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John Thomas
05-08-2013,
Legendary investor Carl Icahn recently added a "sizable position" of Apple to his $16 billion holding company -- Icahn Enterprises.

Since he announced his purchase on Sept. 11, 2013, 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%.

John Thomas
05-08-2013,
2013 saw equity market volatility ebb. (Bespoke)

Markets

The case for reflationary assets. (Market Anthropology)

Wall Street?s best trades of 2013. (Quartz)

We are now in the historically best time of the year for the stock market. (Crossing Wall Street, Ryan Detrick)

There?s more to valuation than the Shiller CAPE ratio. (The Reformed Broker)

There is still plenty of room for global payout ratios to rise. (FT Alphaville)

Hedge funds are warming to the opportunity in CMBS. (NetNet)

John Thomas
05-08-2013,
The most successful investors on Earth all share a common trait: the ability to see and act on long-term trends.

While the majority of investors are focused on short-term results, the top investors are primarily concerned with being on the correct side of global economic growth patterns. Finding and investing in companies that are riding these global growth trends is a recipe for long-term investing success.

Right now, China is attracting substantial investor interest due to its demographic shift toward a consumer-driven economy. Following the emerging Chinese bull hasn't always been easy, thanks to the government's tight control over the economy. However, this situation is well on its way to changing as China's leaders are turning their formidable powers toward spurring the economy rather than being strictly focused on rigid controls.

Most importantly for investors, the government's focus on economic growth is combining with the power of the Internet to create one of the most exciting investment opportunities I've ever seen.

The goal of China's current five-year economic plan is to increase domestic demand and reduce the population's high rate of savings. They are accomplishing these goals by increasing incomes, improving social safety nets, altering the tax structure, and actively promoting a demographic shift from rural areas to cities. To support the creation of 45 million new urban jobs, the government is building 36 million low-cost housing units to help with moving workers into the cities and increasing the minimum wage.

Consulting firm McKinsey & Co. estimates that consumption will account for 43% of total Chinese GDP growth by 2020. In addition, household income is forecast to increase to just under RMB 56 trillion (more than $9 trillion) in 2015, an increase of more than 130% from 2010. The increase in disposable income means that more and more consumers will be turning to the Internet for commerce, socializing and other everyday activities. Add in the fact that over the past 10 years, the average yearly income of China's poor has grown from $1,430 to $6,100, and you can see the massive growth on the horizon.

As of June, 44% of China's 1.3 billion people had used the Internet. As you can see from this chart, Internet use in China is in a clear uptrend.

John Thomas
05-08-2013,
Random Thoughts


You can only predict the short-term when it comes to markets. As I preach, if someone is convinced that the market will be higher next year then they should sell all of their possessions and put that cash into the market. Obviously, that's a bad idea because all predictions are about the future and a lot of $#*! can happen between now and then. Again, only the short-term can be predicted.

My short-term time frame is the daily chart. My job is to figure out where the market(s) are likely headed near term and look to get aboard for a swing type trade-if and only if the opportunity presents itself. Then, if things work out, I'll stick around for a longer-term move. Although the money & position management often takes me out much sooner, sometimes positions will go weeks, months, and yes, occasionally years.

So, am I a shorter-term or longer-term trader? Yes!

With markets it is important not to be too close to them. Watching every tick can turn into an exercise in futility. Each tick seems to be much larger than it really is. You end up chasing your own tail.

Now, admittedly, when a market makes a large move like it did on Wednesday, I'll have a little peek intra-day. Remember, patterns are fractal. What works in one time frame, works in others. With that said, the Ps have formed an hourly Bowtie down (email me if you need the pattern and see my website for the chart). What's concerning is that this is the second signal coming off a double top. Further, the prior peak is at all-time highs. The "second mouse gets the cheese" often applies with transitional patterns-especially when the prior pattern came off of all-time highs.

It's not the end of the world. It's an hourly signal. It has to start somewhere though. Hopefully, (and I know hope in one hand and, well, you know) it doesn't work. Or, at the least, it doesn't work big.

Now, let's get back to the forest. The Ps got whacked on Wednesday, losing over 1%. This action puts them back to the top of their recent base, aka support-circa 1775. It is important for this level to hold.

When analyzing markets, it is vitally important not to forget to study things on a net net basis. Where is the market now? Where was it one week ago? Two weeks? and so forth. With that said, the Ps haven't made any forward progress in nearly a month. Draw your horizontal line at 1775.

I don't want to digress too far, but I'd venture to say that if all you did was study markets on a net net basis over a variety of periods and draw your arrows, you'd do much better than those who count bars/waves, trade the Baby With The Poopy Diaper Pattern, and/or use 15 oscillators.

Getting back to the markets, the Quack got whacked too. It lost nearly 1 ?%. This action also has it back to prior support, circa 4,000. It's important for this area of its prior breakout, 3,965 to 4,000 to hold.

I don't even want to talk about the Rusty. It got wacked for over 1 ?%. This action puts it well into its prior trading range. The net net thing here is nearly 2 months without forward progress.

As one would expect with the broad based Rusty ($IWM) down so much, the sector action was abysmal.

The baby pretty much got thrown out with the bathwater. I hate to see such liquidation markets where even bonds and precious metals sell off. No flight to safety. No place to run. No place to hide.

John Thomas
05-08-2013,
Another year in the books and I?ve updated my Investing Fads and Themes by Year guide accordingly.

It begins with 1996 because that was my first summer working on The Street and my earliest exposure to the market. I do this every December because I agree with the eminent philosopher Bob Marley when he reminds us ?If you know your history, then you would know where you?re coming from.? If we don?t keep tabs and learn from the lunacy that grips us from year to year, then how can we truly say that we?ve grown as investors?

By documenting this stuff, it becomes a permanent part of my knowledge base, a reference to draw from in times to come as we see similar trends play themselves out and the great wheel spins past an endless parade of fear and greed.
So what was 2013 about?

I would point to five different fads and themes that were very diverse but equally captivating for the investment community.

Elon Musk Stocks
First, let?s talk about Elon Musk, the man with not one publicly-traded rocket ship but two ? both Tesla Motors and Solar City were among the hottest stocks in the market in a year of very hot stocks overall. The trading action in Musk-related companies was more exciting than the Facebook rebirth, the Twitter IPO or the 3D Printing explosion.

TSLA began the year as a ?concept? stock with a handful of cars on the road and all kinds of doubt about its balance sheet, manufacturing capabilities, sales strategy and whether or not anyone would actually want a Model S to begin with. But boy did they ever. Other than a negative review in the New York Times, the news was pretty much all good and investors were quick to react. Tesla traded from $35 at the beginning of the year to as high as $180 a share, mostly in a straight line, and the chattering classes on The Street simply could not stop talking about. It?s gain year-to-date is a scorching 312% and it currently sports a market cap of $17 billion ? to put that into perspective, that?s 30% of GM?s market cap ($55 billion) and Tesla has sold less than 20,000 cars cumulatively since its incorporation!

Elon Musk?s other public company, Solar City, was also no slouch thanks to a new business model (solar panel leasing) and a resurgence in the solar sector in general. SCTY came public one year ago in the dead of December 2012. It is up 328% thus far this year, more than double the global solar stocks? index return of 142% over the same time frame.

To call Elon Musk-related stocks a major fad this year would be an understatement, the man literally became a real-life Tony Stark right before our eyes and everyone wanted in.

Smart Beta
Last year investors rediscovered index funds and passively managed investments ? but the problem with that is there?s no way for fund companies to really make money from it unless they?re part of the big three (iShares, State Street or Vanguard) and have massive scale. Enter the concept of Smart Beta. This is the idea that fundamentally-weighted indexes could be created and then ETF?d, the products themselves garnering a higher internal fee justified by historical outperformance vs plain-vanilla cap-weighted products like SPY or QQQ.

And so we saw dividend funds proliferate along with earnings-driven indexes and shareholder yield products (dividends plus buybacks) and ?AlphaDex? products and dividend growth indexes and quality screen indexes and equal-weight indexes and dozens of offerings based on just about any way you could slice or dice a passive basket of stocks. BlackRock?s suite of minimum-volatility index ETFs took in an astonishing $2.6 billion of new assets in the first half of 2013 versus just $745 million through all of 2012. According to Cogent Research, smart beta or non-market cap weighted ETFs have captured 25% of the equity ETF inflows year to date, despite representing only 12% of the industry?s assets.

The idea of fundamentally-weighted indexes is not new ? Rob Arnott?s Research Affiliates invented it years ago (whenever you see the term RAFI in the fund product, that?s them) and WisdomTree has essentially built its ETF empire based on the concept. But this year, thousands of professional portfolio managers became self-styled ?beta managers?. Rich Bernstein, a high visibility strategist and money manager who was in the vanguard of this trend, blew through the $1 billion AUM mark this past spring managing nothing but portfolios of smart beta allocations.

John Thomas
05-08-2013,
Is the S&P 500 cheap or expensive relative to historical valuation metrics? The bubble talk seems to be mostly subjective and depends mostly on who is doing the talking. Someone?s who?s missed the run-up is more likely to call it a bubble and someone who is first chasing and buying in now is more apt to dismiss the bubble talk out of hand. It?s funny how our opinions depend so much upon what suits our lives and careers best.

The bubble talk is also subjective according to what sector or corner of the market one might be looking at specifically. Pointing to Netflix and Tesla and all the IPOs and screaming ?STOCK MARKET BUBBLE? isn?t exactly rigorous. But ignoring the over-the-top sentiment bullish surrounding US stocks these days probably isn?t healthy either. I?m certainly not.

But let?s get back to concrete measures of valuation for a moment?

Savita Subramanian put out a Valuation Cheat Sheet yesterday looking at the sectors and industries individually and the overall market.

The best chart from the research piece looked at the S&P?s current valuation based on 15 popular measures. It found that on most of these, stocks are still cheaper than they?ve been historically?

