This action has it a minor support, circa 4,000. The next would be the top of its prior range, circa 3,950. The 50-day moving average is also nearing this support.

Speaking of da fidy, the Rusty is sitting right on its 50-day moving average. It was the big winner on the day, tacking on 1/3 %--better than a poke in the eye I suppose.

When markets correct, you're faced with a dilemma. Is it the start of something bigger? Is the sky falling? They do slide faster than they glide, right?

So, you have to anticipate. Correct?

True, you do have to be on your toes because what starts as what appears to be only a correction could always turn into something much bigger. Ideally though, you want to wait for some additional clues.

There's nothing magical about the aforementioned 50-day moving average but it can help to keep you on the right side of the market. As mentioned in the Stock Selection webinar over the weekend, years ago while developing systems for a client, if they didn't work, we'd "throw a moving average in"--take long trades only when above and short trades only when below. This, in and of itself, often made a non-working system work. Err on the side of the moving average/longer-term trend.

Speaking of moving averages, the Bowtie Moving averages (email me if you need the pattern) have turned down. They could signal soon. Bowties off of all-time highs can signify a major top. The good news is, a few big up days would negate this. And, futures are up fairly big pre-market.

Joshua Brown
04-02-2013,
I've always loved telco stocks.

As investors, we're told to train ourselves to look at stocks rationally and to remove emotion from the process. Warren Buffett warns that your stock you won't tell you it loves you when you come at night.

But dividend investing is also about finding great yield -- and, with a tip of the hat to Willie Sutton, telco stocks are where the money is.

Investors have almost always done well with domestic heavyweights AT&T (NYSE: T) and Verizon (NYSE: VZ). But I've always found more yield and value in international telco stocks. Vodafone Group (NYSE: VOD) has always been a good holding thanks to the British company's investment in Verizon (a 41% stake before its recent sale) and its focus on emerging and frontier markets.

Telefonica Brasil has the yield and value characteristics I look for in an international telco stock. The Sao Paulo-based telecom provides fixed-line and mobile communications, broadband Internet and pay TV services, among other offerings. A subsidiary of global telecom conglomerate Telefonica (NYSE: TEF), Telefonica Brasil serves nearly 28% of Brazil's wireless market under the Vivo brand.

Yet VIV is off by more than 30% from its 52-week high. What gives?

Joshua Brown
04-02-2013,
?The rule of thumb is to do your homework, do your analysis, don?t give up prudent risk management for the sake of certain fads. Look for real valuations, and stay true to your time frames,? saidMarc Chandler, the global head of currency strategy at Brown Brothers Harriman.



go to the Mad Hedge Fund Trader's website

Joshua Brown
04-02-2013,
Last year I was taken with a documentary and wrote a post about the so-called ?best sushi chef in the world.? Jiro Dreams of Sushi for me had a great deal to say about the relentless pursuit of perfection. This has implications for any number of fields, trading and investing included. Now there is an update to the story.
Pete Wells in the NYTimes recently gave a four-star review of, Sushi Nakazawa in the West Village, which is run by a former apprentice of Jiro. Now there is a short form video with the owner and chef at Sushi Nakzawa.

Source: NYTimes

Two really interesting ideas come from this story. The first is that the world is really small. A couple of messages got this new venture on its feet. Second it shows that simplicity is the result of dozens of iterations. Whether it is sushi, an app that just works or the iPhone that went through dozens of iterations before coming to market, elegance is not easily earned.

One thing experienced traders recognize that the more steps you can strip away from your process the easier it is to replicate over time. Novice traders need to recognize that this knowledge is gained over time through experience and market tuition. Overly complicated systems are by definition more fragile and more prone to behavioral pitfalls.

That is why for most investors a simple approach that focuses on broadly diversified portfolios of index funds, periodically rebalanced is a simple approach that can be followed over time. For traders and investors in pursuit of alpha the idea of simplicity should also be something to strive for. Simplicity ain?t easy. But what exactly is the alternative?



The post Simplicity ain?t easy appeared first on Abnormal Returns.