S&P 500: cheap or expensive?
In addition to the metrics contained in this report, in August we examined the S&P
500 across every valuation metric we could think of?we found 15?to gauge
whether US stocks still looked cheap vs. history. Here we provide an update of this
analysis. Today, 12 of the 15 metrics suggest the S&P 500 is trading below
historical average levels, while the trailing P/E and P/OCF suggest the S&P 500 is
trading slightly above average levels. Only the Shiller P/E?which bases normalized
earnings on the last ten years, when we underwent the biggest profits recession in
history driven by excessive leverage?suggests the market looks very stretched.

John Thomas
05-08-2013,
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

Current Positions

*** * * * * * * * * * * * * * ******* Open******* Stop*********** * TGT
APPL*** Long** * * * * * * *** 520.70****** 518************** 600

???????????????????????????????????????.

Today?s Working Orders

Sell AAPL @ ?559 stop OCO 581 GTC 1/2 remaining position

Sell AAPL @ 518 stop GTC 1/2 remaining position

OCO = One Cancels the Other

???????????????????..???????????????????.

Looks like it will be a couple of more days before I can spend any serious amount of time at the screen.

This is the last piece until next week.

Stocks...

Spu?s?I have an interest @ buying 1726-30′s.

The big game is next week as 2014 will begin to set up.

1777.75 was last weeks low and this weeks ORL#. There will be stops below and this is a level the Spu?s need to close over Friday to avoid lower into the Fed meeting Wed.

NASD 100?3453.25 is the weekly ORL#

SSO?94.84 is the weekly ORL#

VIX?15.71 is the weekly ORH#

SPU/BONDS?are trading under the 18 day mvg avg, a level we?ve been above since Oct 10.

Bonds?

FX?

EUR/AUD & EUR/JPY?have been the features in the currency trade.

EUR/AUD?looks like it wants to test 153.70 next.

Both of these crosses will be pushed higher into year end.

AUD/USD?caution selling into 90.00 as it?s a natural #. The macro sell stops are @ 88.48. If elected this would tgt another 2 cents lower.

Commodities?

Gold?needs above 1270 to rally. Small qtrly sell stops are @1206.90.

General Comments orValuable Insight

We were stopped out of the TBT on the low.

AAPL is the only position we have on. We?ll leave the orders as is.

John Thomas
05-08-2013,
Fidelity, fresh from the embarrassment of having missed the entirety of the ETF movement?s formative years, is determined not to allow that to happen again.

And so they?re going to be very innovative going forward, no matter what kind of idiotic risks for their customers it engenders.

Here?s how they?re ?innovating? in the retirement investing arena (via MarketWatch):

Fidelity has partnered with SecondMarket?s Bitcoin Investment Trust to allow its clients to save for their retirement by putting the virtual currency in self-directed IRAs.

?If you are a Fidelity client, you can now invest in the Bitcoin Investment Trust through an IRA.?

Allow me to repeat that phrase because I think it?s important:

?to allow its clients to save for their retirement by putting the virtual currency in self-directed IRAs?

Are you out of your mind?

To be clear, I have nothing against Bitcoin and it may well become a widespread medium of exchange in the coming years. But what that has to do with speculating on its ?price? in dollars in the context of an IRA account, I have no fucking idea.

Edward Johnson II built Fidelity into a powerhouse financial institution in the 1940′s by instilling the principles of common sense and hard work. This stood out at the time; the culture of investing in those days, from Boston to Chicago to New York City, was essentially an amalgam of insider tipster-ism, naked speculation and outright theft. The success of Fidelity was due to Johnson?s overarching twin principles of deep-rooted respect for the customer and a first-class research process that became a model for the industry by the time Edward?s son Ned was given the reins in the 1950′s.

I don?t think the elder or younger Johnson would be particularly impressed with whatever this Bitcoin gimmick is meant to accomplish. It smacks of attention-seeking and is probably dangerous for even the ?accredited? Fidelity account holders who are dumb enough to bite at this trinket being dangled in front of them.

I?m embarrassed for this once-great investment firm. They may as well launch an online roulette wheel.


The Reformed Broker

John Thomas
05-08-2013,
I follow a broad range of unconventional, but highly useful leading economic indicators that gives me a decisive edge when predicting the future direction of global financial markets. One of them has started flashing a warning sign.

I fund an orphanage in remote Zhanjiang, in China?s southern Guangdong province, near Hainan Island called The Zhanjiang Kids Organization that catches the kids who missed out on China?s economic miracle.

Lacking America?s social safety net, child abandonment in the Middle Kingdom usually leads to a cruel death through malnutrition or disease at the few primitive public institutions that exist. With China?s one child policy now 30 years old, most families prefer their sole heir to be a boy, which means that girls account for the vast majority of orphan children.

Recently, there has been an upsurge of children dropped off at the orphanage and a sudden increase in the age of the kids. Twelve-year-old boys are being dumped because they cannot be fed.

For a Chinese family to give up a boy this close to working age is truly an act of desperation. As a trader, this is all proof to me that the Chinese economy is slowing faster than people realize, and that the global economy will take a deeper dip this summer.

I usually avoid organized charities like the plague. The great majority are scams where 95% of the funds raised go to ?administrative costs? that usually end up in someone?s personal bank account. As we all know, the corruption in China is rampant.

The Zhanjiang Kids Organization is a rare exception. I know the organizers personally, who originally got involved by adopting a couple of girls there, and they are saints. They carefully oversee the spending of every single dollar, assuring that it gets spent for its intended purposes.

Instead of doling out cash to local organizations, which often gets lost, as other organizations do, they undertake physical delivery of desperately needed food, books, and medical supplies. They also organize trips for volunteer pediatricians, educators, and administrators from the US.

As a result of my spring fund raising effort, I am told that the administrators were able to pay for a pediatrician and a dentist to fly in from the US. Kids were also given new toys. Initially, some didn?t know what to do with these, as they had never seen toys before. We take things like blocks, puzzles, and picture books for granted. Imagine what goes through a five year olds mind when he or she sees one for the first time.

Yes, I know that I am a hardened old ex-Marine combat veteran and am driven by the harsh reality of numbers, and not emotion. But when I hear stories like these, I melt. I know a lot of you have made a bundle following my advice this year, with some up as much as 500%.

If you made $1 million, please donate $1,000. If you clocked $100,000, that should be worth a $100 gift. This is a rare example where $1 worth of generosity creates $1,000 worth of good. Talk about bang per buck!

To learn more about The Zhanjiang Kids Organization, please visit their website http://www.zhanjiangkids.org/. There, you can contribute directly through your PayPal account or credit card. If you have any further questions about this fine organization, please contact director Susan Doshier directly at susandoshier@gmail.com.

Checks should be made payable to the ?Zhanjiang Kids Organization? and sent to Zhanjiang Kids Organization, c/o Susan Doshier, 2 Abbey Woods Lane, Dallas TX 75248, USA. Print out a hard copy of your receipt. This organization is set up as a US 501 (3) (c), so all contributions are fully deductible on the 2012 Form 1040, schedule ?A?. There is no reason why Uncle Sam shouldn?t pick up one third of the tab.

Act in your own self-interest. You may be working for one of these orphans someday. If you don?t, your kids will.

John Thomas
05-08-2013,
One thing about the stock market is that it is never boring.

Just last month, casino operator Wynn Resorts (Nasdaq: WYNN) broke down below a rising trendline, and within days it changed its mind. This week, the stock not only moved higher to break out from a bullish flag pattern, but it is once again challenging all-time highs.

With Lady Luck smiling on Wynn once again, it is time to buy this recovered sector and WYNN in particular.

Last month's false breakdown below both the rising July trendline and the 50-day moving average did indeed look bearish. After all, the stock already failed at resistance supplied by its all-time highs set by the 2007 and 2011 peaks. And with momentum indicators also heading south, things did not look so good.

John Thomas
05-08-2013,
?We are one budget deal away from being the hot spot of the world. Europe is in the toilet, China?s growth has fallen down, and the Middle East is going backwards. We have a lot of potential for fracking and innovation. If we can prove our nation is governable, we will be the golden spot in the world,? said David Brooks, a conservative columnist for the New York Times.

John Thomas
05-08-2013,
The Chart of the Day is Altisource Asset Management (AAMC). I found the stock by sorting the All Time High List for the frequency of new highs in the last month and it was right near the top of the list. The stock is off the charts and in the last year went from 15.00 to 1005.00!

The company provides portfolio management and corporate governance services to Real-Estate Investment Trusts and other real-estate portfolio-driven entities. Altisource Asset Management Corp is based in the U.S. Virgin Islands.

This is a 1 year chart:

John Thomas
05-08-2013,
When the Dow Jones Industrial Average was reformulated in September, former technology leader Hewlett-Packard (NYSE: HPQ) was quietly replaced. It was yet another tough blow for a firm that is on track for its third straight year of sales declines. CEO Meg Whitman, who was just celebrating her second full year at the company's helm, could not have been pleased.

But Whitman is surely getting the last laugh. Because against the odds, Hewlett-Packard has turned out to be one of the top-performing tech stocks of 2013. Shares have doubled in value, putting the S&P 500 Index's 25% gain to shame. More than $25 billion in market value has been added, and Whitman has less need to worry about job security.

John Thomas
05-08-2013,
Data sets are getting larger and larger, and there's a lot of useful information just waiting to be made sense of. Nowhere is this truer than in the health care industry.

Different hospitals have different platforms for managing data, which makes it exceedingly difficult to exchange information. Although it has been a slow process, the U.S. is moving toward a health care market that provides care more efficiently. Part of this includes implementing electronic health records and managing hospital costs.

The American Recovery and Reinvestment Act allocated about $20 billion for electronic health records. This portion of the act offers financial incentives to hospitals and physicians to adopt and use health care information technology. The other positive is that many organizations face penalties for non-compliance, starting in 2015.

With all this "reform" coming to the health care industry, one of the best ways to invest in the coming health care data boom is Allscripts Healthcare Solutions (Nasdaq: MDRX).

Yet the stock hasn't been all that great to investors over the past couple of years. Thanks to a botched acquisition, MDRX is still down nearly 50% from its 2007 highs. The multi-year pressure was a result of the 2010 acquisition of Eclipsys that proved to be more trouble than it was worth.

John Thomas
05-08-2013,
Stocks were headed slightly lower on Wednesday after the Federal Reserve announced they have reached a provisional budget deal on Tuesday evening. The deal will end the back and forth deadlock between the two sides by setting new spending levels, plans for reducing the deficit and relief from the spending cuts. The deadline for reaching an agreement was this coming Friday. House Budget Committee Chairman, Paul Ryan, said, ?This agreement makes sure that we don?t have a government shutdown scenario in January. It makes sure we don?t have another government shutdown scenario in October. It makes sure that we don?t lurch from crisis to crisis.? President Barack Obama had this to say of the progress, ?This agreement doesn?t include everything I?d like ? and I know many Republicans feel the same way. That?s the nature of compromise. But it?s a good sign that Democrats and Republicans in Congress were able to come together and break the cycle of short-sighted, crisis-driven decision-making to get this done.?

Shares of Costco Wholesale Corp were trading lower after the company announced higher-than-expected operating expenses took a toll on their sales. The company said their operating expenses were up 5.5% to a grand total of $24.3 million, while general and administrative expenses were up 7.2%. Profits rang in at $425 million, or 96 cents per share. This was up from $416 million, or 95 cents per share last year at this time. Analysts were expecting the company to come in with earnings around $1.02 per share. Sales were up 5% to $24.47 billion, also below analysts expectations of $25.25 billion. Sales were up 3% at stores open at least a year. Analysts had been expecting this data to come in around 3.54%. Ken Perkins, president of Retail Metrics, said, ?Costco sales have been up and down this year and were hurting by falling gas prices.? He continued to say that the company has missed same-store sales expectations for six of the last 11 months. ?They?ve had real strong sales over the last five years so their comparisons are more difficult,? Perkins said.

Shares of General Motors (GM) were trading higher after the company announced they would be putting a halt on manufacturing cars in Australia due to high cost by 2017. The company said that an incredibly strong currency is a key factor in the decision. The company will be closing their Holden plants in South Australia and Victoria states. Mike Devereux, General Manager at GM, said, ?No matter which way we apply the numbers, our long term business case to make and assemble cars in this country is not viable.? The manufacturing sector in Australia currently employs about 921,000 people. This has shrank nearly 10% over the last decade. Imports are becoming more competitive in the country as the Australian dollar rises. Stephen Clibborn, a lecturer in work and organizational studies at the University of Sydney Business School, said, ?If the automotive sector leaves then that?s a sector of manufacturing in Australia that has been a source of innovation and skills that has spilled over to other forms of manufacturing in Australia.?

That?s all for the day.
All the best,
Jack Aubrey, Oakshire Financial

John Thomas
05-08-2013,
Not a hater, just putting it out there.

The Atlantic?s Matt O?Brien canvassed some of the top financial writers out there for their favorite charts of 2013 or the ones that tell the story of this year best. By my count, nearly a third of these charts dealt with economic unfairness in some way, shape or form.

My favorite of the bunch ? for it?s absolute lunacy ? was from Bloomberg?s Mina Kimes, CEO Pay vs Real Minimum Wage in the restaurant industry ? just in case you thought Pat Bagley?s cartoon above was an exaggeration?

John Thomas
05-08-2013,
You can keep up with all of our posts by signing up for our daily e-mail. Thousands of other readers already have. Don?t miss out!

Quote of the day

Eric D. Nelson, ?Enlightened investors know that not all investment risks are worth taking.? (Servo Wealth)

Chart of the day

John Thomas
05-08-2013,
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:

John Thomas
05-08-2013,
It was much easier being an optimist before everyone else came around. As I said the other day, I no longer no what to think at this point (see: Now What?).

The data is all more constructive ? Bill McBride (Calculated Risk) thinks we?re on the cusp of a major lift this coming year. But the expectations have already run off to the races at this point. Even the black swan fetishists have dropped the black nail polish routine and crawled out of their Recency Effect caverns and spider-holes.

And so we?re left with a sentiment bubble ? if not fully formed then certainly one in the making. It?s like a the adrenaline surge people get from near-death experiences, a mass realization that things are turning out okay despite half a decade of misery and trauma. It?s almost sexual in its urgency, its intensity.

Here?s Peter Boockvar of the Lindsey Group on this morning?s spike in bullishness, which is now totally embarrassing and berserk:

Investors Intelligence said Bulls rose again to 58.2 from 57.1 and is just shy of the highest level since October 2007. Bears remained unchanged at 14.3, the lowest since 1987. II said the 4 week average of bulls divided bulls+bears is the highest since at least 2004 and said ?out of the previous twelve instances over the past ten years when this indicator formed a peak in overbought territory there has been just one weak signal and even then a correction came, just several weeks later. Each correction was of the magnitude of at least 5%.? For another comparison, at the current 4 week average read of 79.5%, it compares with about 73% in October 2007.

?and the chart, via Greedometer, who is unapologetically calling this a bubble:




quoth the blogger:

If you don?t see this bubble, you?re probably one of the following:

- a long-only equity fund manager
- someone that sells to long-only fund managers (or needs them on your show)
- you work in a senior position at the Fed
- you are visually impaired
- some combination of the above.

Josh here ? I gotta tell you, a 10% whoosh down sometime soon would be as welcome as rain in the desert. We?re out of the only petrol that makes the market?s motor hum constructively ? Fear.

Read Also:
Now What? (TRB)
Advisors hit new all time record for bullishness. Beware? (Greedometer)
Update: Looking for Stronger Economic Growth in 2014 (Calculated Risk)


The Reformed Broker

John Thomas
05-08-2013,
I'm often asked how I come up with a consistent stream of investment ideas. There is really no single answer to this question.

I have been immersed in the financial markets since my first trade back in 1990. Since that time, my investing library has grown so large that it has overwhelmed my bookshelves and spread into attic storage boxes. I am also a voracious reader of the financial media, reading several magazines and newspapers on a near-daily basis -- not to mention subscribing to real-time news services to stay up on what's happening.

While my investing library has provided the foundation, and the daily financial media torrent turns the knowledge actionable, my favorite fresh idea source is other investors. New ideas can come from anyone, from the most naive beginner to the most sophisticated hedge fund manager and everyone in between. This is the reason I make it a point to talk to every trader and investor I meet about what's working and what's not working in their investing.

Another way to learn from others is by following the big-money players.

There are several large hedge fund managers who have earned my respect, and I watch their every publicly known investment. Fortunately, large money managers are required to file a Form 13F with the Securities and Exchange Commission on a quarterly basis disclosing their equity holdings. By keeping track of these filings, investors can glean profitable ideas as to what stocks these players are buying or selling.

One of the most respected hedge fund managers in the world is Israel Englander, who operates Millennium Management. Millennium has more than $198 billion of gross assets; gross asset value refers to the total value of all assets under management, including leverage. Using this measure, Millennium is by far the largest hedge fund on earth. As a comparison, the next largest funds by gross assets are Bridgewater, with just under $140 billion, and Citadel, with $107 billion as of April.

To put these numbers into perspective, they are larger than the annual GDPs of many countries. It's important to keep in mind, however, that when leverage is not included, Millennium has just under $20 billion in assets.

Calling itself a global multi-strategy opportunistic fund, Millennium was launched in 1989 with just $35 million. The fund has a relatively unusual business model: Englander allocates capital to teams of traders who invest it to the best of their abilities. Traders can remain on the team as long as they're profitable. But as soon as a certain amount is lost, the trader is fired. In this regard, Millennium is often thought of as a trader of traders.

Most interestingly, Englander and his head managers rarely discuss investment themes or strategies with the actual trading teams. He prefers to give them autonomy to follow their own ideas. This team approach guarantees diversification and uncorrelated returns, as each team uses its best ability to outperform. In addition, Millennium does not charge the traditional fixed management fee; rather, it simply passes the actual costs along to the investors. Englander believes that having investors directly involved with the true costs of running the business, rather than paying an arbitrary fixed percentage, is truer to the original entrepreneurial spirit of hedge funds.

Here's what I found when I drilled into Millennium's holdings:

The firm increased its short position in the SPDR S&P 500 ETF (NYSE: SPY) by 576% last quarter. This position now takes up 1.88% of the fund's portfolio. I am not overly alarmed by this move, since more than 15% of the holdings remain long on SPY. However, it is important to note that Millennium decreased its long position in this exchange-traded fund by 52% during the quarter. While I don't think this is signaling a basic macro shift from bullish to bearish just yet, I will be observing the next filing carefully.

Millennium's No. 1 single stock holding is PPL Corp. (NYSE: PPL). The fund owns more than 8 million shares and increased its ownership by 73% last quarter.

PPL is an energy and utility holding company in the U.S. and U.K. The company boasts a market cap of nearly $19 billion and trailing 12-month revenue of just more than $12 billion. The quarterly gross profit margin is more than 61%, and the company currently offers a 4.9% dividend yield.

Clearly, the traditional steady dividend payouts of utility companies are an attraction to Millennium. (Remember, the dividend strategies Amy Calistri shares in her Daily Paycheck advisory are effective no matter the size your portfolio.)

The technical picture shows the company has set up in a clear trading channel. The price has consolidated between $29.50 and $31 on the weekly chart.

John Thomas
05-08-2013,
The Bank of America Merrill Lynch RIC Report is out and they?ve got ten themes for 2014. As one of these ten ideas, the Research Investment Committee picks up on something that I think is long overdue ? the possibility of a shift away from consumer-driven recovery stocks into something more industrial or commercial.