Abnormal Returns

Joshua Brown
04-02-2013,
via Eric Peters at wkndnotes:

?You know next yr will be the 1st since 2003 that Japanese and Chinese stocks both post double-digit gains?? asked the same Asian CIO. Both mkts are cheap, Chinese reform and Abenomic stars are aligning. Plus, the US fiscal drag is lifting, and Europe won?t contract. Then we discussed the deflationary consequences of the technological revolution rippling across the globe. The resulting low interest rates, rising corporate margins. And he asked, ?In that world, isn?t the right P/E for the S&P 20??

Josh here ? If we?re going to muddle through again in 2014, with more slow economic growth and borderline deflationary employment and wage conditions, the S&P 500 is likely fully priced.

But what if we?re not just going to muddle through?

What if something bigger is happening?

Worth considering.

Joshua Brown
04-02-2013,
US stocks crushed the global equity markets this year and this kind of radical outperformance can frequently lead to investors abandoning their diversified strategies to run away and join the circus. I regard this as a bad idea, driven by images in the rear view mirror. See Why Bother?? Will investors take the wrong lessons from 2013? and my mention in this weekend?s Barron?s for more on this concept.

So what is the case for international stocks? Well, they?re cheaper and they?re apt to pay out a lot of their earnings in dividends each year ? and to grow those yields consistently thanks to local government taxation policies that discourage retained earnings in many cases.

Last month, BlackRock took a deep-dive into world dividend growers ? stocks that are not only paying dividends now but that have to the potential to grow their payouts into the future.

They give us a few reasons to consider adding a world dividend growth equity strategy to our portfolios, here are the three I find to be most interesting:

1. World dividend stocks can do well in a rising rate environment:

Joshua Brown
04-02-2013,
Thanks for checking in with us this weekend. Here are the items our readers clicked most frequently on Abnormal Returns for the week ended Saturday, December 14th, 2013. The description reads as it does in the relevant linkfest:

A good list of 15 financial sites and apps. (CNNMoney)
Three bearish charts. (Pragmatic Capitalism)
The Value Line Median Appreciation Potential is at historic lows. (Mark Hulbert)
Why Warren Buffett?s bet against hedge funds is working out. (Rekenthaler Report)
Jeff Gundlach is in no hurry to buy mortgage REITs. (Income Investing)
How much in assets does a typical hedge fund need to break even? (WSJ)
Nuts are a super food. (Well)
Why do professor pitch buy-and-hold even though valuation measures work? (Morningstar)
On the downfall of John Taylor?s FX Concepts hedge fund. (aiCIO)
A dozen things learned from Jason Zweig on investing. (25iq)


What other stuff you may have missed on the site this week:

Beware backtests built to anchor expectations. (Abnormal Returns)


Thanks for checking in with Abnormal Returns. You can follow us on StockTwits and Twitter.

Joshua Brown
04-02-2013,
At the end of Q3 on September 30th, consensus estimates for S&P 500 earnings growth in Q4 stood at 9.5%. It is down by 1/3rd since then to just 6.5% ? and falling.

The bears will point to this latest data point from FactSet Research and say ?Told ya so!?

The bulls will say ?Big deal, this trend has been happening all year ? Beat-and-Lower is the best strategy for corporate management, why would they stop? David Einhorn flagged the beat-and-lower game over the summer, it?s pretty well-understood at this point (see David Einhorn: The New Game is ?Beat and Lower?)

Anyway, here?s FactSet (emphasis daddy?s):

The estimated earnings growth rate for the S&P 500 for Q4 2013 is 6.5% this week, unchanged from last week?s growth rate of 6.5%. On September 30, the Q4 earnings growth rate for the index was 9.5%. All ten sectors have witnessed a decline in earnings growth rates since that date, led by the Energy sector.

Part of the reason for the drop in expected earnings growth is the high percentage of negative guidance issued by S&P 500 companies for Q4. Overall, 94 companies have issued negative EPS guidance for Q4 2013, while 12 companies have issued positive EPS guidance. Thus, 89% of the companies in the index that have issued EPS guidance have issued negative guidance. This percentage is well above the 5-year average of 63%.

At the sector level, eight of the ten sectors are projected to report a year-over-year increase in earnings for the quarter, led by the Financials (24.9%), Industrials (14.2%), and Telecom Services (14.0%) sectors. The Energy sector is expected to see the lowest earnings growth rate (-7.2%).