If they?re right, there?s a huge swathe of the market that has been left in the dust by all the consumer spending plays this year?

6. Warehouses over townhouses
The stock market is in the early stages of a change in leadership from
domestic/consumer-oriented sectors to more global and cyclical/industrial ones,
in our opinion. And, relative performance is shifting away from sectors such as
Consumer Discretionary, Health Care, and Financials that have been significant forces
behind market gains for much of the last two years.

Instead, we expect performance to be driven by areas like Technology, Energy, Industrials, and Materials.
If revenue growth continues to accelerate as we expect, corporations are likely to
invest in their businesses by spending some of the cash accumulated on their
balance sheets. This capex cycle, combined with improving global economic
growth, is likely to benefit stocks in more industrial and cyclical parts of the
economy over those that are more dependent on the consumer. In our view, this
has already started, but probably is in its early stages (Table 5).

John Thomas
05-08-2013,
Getting in shape is no longer just a New Year's resolution.

In its annual Topline Report, the Physical Activity Council, a coalition of sports-related trade groups, found that more than 60% of Americans frequently engaged in fitness sports in 2012. That growing interest in health and fitness has led to a huge surge in the number of people joining fitness clubs.
According to the International Health, Racquet and Sportsclub Association, health club and gym memberships jumped to 51 million in 2012, up from 41 million in 2005.

And looking forward, with Americans increasingly fighting back against obesity and diabetes, and with baby boomers focused on staying in shape as they retire, the $21 billion domestic health and fitness industry is growing quickly.

That's one of the reasons I'm bullish on an industry-leading fitness club company. With 106 locations and more than 800,000 members, it's already a juggernaut. But with plans to double its expansion rate in the next two years, it's in a great position to capitalize on America's growing interest in health and fitness. That has shares up nearly 300% in the past five years.

John Thomas
05-08-2013,
Random Thoughts




Thanks to all who attended my Introduction To Stock Selection webinar last night. We had a good show if I say so myself. Click here to watch.

I can't emphasis enough the importance of doing your homework. As I preach, looking through thousands of stocks daily really gives you a feel for what's really going on. Yes, it's a lot of work. For me though, it's like being on a treasure hunt. I grab a big cup of coffee and dive in. <begin pimping> Spend Saturday with me and I'll show you how </end pimping>.

Considering the above, it seems like the indices are catching up to the internal weakness that I've been seeing lately. This is especially true in the Rusty (IWM) which lost nearly 1% of its value on Tuesday.

The Ps are just shy of all-time highs and the Quack is just shy of multi-year highs. So, it's not the end of the world. The market has lost a little steam though. Net net, the Ps haven't made any forward progress in nearly a month. The Quack looks much better but it too has lost a little steam as of late too.

Foreign shares (EFA) haven't made any forward progress in nearly 3-months.

Back home, internally, the market remains mixed.

Areas like Retail and Restaurants haven't made much forward progress as of late.

Regional Banks appear to be failing to rally out of their recent pullbacks.

Drugs remain at high levels but appear to be losing momentum.

Metals & Mining, especially Gold & Silver had a decent bounce, gaining over 4%. So far though, this only appears to be a dead cat bounce. Remember, the cat was already dead and was accidently dropped so no live animals were hurt during this locution.

Chemicals and the Semis have been sideways intermediate-term but they are hanging out towards the top of their ranges.

On the bright side, Internet broke out to new highs decisively.

I can go on and on. To sum things up, the market remains mixed.

There's no need to get crazy bearish just yet. The indices and many sectors remain near new highs. Therefore, a few big up days can make all the difference in the world. Until and unless that happens, remain in show me mode.

So what do we do? When things are mixed it is important not to make any big picture bets. Don't label yourself as a bull or a bear. Just wait. Be Switzerland. Do become selective on new positions. If you really like a setup and would be very bummed if the stock took off without you, then take it. Just make sure you really like it and as usual, be willing to live with the fact that even the greatest looking setups can sometimes fail.

Futures are flat pre-market.

John Thomas
05-08-2013,
Buying value is an investment philosophy that works. To benefit from a value strategy, investors have to decide on a definition for value.

There are numerous ways to decide when a stock offers value, and many of these methods work well as long as they are applied with discipline. For deciding when a stock market in general offers value, we prefer to use the CAPE ratio defined by Robert Shiller.

The CAPE ratio -- which stands for cyclically adjusted price-to-earnings (P/E) -- is calculated with inflation-adjusted earnings over the past 10 years. This smoothes out the sudden spikes in earnings seen in recessions and at the beginning of an economic expansion, and provides a way to judge a market's value based on a full economic cycle.

In the past, when the CAPE ratio has been high, stock prices have delivered below-average returns over the next few years. Low CAPE ratios highlight long-term buying opportunities.

Shiller's CAPE can be applied to any stock market in the world. Investors looking at CAPE to make investment decisions a year ago may have bought stocks in Greece where the CAPE ratio was 2.6, the lowest of any global stock market. Investors willing to buy Greek stocks have been well rewarded. Global X FTSE Greece 20 ETF (NYSE: GREK) is up about 23% since the beginning of the year.

Irish stocks were also cheap with a CAPE ratio of 5 in December 2012. The iShares MSCI Ireland Capped (NYSE: EIRL) ETF is up nearly 40% year to date.

Other ETFs that would have been buys based on low CAPE ratios are Global X FTSE Argentina 20 ETF (NYSE: ARGT) and iShares MSCI Italy Capped (NYSE: EWI), which both started the year with CAPE ratios below 8 and have delivered double-digit gains. Market Vectors Russia ETF (NYSE: RSX) is the only one of the nine countries with the lowest CAPE ratios and a tradable ETF that shows a loss in 2013.

Looking ahead to next year, several of the countries with low CAPE ratios cannot be bought with ETFs. We have listed the lowest country CAPEs below and noted an ETF when it is available.

John Thomas
05-08-2013,
The Chart of the Day is Smith & Nephew (SNN). I found the stock by sorting the New High List for the most frequent new highs in the last month and except for other stocks that have recently been a Chart of the Day this stock was right near the top of the list. Since the last Trend Spotter buy signal on 10/14 the stock has gained 17.17%

The company markets clinically superior products, principally in orthopedics, endoscopy and wound management to deliver cost-effective solutions, significant physician advantage and real patient benefits. A continuous process of supplying new and innovative products is supported by substantial R&D investment to deliver new levels of healing to patients throughout the world.

Barchart's Opinion trading systems are listed below. Please note that the Barchart Opinion indicators are updated live during the session every 10 minutes and can therefore change during the day as the market fluctuates. The indicator numbers shown below therefore may not match what you see live on the Barchart.com web site when you read this report.

Barchart technical indicators:

100% Barchart technical buy signals
Trend Spotter buy signal
Above its 20, 50 and 100 day moving averages
17 new highs and up 8.45% in the last month
Relative Strength Index 86.89%
Barchart computes a technical support level at 69.37
Recently traded at 70.23 with a 50 day moving average of 64.79

John Thomas
05-08-2013,
Stuff I?m Reading this Morning?

Morgan Stanley: Stop with the taper talk already! (BusinessInsider)

BlackRock?s big 2014 Outlook piece is up, loaded with interesting info. (BlackRock)

Alibaba is pushing back its IPO. (Reuters)

Bond Kings Bill Gross and Dan Fuss are blowing out of their long-term debt holdings ahead of the taper. (Bloomberg)

Citi: ?The business of hedge funds is caught between rising costs and falling management fees, holding little profit for managers who don?t perform.? (WSJ)

JPMorgan just filed a patent for its own crypto-currency. God, I hope they call them Dimondollars or Whale Bucks. (FT)

By the way, 927 people own half of all the Bitcoins in the world. (BusinessInsider)

Wall Street strategists are always missing it by this much. (AboveTheMarket)

?see also Barry?s ?Why Do Forecasters Keep Forecasting?? (BloombergView)

Okay seriously ? is there any hope for emerging market stocks within our lifetime? (Morningstar)

Mark Hulbert: Portfolio tune-up for 2014. (MarketWatch)

Cullen Roche: The balance sheet recession is over. (PragCap)

Charlie Gasparino on the five year anniversary of the Madoff bust. (NYP)

The Most Important Economic Stories of 2013 (I?m in this one) (TheAtltantic)

These were the hottest new ETF launches of 2013. (ETFdb)

Human beings operate based on the line of least resistance. (Smashing)

John Thomas
05-08-2013,
"'Average' is officially over?, said columnist, Tom Freidman, of the New York Times.



go to the Mad Hedge Fund Trader's website

Highly recommended, unconventional trading service:

John Thomas
05-08-2013,
When I rode Amtrak?s California Zephyr service from Chicago to San Francisco last year, I passed countless trains heading west hauling hoppers full of coal for shipment to China. This year I took the same trip. The coal trains were gone. Instead I saw 100 car long tanker trains transporting crude oil from North Dakota south to the Gulf Coast. I thought, ?There?s got to be a trade here.? It turns out I was right.

Take a look at the charts below, and you will see that the shares of virtually the entire railroad industry are breaking out to the upside.

In two short years, the big railroads have completely changed their spots, magically morphing from coal plays to natural gas ones. Today the big business is coming from the fracking boom, shipping oil from North Dakota?s Bakken field to destinations south. In fact, the first trainload of Texas tea arrived here in the San Francisco Bay area only a few months ago, displacing crude the formerly came from Alaska.