How much longer can beat-and-lower continue? How much lower can Q4′s estimates sink before reporting time circa late January before it erodes confidence in the stock market?

Joshua Brown
04-02-2013,
Here were the most read posts on TRB this week, in case you missed them:

?Why Bother?? Will investors take the wrong lessons from 2013?

US Stocks Cheap on 12 of 15 Historical Valuation Measures

Bullish Sentiment is Now Officially Embarrassing

Twitter?s New Coke Moment

Investment Fads and Themes, 1996-2013

Joshua Brown
04-02-2013,
In a time of plenty it is worth considering the downside of scarcity. Farnam Street looks at Mullainathan and Shafir?s Scarcity: Why Having Too Little Means So Much.

Investing

A dozen things learned from Jason Zweig on investing. (25iq)

Some notes from a Warren Buffett talk with Univ. of Maryland MBA students. (David Kass)

A history of John Burbank?s Passport Capital. (Institutional Investor)

How online investment managers add value. (smithy Salmon)

Dividends as a value-centric approach. (Morningstar)

Personal finance

Five years in for Madoff victims. (WSJ)

Are we overestimating spending in retirement? (Morningstar via Total Return)

Economics

On the economics of selling out. (Priceonomics Blog)

Some favorite charts from 2013. (Quartz)

The best economic stories of 2013, told in graphic form. (The Atlantic)

Startups

The case for Uber to become even bigger than Facebook ($FB). (Kevin Roose)

Fred Wilson talks about the future on LeWeb. (A VC)

Why maps are so important for mobile. (NYTimes)

MOOCs are in need of a pivot. (NYTimes)

Health

Tropical diseases have come to America. (New Scientist)

Do not hit that snooze button! (New Yorker)

Sponges have an image problem. (WSJ)

Society

The value in music education for children. (Harvard Gazette)

Why cul-de-sacs are bad for your health. (Slate)

Food

Diet soda consumption is in decline. (WSJ)

Eat more fat. (The Daily Beast)

The UK is following in the footsteps of the US when it comes to craft brewing. (Telegraph)

Sriracha is not all that. (Pando Daily)

In food cravings sugar trumps fat. (Well)

Sports

Why are ACL tears on the rise? (Grantland)

D-I men?s track and cross country teams are getting whacked: the counterreaction. (Runner?s World)

Books

On the economics of publishing a book from an author?s perspective. (Priceonomics Blog)

Adults are increasingly reading kid?s books. (WSJ)

How to make better decisions. A talk with Noreena Hertz author of Eyes Wide Open: How to Make Smart Decisions in a Confusing World. (Daily Ticker)

Earlier on Abnormal Returns

What you may have missed in our Friday linkfest. (Abnormal Returns)

Productivity

How technology can make business meetings (slightly) more productive. (Farhad Manjoo)

Busy colleagues spread their anxiety to others. (WSJ)

How to stay awake at work without caffeine. (Quartz)

An introvert?s guide to giving better presentations. (Medium)

Thanks for checking in with Abnormal Returns. You can follow us on StockTwits and Twitter.

Joshua Brown
04-02-2013,
Random Thoughts


The Ps continued their slide but with less vigor. They lost just over 1/3 %. The good news is that they stopped promptly at support, circa 1775.

The Quack also ended lower but not by much. Markets sometimes implode on one day like the sky is falling and then the next day have a shoulder shrug. So, is the slide one and done? I dunno. As usual, take things one day at a time. It too also stopped at support, in this case, circa 4,000.

The Rusty actually ended a tad higher.

One thing that does concern me is that in spite of the market being generally soft, Bonds, Silver, and Gold all ended lower. This suggests that there is some liquidation taking place and no flight to safety. See Thursday's baby with the bathwater comments.

The market feels a little sold out in here.

So what do we do? Again and as usual, take things one day at a time. The market had a really ugly day on Wednesday and then was generally soft but did stabilize on Thursday. Continue to be very selective on new trades. I just fielded an email from a client who told me that they liked a certain stock but went on to say that it does have some issues. You should have no "buts" based on current conditions. You need to be in the best of the best setups. As yourself, is the setup really that great? Yes? Then take it. Otherwise, pass and let things shake out. Jeez Dave, where can we learn about how to pick the best setups? Regardless of what you do-warning, sermon ahead-make sure you want for entries and honor your stops once triggered.

Futures are flat to firm pre-market.

Click here to watch today's Market in a Minute.

Best of luck with your trading today!

Dave

P.S. Only a few slots left for Saturday's webinar. I can't wait!

__________

Expert swing trader Dave Landry comments on the charts for the major markets, indexes and sectors for the upcoming trading day in his daily one-minute video.

Make sure your sound is turned up. A new browser window will open and the video will begin playing within a few seconds.

Joshua Brown
04-02-2013,
The Chart of the Day is Arabian American Development (ARSD). I found the stock by sorting the New High List for frequency then used the Flipchart feature to review the charts. Since the Trend Spotter signaled a buy on 11/22 the stock is up 15.92%

Its principal business activities include refining petrochemical products and developing mineral properties in Saudi Arabia and the United States. All of its mineral properties are presently undeveloped and require capital expenditures before beginning any commercial operations. Their undeveloped mineral interests are primarily located in Saudi Arabia.

Joshua Brown
04-02-2013,
The Chart of the day is Gray Television (GTN). I found the stock by sorting 12 Months Leaders List for frequency of new highs in the last month then used the Flipchart feature to review the charts. Since the Trend Spotter signaled a buy on 9/18 the stock gained 80.82%.

NOTE: I try to mix it up a little bit on the method I use to find good charts; not to confuse you but to show you there are multiple ways to find great stocks. You need to use the method that is easiest and most comfortable for you.

It is a communications company headquartered in Atlanta, Georgia, and currently operates 15 CBS-affiliated television stations, seven NBC-affiliated television stations, seven ABC-affiliated television stations and four daily newspapers.

Joshua Brown
04-02-2013,
If you ask most people, they will say there are two types of people that put money in the stock market.

There are "investors" -- those who put money to work in fundamentally sound companies for the long term. Then there are "traders" -- those who buy stocks for a short-term gain, without much concern for the actual business.

The reality isn't as clear cut. You see, if you aren't using the principles of both investing and trading, then I think you're limiting your returns and increasing your losses.

But it's one thing to tell you this. I want to prove it to you with one of the most widely-followed stocks of the past decade -- Apple (Nasdaq: AAPL).

You're no doubt familiar with Apple. You might have even owned some shares at some point. Maybe you still do.

Apple is one of the most fundamentally sound companies on the planet. For years, the popularity of iPods, iPhones and its computers caused earnings and cash flow to soar. Since 2003, the company's annual revenue has risen from $6.2 billion to $170.9 billion.

Meanwhile, until very recently, Apple carried no debt. Instead, it boasts a $145 billion cash pile. That's enough cash to pay every man woman and child in the United States $460.

And if you were an investor focused only on Apple's fundamentals -- a strong company with a pristine balance sheet that saw earnings soar -- you made a fortune. From 2003 until its peak in 2012, Apple's stock returned more than 9,661%.

If you focused just on fundamentals, however, the joy of owning Apple ended in September 2012. Back then, the stock hit an all-time high near $705 per share. Sure, the company was still making money hand over fist and was among the strongest firms on the planet. That didn't matter. Neither did the fact that Apple initiated a dividend to return billions of dollars annually to its investors.

Since its September 2012 peak, the stock has fallen 26%, despite the S&P 500 index rising 23.5% since that time.

But if you used a few simple trading signals, you could have avoided that drop altogether.

To be more specific, I am talking about "relative strength."

If you've never heard of relative strength, don't worry. It's simple to understand.

Relative strength is found by calculating the percentage price change over the past six months for every stock and ETF. You then sort these changes from high to low and assign the highest value a relative strength rank of 100 and the lowest value a rank of 0.

Every stock is assigned a rank based on where it fits into that range. I like to use 70 as the limit for buys and sells. If relative strength is greater than 70 (meaning a stock is rising more than 70% of the market), the stock or ETF is a buy. I sell whenever the rank falls below 70.