Look at the share prices of the major listed railroads, and it is clear they have been chugging right along to produce one of the best performances of 2013. These include Union Pacific (UNP), CSX Corp (CSX), Norfolk Southern (NSC), and Canadian Pacific (CP). In the meantime, coal shares, like Arch Coal (ACI) have been one of the worst performing this year

Those of a certain age, such as myself, remember railroads as one of the great black holes of American industry. During the sixties, they were constantly on strike, always late, and delivered terrible service. A friend of mine taking a passenger train from New Mexico to Los Angeles found his car abandoned on a siding for 24 hours, where he froze and starved until discovered.

New airlines and the trucking industry were eating their lunch. They also hemorrhaged money like crazy. The industry finally hit bottom in 1970, when the then dominant Penn Central Railroad went bankrupt, freight was spun off, and the government owned Amtrak passenger service was created out of the ashes. I know all of this because my late uncle was the treasurer of Penn Central.

Fast forward nearly half a century, and what you find is not your father?s railroad. While no one was looking, they quietly became one of the best run and most efficient industries in America. Unions were tamed, costs slashed, and roads were reorganized and consolidated.

The government provided a major assist with a sweeping deregulation. It became tremendously concentrated, with just four roads dominating the country, down from hundreds a century ago, giving you a great oligopoly play. The quality of management improved dramatically.

Then the business started to catch a few lucky breaks from globalization. The China boom that started in the nineties created enormous demand for shipment inland of manufactured goods from west coast ports. A huge trade also developed moving western coal back out to the Middle Kingdom, which now accounts for 70% of all traffic. The ?fracking? boom is having the same impact on the North/South oil by rail business.

All of this has ushered in a second ?golden age? for the railroad industry. This year, the industry is expected to pour $14 billion into new capital investment. The US Department of Transportation expects gross revenues to rise by 50% to $27.5 billion by 2040. The net of all of this is that freight rates are rising right when costs are falling, sending railroad profitability through the roof.

Union Pacific is investing a breathtaking $3.6 billion to build a gigantic transnational freight terminal in Santa Teresa, NM. It is also spending $500 million building a new bridge across the Mississippi River at Canton, Iowa. Lines everywhere are getting double tracked or upgraded. Mountain tunnels are getting rebored to accommodate double-stacked sea containers.

Indeed, the lines have become so efficient, that overnight couriers, like FedEx (FDX) and UPS (UPS), are diverting a growing share of their own traffic. Their on time record is better than that of competing truckers, who face delays from traffic jams and crumbling roads, and are still hobbled by antiquated regulation.

I have some firsthand knowledge of this expansion. Every October 1, I volunteer as a docent at the Truckee, California Historical Society on the anniversary of the fateful day in 1846 when the ill-fated Donner Party was snowed in. There, I guide groups of tourists over the same pass my ancestors crossed during the 1849 gold rush. The scars on enormous ancient pines made by passing wagon wheels are still visible.

During 1866-1869, thousands of Chinese laborers blasted a tunnel through a mile of solid granite to complete the Transcontinental Railroad. I can guide my guests through that tunnel today with flashlights because (UNP) moved the line to a new tunnel a mile south to improve the grade. The ceiling is still covered with soot from the old wood and coal-fired engines.

While the rebirth of this industry has been impressive, conditions look like they will get better still. Massive international investment in Mexico (low end manufacturing) and Canada (natural resources) promise to boost rail traffic with the US.

The rapidly accelerating ?onshoring? trend, whereby American companies relocate manufacturing facilities from overseas back home, creates new rail traffic as well. It turns out that factories that produce the biggest and heaviest products are coming home first, all great cargo for railroads.

And who knew? Railroads are also a ?green? play. As Burlington Northern Railroad owner, Warren Buffett, never tires of pointing out, it requires only one gallon of diesel fuel to move a ton of freight 500 miles. That makes it four times more energy efficient than competing trucks.

John Thomas
05-08-2013,
Corporate earnings are up big! Great! Buy! No wait! The economy is going down the toilet! Sell! Buy! Sell! Buy! Sell! Help! Anyone would be forgiven for thinking that the stock market has become bipolar.

There is, in fact, an explanation for this madness. According to the Commerce Department?s Bureau of Economic Analysis, the answer is that corporate profits accounts for only a small part of the economy. Using the income method of calculating GDP, corporate profits account for only 15% of the reported GDP figure. The remaining components are doing poorly, or are too small to have much of an impact.

Wages and salaries are in a three decade long decline. Interest and investment income is falling, because of the low level of interest rates and the collapse of the housing market. Farm incomes are up, but are a small proportion of the total. Income from non-farm unincorporated business, mostly small business, is unimpressive.

It gets more complicated than that. A disproportionate share of corporate profits are being earned overseas. So multinationals with a big foreign presence, like Apple (AAPL), Intel (INTC), Oracle (ORCL), Caterpillar (CAT), and IBM (IBM), have the most rapidly growing profits and pay the least amount in taxes. They really get to have their cake, and eat it too.

Many of their business activities are contributing to foreign GDP?s, like China?s, much more than they are here. Those with large domestic businesses, like retailers, earn far less, but pay more in tax, as they lack the offshore entities in which to park profits.

The message here is to not put all your faith in the headlines, but to look at the numbers behind the numbers. Those who bought in anticipation of good corporate profits last month, got those earnings, and then got slaughtered in the marketplace.

John Thomas
05-08-2013,
Don?t bother taking an apple to school to give your favorite teacher, unless you want to leave it in front of a machine. The schoolteacher is about to join the sorry ranks of the service station attendant, the elevator operator, and the telephone operators whose professions have been rendered useless by technology.

The next big social trend in this country will be to replace teachers with computers. It is being forced by the financial crisis afflicting states and municipalities, which are facing red ink as far as the eye can see. From a fiscal point of view, of the 50 US states, we really have 30 Portugals, 10 Italys, 10 Irelands, 5 Greeces, and 5 Spains.

The painful cost cutting, layoffs, and downsizing that has swept the corporate area for the past 30 years is now being jammed down the throat of the public sector, the last refuge of slothful management and indifferent employees. Some 60% of high school students are already exposed to online educational programs, which enable teachers to handle far larger class sizes than the 40 students now common in California.

It makes it far easier to impose pay for productivity incentives on teachers, like linking teacher pay to student test scores, as a performance review is only a few mouse clicks away. These programs also qualify for government funding programs, like ?Race to the Top.? Costly textbooks can be dispensed with.

The alternative is to bump classroom sizes up to 80, or close down schools altogether. State deficits are so enormous that I can see public schools shutting down, privatizing their sports programs, and sending everyone home with a laptop. The cost savings would be huge. No more pep rallies, prom nights, or hanging around your girlfriend?s locker. Of course, our kids may turn out a little different, but they appear to be at the bottom of our current list of priorities.

John Thomas
05-08-2013,
You learn something new every day.

Here?s Jeff Saut, from his latest market commentary as chief strategist of Raymond James:

Indeed, L. Frank Baum?s book was penned in 1900 following unrest in the agriculture arena (read: farmers) due to the debate over gold, silver, and the dollar standard. The book, therefore, is supposedly an allegory of these historical events making the information easier to understand. In said book, Dorothy represents traditional American values. The Scarecrow portrays the American farmer, while the Tin Man represents the workers and the Cowardly Lion depicts William Jennings Bryan. Recall that at the time, Mr. Bryan was the official standard bearer for the ?silver movement,? as well as the unsuccessful Democratic presidential candidate of 1896. Interestingly, in the original story Dorothy?s slippers were made of silver, not ruby, implying that silver was the Populists? solution to the nation?s economic woes. Meanwhile, the Yellow Brick Road was the gold standard and Toto (Dorothy?s faithful dog) represented the Prohibitionists, who were an important part of the silverite coalition. The Wicked Witch of the West symbolizes President William McKinley and the Wizard is Mark Hanna, who was the chairman of the Republican Party and made promises that he could not keep. Obviously ?Oz? is an abbreviation for ?ounce.?

It should be noted that before 1873 the U.S. dollar was defined as consisting of either 22.5 grains of gold or 371 grains of silver. This set the legal price of silver in terms of gold at roughly 16:1 and put the country on a gold/silver bimetallic standard. Since both metals had other uses than just coinage, whenever the ratio got out of whack, rational people would buy the cheaper metal and take it to the mint to coin. That provided a natural stabilizing arbitrage. With the 1873 Coinage Act, however, the silver dollar was omitted, effectively shifting the country from a bimetallic to a gold standard. Other countries soon followed this shift and as tons of silver were unloaded, the market price of silver in terms of gold rose from 16:1 to 40:1. The result was that the dollar was now linked to a metal that was getting scarcer and scarcer.

Particularly hurt by these events were the net debtors, among them the farmers because they had to face a rising real value of their debts combined with declining agricultural prices (in dollar terms). Now, while there was a bunch of ?noise? in between (the Sherman Silver Purchase Act of 1890, the panic and depression of 1893, etc.), the situation hit its zenith in 1896 culminating with William Jennings Bryan?s ?Cross of Gold? speech at the Democratic National Convention.

Sonofabitch!

I guess the flying monkeys represented the precious metals bloggers and conspiracy theorists, Glenda the Good Witch was probably Ayn Rand?s grandmother or some shit.

John Thomas
05-08-2013,
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 9, 2013
Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA

John Thomas
05-08-2013,
?Tis the season. Your smart home needs a ?smart hub.? Check out a review of Revolv a smart home automation solution over at TechCrunch.

Quote of the day

Mike Sha, ?What people buy and what?s good for them is rarely the same thing?Fees and returns are inversely correlated. Fees are the long term bad egg in every portfolio.? (Pando Daily)

Chart of the day

John Thomas
05-08-2013,
Saddled with a pile of debt and a looming war with England, France was in desperate need of cash in 1803. So Napoleon took the same course of action that many publicly traded companies do today -- asset liquidation. The ensuing Louisiana Purchase was sealed for $15 million, or just 3 cents per acre.