You can see Apple's relative strength charted below its price in this graphic:



In this case, Apple's relative strength fell below 70 back in 2012 (when the shares were still above $650), meaning it was time to sell. The result? A crystal clear signal that investors should get out.

That one signal could have saved an investor from losing thousands of dollars. What's more, this signal got them out of an underperforming stock during one of the best market rallies we've ever seen -- allowing them to put money to work elsewhere.

It's proof that if you aren't using trading signals in your investing, then you're missing one of the most important tools to beat the market.
Now, I will be the first to tell you that one example doesn't prove a system works.

That's why I want to tell you about a unique research project I've completed that puts this tool to the test.

The Maximum Profit system uses a few simple trading signals (like relative strength) and applies them to the stocks that are currently held within the various StreetAuthority portfolios. These are the same stocks held by Nathan Slaughter, Amy Calistri, Andy Obermueller and other StreetAuthority experts... and that you may already own.

From there, I rank every single holding, top to bottom, filling a portfolio with up to 10 stocks that rate the highest. The results are very encouraging. During a 10-year backtest from 2003 to 2013, my system

Joshua Brown
04-02-2013,
It may seem like a long time ago, but the epic stock market meltdown of half a decade ago is again worth pondering.

From around 1,300 in August 2008, the S&P 500 Index plummeted to 1,100 by late September and below 900 by the end of November. By the time we hit bottom in March 2009, the index had tumbled below the 700 mark. A nearly 50% plunge in just seven months is virtually unprecedented.

Now, with the S&P back up to around 1,800, we've seen a five-year rebound that should make us all quite thankful. This year has been especially fruitful, as the S&P 500 has tacked on more value this year (on the basis of market cap) than in any year in its history. The market hasn't even needed any breather this year on its path to record heights.

S&P 500 By Quarter

Joshua Brown
04-02-2013,
A number of analysts, and even some of those in the real estate industry, thought that there would never be a recovery in residential real estate. Long time readers of this letter know too well that I went hugely negative on the sector in late 2005, when I unloaded all of my holdings.

However, I believe that ?forever? may be on the extreme side. Personally, I believe there will be great opportunities in real estate starting in 2030.

Let?s back up for a second and review where the great bull market of 1950-2007 came from. That?s when a mere 50 million members of the ?greatest generation?, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962. There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices.

When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because he was an ex-Marine. This is where our suburbs came from.

Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xer?s who earn less than their parents, marking down prices as fast as they can.

As a result, the Federal Reserve thinks that 30% of American homeowners either have negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs. That comes to 42 million homes. Don?t count on selling your house to your kids, especially if they are still living rent-free in the basement.

The good news is that the next bull market in housing starts in 8 years. That?s when 85 million Millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer?s. The next interest rate spike will probably knock another 25% off real estate prices. Think 1982 again.

Fannie Mae and Freddie Mac will be long gone, meaning that the 30-year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world.

With the US budget deficit problems persisting beyond the horizon, the home mortgage interest deduction is an endangered species, and its demise will chop another 10% off home values.

For you Millennials just graduating from college now, this is a best case scenario. It gives you 8 years to save up the substantial down payment banks will require by then. People will, no doubt, tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers. That?s what people told me when I bought my first New York coop in 1982 at one-tenth its current market price.

Just remember to sell by 2060, because that?s when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, yet to be named generation, holding the bag, as your grandparents are now.

Joshua Brown
04-02-2013,
Insiders in the natural resource business often talk about "shopping season" this time of year.

But they're not referring to Christmas presents.

As I've discussed before (see "The Little-Known 'Glitch' That Could Lead To 53% Gains), this is the time of year when many natural resource investments can be had at bargain prices.

This is particularly true for the smaller firms that my premium natural resource newsletter, Junior Resource Advisor, was created to focus on -- the kind of companies that offer potential for double- or even triple-digit gains through the discovery of major mineral or petroleum deposits.

This month's buying opportunity is upon us -- ironically -- because 2013 has been a difficult year for many resource companies.

With commodities prices falling, a large number of firms have seen their share prices decline. Sentiment has in fact turned down to such a degree that many of these firms are selling for cash flow multiples lower than we've seen in decades.

I've been purchasing a number of these companies for my portfolio over the past few months. One such company I recently told my Junior Resource Advisor subscribers about is selling for less than twice its after-tax income.

The thing is, today we're seeing even better prices on these already-cheap companies.

That's because many holders of these stocks are dumping them indiscriminately right now.

Many of the junior resource companies I tend to follow are listed in Canada -- the center of the universe when it comes to raising capital for small mining and oil and gas companies.

And Canadian investors have some unique tax incentives that come into play this time of year, affecting not only Canadian-listed companies but also firms that have cross-listings on U.S. exchanges.

But let me be clear: You don't have to live in Canada to take advantage of the bargains created by this phenomenon.

Here's how it works.

This time of year, Canadian investors sitting on stocks that have seen losses will often sell them for one reason alone -- to book the investment loss and claim it against their taxes. In many cases, the same sellers will buy the exact same stocks after the New Year. They simply need to crystallize their losses during the current tax year.

The Year-End Insider 'Secret' That Could Make You 12.8% -- Or More

This means they can afford to sell at almost any cost. It's a phenomenon that leads to tremendous selling pressure -- temporarily driving stocks to unbelievably low levels without any regard for the business fundamentals or cash flows of these companies.

Buying this disconnect has been a money-making strategy among industry veterans for decades. During the past four years when the resource-heavy TSX Venture exchange finished with a loss, if you'd bought the index during the second week of December, you would have made an average 12.8% return over the next 30 days -- as beaten-down companies rebounded from temporary tax-loss selling pressure.

This year saw similar declines. The index came into 2013 at around 1,200 and today sits around 900 -- a loss of 25%. And many of the index's component companies have seen losses even deeper than that.

When investors are facing these kinds of losses at year-end, tax-loss selling usually sets in hard and fast. And this is creating great bargains for savvy buyers in the process.

This Year's Best Tax-Loss Buys
The biggest bargains for tax-loss season are in the mining sector this year.

This is simply because metals prices are down -- having dragged many of the stocks with them. Oil and gas, by contrast, have been buoyant. You can see from the chart below that the TSX Global Gold Index is down by 50% in 2013.

Joshua Brown
04-02-2013,
Markets were headed slightly higher on Friday morning despite U.S. producer prices dropping for the third straight month. The Labor Department announced that producer prices were down 0.1% for the month of November. This followed a slip of nearly 0.2% in October. Economists had been expecting the index to remain flat. Wholesale prices, when subtracting food and energy, crept up a mere 0.1% in November, following a 0.2% rise in October. In October there was a drop of 0.7% in gasoline prices, which accounted for 75% of of the decline in the energy index. There was a flat line of growth in November in wholesale food prices after a 0.8% gain in October. Jim O?Sullivan, chief U.S. economist at High Frequency Economics Ltd., said, ?Inflation remains quite tame. Over the course of the next year, the core numbers will drift up a little bit as the economy remains healthy and unemployment keeps falling.?

Shares of Boeing (BA) were up slightly after news was released that the Machinist union declined the second offer from the company to produce its new 777X jetliner. The company wants to start production of the jets in Washington state. The initial offer was made to the union in November, which they declined, offered a higher signing bonus, dropped plans to reduce the pace of wage increases for new workers, along with concessions and dental benefits. The Machinists union said they wanted better health care and pension plans. Bryan Corliss, a spokesman for the Association of Machinists District 751, said that Boeing took their offer off the table once the heads of the union declined to recommend it to members. He also said the second revision of the plan had no ?significant improvement? over the contract offer from last month. Boeing said that they currently have 22 states that have written proposals to host the production of their new jets. Boeing spokesman, Doug Alder, said that the new offer ?rests with the union leadership at this point.?

Shares of Amazon (AMZN) were trading higher after the company announced their plans for launching a new service called Amazon Pantry. This new venture will help the company become competitors in the warehouse club stores market with companies like Costco and Sam?s Club. The service will be available to members of the company?s Amazon Prime (AMZN) shipping program. They will start with roughly 2,000 new products per month like cleaning supplies, canned goods and dry grocery items at discounted prices. Then they will allow their Prime shoppers to place as many of these items as they can into a pre-set sized box and as long as it doesn?t go over in weight, they will ship for a small fee. Keith Anderson, who heads up RetailNet, said, ?Amazon has the clubs in their cross hairs. This will be a potential issue for Costco.?