Thomas Jefferson's emissaries to France struck an incredible bargain. They acquired a territory that stretched from the Gulf Coast to Canada, essentially doubling the size of the fledgling United States. France didn't know it, but Jefferson was willing to pay $10 million just for the city of New Orleans. Control of the strategic port secured navigation and trade along the Mississippi River, which is what he was really after.

For half a century, this would be the cheapest and most transformative land grab in the nation's history. But it was outdone in 1867, when Russia (a motivated seller that also feared war with England at the time) ceded what would later become the state of Alaska for $7.2 million. This purchase netted more than twice the land area of Texas for just 2 cents an acre.

That's an amazing deal -- even before you consider the millions of ounces of gold or billions of barrels of oil that were subsequently unearthed.
A lot has changed since then, but as I've been telling High-Yield Investing readers for months now, prized real estate is still in fashion.

Scarce resources are typically associated with fungible commodities such as oil or metals. They're not exactly making any more land, yet the world's population is growing by 200,000 people (births minus deaths) each day.

That's over a million new people a week crowding into a fixed amount of space to live, work and shop -- placing upward pressure on housing, office parks and retail strip centers.

That's exactly why forward-looking investors like Warren Buffett are placing big bets on land and buildings. We tend to associate ultra-rich business tycoons with hard assets like steel, but a disproportionate number of the world's billionaires have invested the bulk of their wealth in real estate.

Ted Turner owns more than a dozen sprawling ranches from Oklahoma to Montana. This collection spans 2 million acres (an area more than twice the size of Rhode Island), making the media mogul one of the nation's largest private landowners.

Turner's explanation is simple: "I never like to buy anything except land. It's the only thing that lasts."

Liberty Media CEO John Malone scooped up 1 million acres of timberland in Maine. And Sam Zell (No. 66 on the Forbes 400 list with a net worth of $4.9 billion) made a fortune by investing in commercial office properties. His current portfolio includes housing in China, shopping malls in Brazil, and the Waldorf Astoria Chicago hotel.

The point is, real estate can be a sound, durable investment -- not to mention a great way to protect against the ravages of inflation and a depreciating dollar. And its low correlation to equities can provide some buoyancy when the economy deteriorates and stocks are sinking.

Most of us don't have the bankroll to buy an office tower, an apartment complex or a retail shopping center. But I've found what just might be the next best thing.

I call them "Eisenhower trusts."

And simply put, when it comes to income investments, they can't be beat. Income earned from "Eisenhower trusts" have risen through every recession, depression, stock market crash and economic meltdown -- and it does all this while growing faster than the rate of inflation... an average 10% a year for the past 60 years.

These investments get their name from a law hidden deep inside the Cigar Excise Tax Extension Act, signed 53 years ago by President Eisenhower. And now, thanks to this law, it's possible for ordinary Americans to invest in wealth-creating asset classes like real estate and tap into the same income sources that America's elite have used for generations to shield their wealth from taxes and turn it into a fortune -- but only if you know how.

- Nathan Slaughter

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John Thomas
05-08-2013,
BlackRock has $4.1 trillion in assets under management ? they?re the largest investment management firm on earth ? and probably 7 out of 10 people on the street where you live have never heard of them.

And as a result of being so large, the company owns an awful lot of shares in the world?s largest public companies as well.

The Economist has a sprawling profile of the firm (it?s the cover story of their latest print edition), from which the below chart comes:

John Thomas
05-08-2013,
Random Thoughts


As I preach, you can't take the action in the indices at face value. You have to dig a little deeper. Each day I cull through roughly 2,000 stocks, 250 sectors, several dozen ETFs, and then finally, a handful of indices.

The Ps closed at all-time highs.

The Nasdaq closed at multi-year highs.

In spite of these new highs, the market just felt a little soft internally. It seemed like the average stock ended lower. I guess this is no big shocker when you look at the broad based Rusty. It actually ended down a smidge on Monday.

Again, I'm not complaining. Things just seemed a little mixed. Friday's pop, so far, appears to be one and done.

As usual, take things one day at a time. Ideally, I'd like to see the market, sectors, and stocks break out and not look back for a while.

Getting back to the mixed thing....

Regional Banks stalled out in their rally from pullbacks.

Retail hasn't changed my on a net net basis in nearly a month.

Chemicals, The Semis, and Internet have been sideways intermediate-term but they are hanging out towards the top of their ranges.

Drugs stalled a bit after approaching their recent highs. And, the Biotech sub-sector here reversed at its old highs.

Most areas still remain in uptrends like the indices but again, it's getting a little mixed.

So what do we do? To recap, last week things were getting mixed then we had the mother of all up days on Friday. Then, on Monday, we go back to being mixed. Again, overall things remain constructive, it's just getting a little mixed (have I mentioned that yet?). At these levels, a few big up days would make all the difference in the world. Until then, when it comes to this market, I'm from Missouri. Show me. The database is still not producing many meaningful setups anyway. As mentioned recently, this might be it suggesting to let things shake out a bit. Again, don't worry. If we end up in a bona fide new bull trend, there will be plenty enough time to add new positions. In the meantime, wait for follow through.

Futures are soft pre-market.

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

Best of luck with your trading today!

John Thomas
05-08-2013,
It?s no secret that I?m a big fan of advance/decline, new highs vs new lows and other internals to get a read on how markets are acting beneath the surface of the indices. It?s not that this information is always actionable (at least not for me), it?s that it often offers clues as to market mood and can signal ?regime change? from bullish to bearish attitudes.

Andrew Thrasher has been doing these great weekly technical rundowns that are worth checking out at his blog each Monday morning. Here?s something he posted about breadth and stocks trading above the 200-day moving average that might give you a new data point to keep an eye on:

Equity Breadth
Last week we did not see much improvement in breadth, which is to be expected with the weakness we saw in the equity market for the bulk of trading.

The bottom panel of the chart below shows the percentage of stocks above their 200-day moving average. This measure of market breadth has garnered quite a bit of attention over the last few months. While the negative divergence is important to point out, the percentage itself is still north of 60%.

I reference 60% because that?s the level it was unable to get back above at the 2007 high. We saw the percentage of stocks above their 200-day moving average drop for nearly eight months before a top was put in for the S&P 500 ($SPX) in ?07. While we are presently approaching the same duration of deterioration, the percentage itself still shows the bulk of stocks in theoretical up trends (above their long-term MA). A break of 60% would also end the trend of making higher lows for the percentage above 200MA, and that?s when I think it?ll be time to start getting concerned. So while this metric of market breadth is worrisome, it?s not yet to levels I feel trigger a red flag.

John Thomas
05-08-2013,
Stuff I?m Reading this Morning?

Steve Liesman is pounding the table on a December Fed meeting taper. We shall see, Stevie! (CNBC)

Morgan Housel?s The Five Most Important Rules in Finance is pretty sick. (BusinessInsider)

Sorry, hedge fund returns are not going to revert back to the old mean of outperformance. (FTAlphaville)

It?s Volcker Rule day, bitch. (DealBook)

?and even if hedge funds did start to outperform, are they even earning their keep on a risk-adjusted basis? (IndexUniverse)

The wirehouses are pushing upstream yet again, slashing payouts for middle of the road brokers. This will end when each firm has one advisor managing a $2 trillion book of business. (InvestmentNews)

Can you imagine how dirty Roger Ailes must be if they?re paying an ex-underling $8 million just to STFU? (Gawker)

These are the top traders and commentators to follow on StockTwits / Twitter during earnings season. (StockTwits)

Here?s The Moment Barack Obama Shook Hands With The President Of Cuba (BusinessInsider)

Read more: http://www.businessinsider.com/obama...#ixzz2n4wGx1UT
My book, Backstage Wall Street, available at Amazon


The Reformed Broker

John Thomas
05-08-2013,
The Chart of the Day is Speed Commerce (SPDC). I found the stock by sorting today's New High List for frequency and then skipped over the stocks that didn't have positive results for the last week and month. I reviewed the chart using the Flipshart feature. Since the last full Trend Spotter buy signal on 11/19 the stock gained 24.64%.

It provides platform of e-commerce services and distribution solutions to retailers and manufacturers. The company offers retail distribution programs, web site development and hosting, customer care, e-commerce fulfilment and third party logistics services.

John Thomas
05-08-2013,
?Obama is as lucky as a dog with two d**ks,? said former president Bill Clinton after Mitt Romney?s 47% comment.


go to the Mad Hedge Fund Trader's website

Highly recommended, unconventional trading service:

Trading Coach Sam Johnson demonstrates the #1 Passive Income Strategy for Traders

John Thomas
05-08-2013,
The performance of the Mad Hedge Fund Trader?s Trade Alert Service is still going ballistic, reaching the heady height of 59% for the year.
I know some of your saw your faith challenged when, at one point, the stock market was looking at five consecutive down days last week. The red ink all disappeared when the November nonfarm payroll delivered shockingly positive numbers, thus delivering one of my best up days of the year.

Including both open and closed trades, 24 out of the last 26 consecutive Trade Alerts have been profitable.

The Trade Alert service of the Mad Hedge Fund Trader is now up 59.76% in 2013. November came in at a stunning +11.58%, while the December month to date record now stands at +3.68%.

The three-year return is an eye popping 114.77%, compared to a far more modest increase for the Dow Average during the same period of only 32%.
That brings my averaged annualized return up to 38.3%.

This has been the profit since my groundbreaking trade mentoring service was launched three years ago. It all is a matter of the harder I work, the luckier I get.

I took profits on my long position in Citigroup (C), which just achieved a major upside breakout, and then rolled the capital into the Financials Select Sector SPDR (XLV). I cashed in on a short position in the Treasury bond market (TLT). I?ll go back in on the next rally. I also took profits on short positions in the Japanese yen as it approached new lows for the year, then doubled up again on a subsequent rally there.