That?s all for the day. Have a great weekend, loyal readers!

All the best,
Jack Aubrey, Oakshire Financial

Joshua Brown
04-02-2013,
On Sept. 24, I invested in one of the world's leading automakers.

I liked that its valuation was cheap, that the stock had been keeping up with the market while offering about 30% less volatility, and that future growth prospects looked well above average. At about 2%, the dividend yield was a nice bonus.

Of course, there are no guarantees with any stock, but I had hoped shares would at least continue pacing the market after I bought them. Well, if you invested when I did, you know that hasn't been the case. Since then, the stock has been disappointing, dropping about 7% versus about a 7% gain for the market.

I'm not worried, though, because the stock's problems are related to an ongoing concern management is perfectly capable of resolving. Once it does, I expect the stock's bullish run -- shares are up 31% this year and more than 17% a year for the past three years -- to resume.

I'm talking about Toyota (NYSE: TM), and the company's main issue now is recalls.

You probably know recalls have plagued Toyota for some time now. One of the most publicized episodes occurred between 2009 and 2010, when more than 14 million vehicles were recalled after reports of sudden, unexplained acceleration in several Toyota models. Toyota agreed in December 2012 to settle the suit for $1.1 billion.

Joshua Brown
04-02-2013,
Last night, for no discernible reason that even the savviest tech watchers can think of (okay fine, an illogical reason involving block retaliations), Twitter announced a change to their blocking policy that would allow blocked users to view and even interact with the tweets of those who had previously frozen them out.

While the blocker would not be able to see the tweets of the blockee, the change was essentially turning the block feature into more of a mute button rather than a tinted window. One user compared the change to a home security system that allowed intruders into your house, but put a blindfold over your eyes so you wouldn?t know they were there. Once the word spread, petitions went around immediately and the Twitterati could be seen flipping out all over the stream and around the blogosphere.

Upon learning of the new blocking functionality and witnessing the outrage, I had a hunch that this change in policy wouldn?t last long.

I predict Twitter reverses this Block Amnesty thing within 90 days.
? Downtown Josh Brown (@ReformedBroker) December 13, 2013

Turns out 90 days would be more like 90 minutes.

Within a couple of hours of the original announcement, Twitter said ?forget it? and changed the policy back to how it was.

This about-face was in direct response to the uproar amongst their users. As both a shareholder and a user of the service, I believe they did the right thing. The other alternative ? to dig in their heels defensively or to stall for time and measure what effect, if any, this would have on engagement, would have probably been a disaster. I?m glad that management was quick to respond to what their customers wanted; social media firms need to be social entities first and foremost, and that means empathy with the consumer of the service.

Joshua Brown
04-02-2013,
In any given year, you'll come across "no-brainer" investments that are universally loved by the crowd. Trouble is, these stocks can be loved too much, and no matter how sales trends develop, some disappointment will be inevitable.

Indeed, one of the most popular stocks of the past few years has lost its way, buried under a set of unrealistic growth expectations. Yet, as shares bounce just above multi-year lows, contrarian investors finally see an opening.

This "can't miss" stock is Westport Innovations (Nasdaq: WPRT), which appeared set to dominate the burgeoning market for truck engines that can run on natural gas.

The appeal is evident. Natural gas is far cheaper than crude oil, and truckers could save thousands of dollars a year by moving away from pricey diesel fuel.

Westport was also expected to benefit from legislation that provided huge subsidies for truckers to switch to natural gas. That legislation never arrived, and the company's most bullish supporters had to concede that the loftiest sales forecasts simply couldn't be met. As you can see in this chart, shares responded as you might expect.

Joshua Brown
04-02-2013,
Legendary investor Carl Icahn recently added a "sizable position" of Apple to his $16 billion holding company -- Icahn Enterprises.

Since he announced his purchase Sept. 11, Apple is up about 20%.

After making the purchase, Icahn was quoted saying it was a "no-brainer" investment, citing that the company's valuation was "extremely cheap" by the numbers.