I caught the entire 10% move up in Apple (AAPL) with a major long position. Higher levels beckon. My remaining long positions in the Industrials Sector Select SPDR (XLI) are contributing daily to my P&L, thank you very much. An aggressive position in the Japanese online giant, Softbank (SFTBY), also turned profitable, playing on the Japanese economic revival.

This is how the pros do it, and you can too, if you wish.

Carving out the 2013 trades alone, 74 out of 89 have made money, a success rate of 83%. It is a track record that most big hedge funds would kill for.
My esteemed colleague, Mad Day Trader Jim Parker, has also been coining it. Since April, his own performance numbers have just come back from the auditors, revealing that he is up a staggering 279%.

The coming winter promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere in 2014. The Trade Alerts should be coming hot and heavy. Please join me on the gravy train. You will never get a better chance than this to make money for your personal account.

Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011 and 14.87% in 2012. The service includes my Trade Alert Service and my daily newsletter, the Diary of a Mad Hedge Fund Trader. You also get a real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars. Upgrade to Mad Hedge Fund Trader PRO and you will also receive Jim Parker?s Mad Day Trader service.

To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.

John Thomas
05-08-2013,
Markets were headed slightly higher on Monday morning despite a survey released that showed economists are expecting the Federal Reserve?s stimulus plan wind down in 2014. The National Association of Business Economists said that in their November survey showed that the majority of economists believe that the Fed will begin tapering their stimulus plan early next year. The survey encompassed a total of 51 economists and 62% of them believe that the Fed will begin cutting back the bond-buying program within the first three-months of 2014. Of all the economists there were 30% that believe the Fed will begin winding down in the second-quarter of 2014. Overall 90% of those surveyed believe that the Fed will wind down their program next year. The survey also showed that economists are expecting the U.S. economy to pick up steam and grow at a 2.8% annual rate next year versus the 2.1% annual rate this year.

Shares of Sysco were sky rocketing over 13% after the company announced that they will be purchasing US Foods for nearly $3.5 billion. The company will pay roughly $3 billion in common stock and $500 million in cash. They will take on $4.7 billion of US Foods debt. This totals the entire deal at $8.2 billion. When the companies combine, this will enable Sysco to increase their leverage on selling and distributing goods. They currently hold about 18% of the United States food distribution market and once the deal is done they are expected to hold a staggering 25%. The buyout deal has been approved by both of the companies boards. Sysco estimates that the entire deal will be fully completed by the third-quarter of 2014. They also expect this acquisition to immediately boost the companies profits once they adjust for costs and related expenses. Bill Delaney, Chief Executive of Sysco, said that the industry will remain competitive. ?It is a very dynamic market, there are 15,000 to 16,000 distributors out there, and more nontraditional competitors.? However with their new purchasing power, combined with innovation efforts and the cost saving capabilities the new merger will provide them with, they will do well, Delaney said.

In fast food news, shares of McDonald?s (MCD) were dropping after the company announced weaker-than-expected sales in November. The company said that worldwide sales at restaurants open at least 13 months were up 0.5%, which missed the 0.6% analysts were expecting. In the United States, same-restaurant sales were down 0.8%, which missed the 0.3% gain analysts had been expecting. This was partially attributed to an increase in competition and weaker customer traffic, the company said. Shares were falling over a percentage point on Monday.

That?s all for the day.
All the best,
Jack Aubrey, Oakshire Financial

Related Articles

06/10/13 -- McDonald?s (MCD) Beats Expectations, Jumps
04/19/13 -- SeaWorld (SEAS) Splashes Into NYSE, General Electric (GE) Turns Down
06/08/12 -- Best Buy Chairman Heads Out, and more
03/08/13 -- Unemployment Rate Sinks to 7.7%, American (AMR) Revenue Up
11/08/12 -- Apple (NASDAQ:AAPL) Loses It?s Smart Phone Crown
01/23/13 -- Google (GOOG) Searches On the Rise

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John Thomas
05-08-2013,
After steadily returning an average of 18% a year for the past decade, gold is headed for its first annual loss since 2000. All told, gold prices have fallen over $450 an ounce since January -- a 27% decline in just under 12 months.



In part, the gold market is suffering thanks to the economic recovery. Since gold is usually seen as a "safe haven" investment, an improving economy puts downward pressure on gold prices. Other headwinds include low inflation rates... surging equity values... and an overwhelmingly bearish sentiment facing commodities altogether.

Before I go any further though, I want to note that it's never a bad idea to devote at least a small portion of your portfolio to precious metals. Since these assets are generally insulated from rising price levels, metals like gold are a good way to hedge against inflation risk.

But gold bullion is not the subject of today's essay. Instead of touting the monetary benefits of the world's oldest currency, I want to tell you about one of the most overlooked (and misunderstood) areas of the gold market...

I'm talking about gold stocks.

"Gold stocks" is a financial synonym for gold mining companies -- the guys who get paid to physically pull the yellow metal out of the ground. Since miners earn their paychecks by selling the gold they produce, gold stocks have historically moved in tandem with gold prices.

John Thomas
05-08-2013,
Will the wealth effect from financial asset and home price appreciate finally assert itself this coming year? Bank of America Merrill Lynch economists give us four reasons why that might be happening:

We see four reasons to expect healthier consumer spending.

First, the worst of the tax shock is over. Both payroll and upper-income tax rates rose at the start of
this year, and we think the negative impact on spending growth should be fading.

Second, consumers have made considerable progress in cleaning up their
balance sheets, reducing debt burdens and accumulating wealth. Households
have gained $16.1 trillion in financial wealth and $3.0 trillion in housing wealth
since their respective troughs (Chart 2).

Third, firing has continued to decline as seen by the drop in jobless claims, although some of this may reflect people
exhausting their benefits. This supports current income but also helps
expectations about future income growth.

Finally, as the labor market tightens, wage growth will improve, although that is more likely in 2015 than in 2014. The
consumer still faces challenges, but we think the tides have turned.

John Thomas
05-08-2013,
?Tis the season. Ben Carlson at A Wealth of Common Sense ranks Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere as one of the ?best books I?ve read in 2013.?

Quote of the day

smithy Salmon, ?Art is not an investment in the way that the S&P 500 is, and all direct comparisons of the two have a way of invidiously changing the way we look at and think about art in general.? (Reuters)

Chart of the day

John Thomas
05-08-2013,
My friend Larry McDonald is out with a year-end piece at Forbes that looks at a very interesting phenomenon we often see each December ? once the tax-selling pressure abates from losing stocks in one calendar year, they can often go on to become the following year?s grand slams?

Yet those who bought fear at the end of 2012 were handsomely rewarded. From mid-August 2012 to the end of December, shares of Best Buy were off some 43%, while First Solar FSLR shares were torched, off 33% from their March 2012 highs heading into year end. The most pain was felt in Hewlett Packard HPQ, which collapsed over 60% from February 16th to December 26th 2012, off 30% in the 4th quarter alone. These 3 stocks were up on average 90% in the first half of 2013. We say ?buy fear.?

What about 2011? The ugliest sector, no one wanted to own in the 4th quarter of 2011 was the financials. The space was off nearly 25% in 2011, 17% in the 2nd half of the year. Bank of America alone was off 32% from Sept 1st through year end. Over the next 12 months, investors fell back in love with the financials, up 27% on the year, BAC surged 100%.

Can you truly buy fear at this time of year and hold through 2014? If so, your top sector candidates are the gold miners, down an astounding 53% on the year. But ? Larry says to check out how the bond market is treating the paper of any disparaged equity you?re thinking of buying first.

Source:

John Thomas
05-08-2013,
The appeal of clean energy stocks is evident. Billions of dollars are at stake as the world tries to wean itself off fossil fuels.

There can be little doubt that clean energy will account for at least 20% to 30% of our total energy picture a few decades from now. But the road is bound to be bumpy. The sudden plunge in solar stocks in 2011 and 2012 -- not to mention their remarkable rebound this year -- highlights just how risky these clean energy stocks can be. Indeed, many investors have concluded that they just can't stomach that degree of risk.

But there is a better way: a focus on companies that already derive significant revenue streams in support of clean energy projects. These stable firms don't own breakthrough technologies, but they are helping the industry pioneers to scale up their production. And in light of the long-term future for clean energy, these firms face robust growth potential.

My favorite pick in this group: Spain's Abengoa (Nasdaq: ABGB), which derives more than $10 billion in annual sales by helping construct clean energy power plants, water desalination systems, biofuel production facilities and highly efficient energy transmission networks.

John Thomas
05-08-2013,
I am a firm believer in using both technical analysis and fundamental research as stock picking tools. Many investors mistakenly specialize in one discipline or the other rather than a mixture of the two.

Market technicians are often guilty of reaching the conclusion that all the fundamental information is already inherent in the price of a security, therefore researching fundamentals is redundant. At the same time, hard-core fundamentalists believe that technical analysis only charts the past and thus cannot help with projecting the future.

I have found both of these sentiments to be correct and to be wrong at the same time. All the fundamental information about a stock is inherent in its price. However, studying price alone will not increase your odds of making a winning trade.

Knowing fundamentals while ignoring the technical picture may provide a reason for the stock movement, but does not confirm that price will move in any specific direction. Focusing solely on the technical picture will tell you what has happened and what may happen. But there are no guarantees or statistical tests that have uniformly proven much of traditional technical analysis works to provide an edge.

So what's an investor to do?

The answer is to use both fundamentals and technical analysis to choose stocks. If both disciplines agree on a particular stock, that stock becomes a strong candidate to add to your portfolio or to short. When there is disagreement, a short-term trade often presents itself.

Today's trade is an example of a classic case of fundamentals and technical analysis disagreeing.

The stock is Camtek (Nasdaq: CAMT), an Israeli designer, developer and manufacturer of automatic optical inspection (AOI) systems. AOI systems are computer-driven systems that inspect electronic components for defects at the manufacturing level. The company also makes products for the printed circuit board industry.