Icahn should know, too. Unlike most of today's billionaires, he made his fortune entirely by investing in the stock market. Since he founded Icahn Enterprises less than 30 years ago, his company has enjoyed total returns in excess of 288,000%.

To put that in perspective, if you had invested $1,500 with him back in 1987, the size of your position would be worth over $4.3 million today
That kind of performance is one reason Chartered Market Technician Michael J. Carr recently designed a trading system to leverage the financial genius of investing gurus, like Icahn.

By applying his proprietary trading system to stocks that are held by the market's 20 most successful gurus -- including Warren Buffett, George Soros and David Einhorn -- Michael has earned big gains betting alongside the world's most renowned investors.

For example, on Sept. 12, Michael's system identified a buy on Netflix (NASDAQ: NFLX), one of Carl Icahn's top portfolio holdings. Just three months after his system gave the signal, Netflix is up over 20%.

Joshua Brown
04-02-2013,
As we close the books on 2013, one clear theme has emerged. Investors have flocked to developed economies and shunned emerging markets. The S&P 500 Index is on track for a nearly 30% gain this year, but many emerging markets have tumbled by double digits.

That kind of massive performance gap only emerges every decade or so, and for farsighted investors willing to look past near-term headwinds, emerging markets now represent tremendous relative value.

You don't need to tell that to the executives at major U.S. companies. They already know that emerging markets have generated -- and will continue to generate -- robust growth rates, thanks in large part to ever-rising middle classes. While developed economies are growing at a 2% pace, emerging-market economies are growing at a 4% to 5% pace. Asian emerging markets are rising an even more impressive 6%, according the International Monetary Fund (IMF).

The key takeaway: Even if you're wary of investing in volatile emerging markets directly, you can focus on the U.S. companies that are positioned to derive a rising level of sales and profits in these countries.

Thankfully, the strategists at Citigroup have already done the heavy lifting. In a recent report, Citi's Tobias Levkovich took a look at companies that already derive more than 20% of their revenue from emerging markets. These companies have invested millions of dollars to establish market dominance in these economies, and their first-mover advantage will reap rewards well into the future.

Which Industries Aren't Keeping Pace?
Levkovich has grouped these companies together in a portfolio he calls EMX, and not surprisingly, emerging-market exposure hasn't helped these stocks in 2013. The EMX basket has underperformed the S&P 500 by roughly 5 percentage points. Investors may be focusing on the fact that economic headwinds in 2013 are dampening the near-term financial performance for these companies.

The EMX portfolio holds a basket of 51 stocks, though I am most interested in the stocks that have notably underperformed the S&P 500 this year. Here are the EMX stocks that are up less than 10% in 2013.

Joshua Brown
04-02-2013,
Sometimes you need to take an idea to its illogical end to show you the absurdity of it. For quite some time now I have been writing about the proliferation of ETFs, or the ?ETFization of everything.? Which on the whole has been a boon for investors. However the ETF is still happy to create products based on hot trends or a favorable backtest.

Joel Dickson at Vanguard Advisor did a little data exercise creating ?AlphaBet portfolios? that in a backtest showed uniform outperformance relative to the S&P 500 over a ten year period. The only hitch is that the strategy being used, an alphabetical one by ticker symbol, should have no bearing on price performance.

Joshua Brown
04-02-2013,
It may seem like a long time ago, but the epic stock market meltdown of half a decade ago is again worth pondering.

From around 1,300 in August 2008, the S&P 500 Index plummeted to 1,100 by late September and below 900 by the end of November. By the time we hit bottom in March 2009, the index had tumbled below the 700 mark. A nearly 50% plunge in just seven months is virtually unprecedented.

Now, with the S&P back up to around 1,800, we've seen a five-year rebound that should make us all quite thankful. This year has been especially fruitful, as the S&P 500 has tacked on more value this year (on the basis of market cap) than in any year in its history. The market hasn't even needed any breather this year on its path to record heights.

Joshua Brown
04-02-2013,
There have been some interesting movements in a range of investment spheres over the last several weeks, and we believe it?s worth taking a closer look at each of them.

We?ll start with crude oil, an item that turned on the jets two weeks ago and rocketed higher by almost seven percent in a three day period, overtaking the widely watched 50 day moving average before consolidating.

Here?s the chart ?