Additionally, it is in the advanced stages of developing a digital 3-D printing system called the GreenJet System. This printer is intended to be used for the disposition of solder mask on circuit boards. The first commercial sales of this product are slated to take place sometime in 2014.

Camtek, which has a market cap of about $150 million, posted solid results for the third quarter with revenue of $21.7 million and operating cash flow of $3.1 million. It ended the quarter with a cash position of $20.3 million.

Shares soared higher late last month on rumors that the company was launching the 3-D printer system. It turns out the company will only be testing the system with a client at the start of 2014. Profits are only expected should the testing produce positive results, and then not until the tail end of 2014.

While there is certainly nothing wrong with the known fundamental health of Camtek, the technical picture paints a clear short selling opportunity.

John Thomas
05-08-2013,
Last week we were down four days straight on the S&P 500 going into the Friday non-farm payrolls report and the bears were finally feeling some breathing room. The jobs report print sucked all that oxygen out of the room as stocks erased just about the entire drawdown in eleven seconds after getting the number from BLS.

Here?s my friend Dynamic Hedge:

Jobs and Taper
The employment report surprised by adding 203,000 jobs dropping the unemployment rate to a recovery low 7.0%. The report could not have thread the needle more perfectly. It was high enough to produce a sentiment boosting headline and low enough to stave off an undiscounted December taper. And we wonder why people love conspiracies.
?and the chart (S&P 500 futures) ? as juicy a conspiracy theory as you?re gonna see:

John Thomas
05-08-2013,
Greetings from the great white north. I am a BIG fan of yours and have rejoined your Trade Alert Service for another year. You have friends around the world you have yet to meet. Enclosed is a token of my appreciation. Thanks a 100 trillion!

Bob
Vancouver, Canada

John Thomas
05-08-2013,
?China has been doing everything right for the last ten years. Our government is made up of ?C? students that were political science majors, whereas, the Chinese government is made up of PhD?s that were educated at Cambridge and Harvard,? said one Washington observer.

John Thomas
05-08-2013,
Run, don?t walk, to read the related story from the latest issue of Fortune Magazine about how much has changed for investors from 2003 to 2013.

Source:
A decade of markets, mayhem, and investing (Fortune)

John Thomas
05-08-2013,
I showed a lot of initiative, and I stayed late. I was now in Armani suits, Ferragamo shoes, Valentino ties. I would stay all night. I would adjust my hours to call potential customers at home. All you had to do was get past the wife. The guys were more relaxed to talk at home. They were willing to listen a little more.

Danny offered to buy a car if I opened up 30 accounts in a month. I ate dozens of Quaaludes, pounded my clients, and got the 30 accounts ? but two wound up not paying. So Danny said, ?I?ll lease you whatever sports car you want.?

I picked a red Porsche 911 ? I still didn?t have a driver?s license.

All of us brokers who started in the 1990′s on Long Island or in NYC can relay similar stories to this one, although the majority of brokers did not work for The Wolf at Stratton Oakmont. Stratton, the firm Jordan Belfort founded on the North Shore of LI is history?s most notorious boiler room, the Ground Zero of cold-calling fraud, the place where it all began. It didn?t last long, but the legends you?ve heard are almost all true.
Josh Shapiro returned home to Long Island from the Marines at 22 and wanted to make some money. It was 1993, there was no such thing as internet brokerage and the markets were booming. The telemarketing brokers of LI were in their heyday, dialing for dollars with no competition, little regulation and nothing to stop them.

Today in the New York Post, Josh tells his tale of working for Jordan Belfort at Stratton?

Read the whole thing:
Welcome to my life working for the real ?Wolf of Wall Street? (NYP)
More on The Wolf of Wall Street here


The Reformed Broker

Joshua Brown is a New York City-based financial advisor at Fusion Analytics. Josh helps people invest and manage portfolios. Clients range from individuals to corporations to retirement plans to charitable foundations.

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John Thomas
05-08-2013,
Thinking back on a great year for investing in the US stock market but a hard year on market participants overall.
US stocks went wild this year but almost nothing else kept pace ? any attempt to hedge or diversify now looks have been anywhere from futile or foolish here at year?s end.

Consider:

The Global Dow Jones Index is up about 20% on the year, but the Global Dow ex-US is only up 9%.

Why bother with international exposure at all?

Long-term Treasurys are down 15% this year and their corporate bond counterparts are down 7%. Munis, agencies and mortgage-backeds are all in the red, REITs are flat.

Why bother diversifying at all?

There are only 40 stocks in the S&P 500 that have a negative return on the year. There are more stocks in the S&P 500 with gains of over 60% YTD.

Why bother hedging at all?

The US stock market has spent over one full year above its 200-day moving average and hasn?t been negative for a calendar year since 2011.

Why bother being tactical at all?

In hindsight, there was only one way to ?win big? this year and ?beat the markets?: Buy and hold, long and strong, US stocks only. More importantly:

No bonds, no shorts, no hedges, no diversification, no tactics.

No wonder trillions have been pouring into the passive products of Vanguard, iShares and State Street. It?s the only game in town! Investors are now preparing for the coming Battle of 2014 by exaggerating the posture and behavior that?s worked for 2013. This is called the Recency Effect ? believing the environment we?ve just been in is somehow a permanent one, extrapolating the just-was to construct an outlook for the soon-to-be.

They do it every year.

Many will throw away the portfolio playbook that didn?t give them the best of all possible results this year. Diversification is broken. They?ll move their chips into position solely on black, after all the roulette wheel just landed on black the last ten times ? it?s practically a can?t-lose proposition.

At this time of year I?m more interested in whatever hasn?t worked. The good news is that there?s plenty of that around (via Capital Spectator, through Nov 2013):
***

John Thomas
05-08-2013,
?Tis the season: the Daniel Kahneman classic Thinking Fast and Slow is on sale for the Kindle.

Quote of the day

Morgan Housel, ?If the history of bubbles teaches us anything, it?s to be humble.? (Motley Fool)

Chart of the day


HYG Total Return Price data by YCharts

US corporate bond spreads are at a six-year low. (Sober Look)

Markets

The trend remains intact. (Dynamic Hedge)

High dividend stocks are expensive. (Mebane Faber)

The January effect is shifting to December. (StockCharts Blog)

There is still plenty of room for investors to shift from bond to equity funds. (Horan Capital)

Futures traders continues to cut gold positions. (The Short Side of Long)
Strategy
Should you settle for mediocrity in investing? (NYTimes)

Why risk-adjusted returns matter. (Oblivious Investor via @monevator)

A review of Bonds Are Not Forever: The Crisis Facing Fixed Income Investors by Simon Lack. (Aleph Blog)

Exchanges

There is a bear market in stock splits. (Jason Zweig)

Stock exchange listings keep shrinking. (Unexpected Returns)

ETF stats for November 2013. (Invest With an Edge)

Wall Street

John Thomas
05-08-2013,
?Tis the season: the Daniel Kahneman classic Thinking Fast and Slow is on sale for the Kindle.

Quote of the day

Morgan Housel, ?If the history of bubbles teaches us anything, it?s to be humble.? (Motley Fool)

Chart of the day


HYG Total Return Price data by YCharts

US corporate bond spreads are at a six-year low. (Sober Look)

Markets

The trend remains intact. (Dynamic Hedge)

High dividend stocks are expensive. (Mebane Faber)

The January effect is shifting to December. (StockCharts Blog)

There is still plenty of room for investors to shift from bond to equity funds. (Horan Capital)

Futures traders continues to cut gold positions. (The Short Side of Long)
Strategy
Should you settle for mediocrity in investing? (NYTimes)

Why risk-adjusted returns matter. (Oblivious Investor via @monevator)

A review of Bonds Are Not Forever: The Crisis Facing Fixed Income Investors by Simon Lack. (Aleph Blog)

Exchanges

John Thomas
05-08-2013,
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 7th, 2013. The description reads as it does in the relevant linkfest:

Ten buys (and sells) from the ultimate stock pickers. (Morningstar)
There?s never been a better time to be an individual investor. (Jason Zweig)
Meet the world?s biggest investor in hedge funds. (Dealbook)
European markets are rolling over. (The Short Side of Long)
A must-read piece from James Montier on why there is nothing new in investing. (GMO)
Seven reasons from Doug Kass why the market is overvalued. (Pragmatic Capitalism)
Ten themes for 2014 from Rich Bernstein. (Business Insider)
Simple models work better. (Mebane Faber)
2014 stock performance will have nothing to do with 2013. (Mark Hulbert)
Wall Street strategists have not yet jumped on the market bandwagon. (The Reformed Broker)


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

What books Abnormal Returns readers purchased in November. (Abnormal Returns)
Simplify your investing to avoid ?opportunities for failure?. (Abnormal Returns)


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



The post Top clicks this week on Abnormal Returns appeared first on Abnormal Returns.


Abnormal Returns

John Thomas
05-08-2013,
McDonalds did $27 billion in worldwide sales in 2012, finished the year with $15 billion in shareholder?s equity and over $2 billion in cash.

The company had $5.5 billion available to return to shareholders in the form of stock repurchases and dividends last year.But they?d like their US employees to receive financial assistance from taxpayers and the government.

Pigs.

Read Also:

John Thomas
05-08-2013,
?Tis the season and for the budding entrepreneur on your list check out Hatching Twitter: A True Story of Money, Power, Friendship and Betrayal by Nick Bilton, an Economist book of the year.

Investing

A must-read piece from James Montier on why there is nothing new in investing. (GMO)

Cliff Asness? top ten pet peeves. (Financial Analysts Journal)

Shots fired. Buffett?s alpha is not all that. (Frazzini, Kabiller and Pedersen)

A high frequency trading bibliography. (Themis Trading)

Technology

The epic rise (and fall) of Demand Media ($DMD). (Variety)

The rise and fall of Blackberry ($BBRY): an oral history. (Businessweek)

A profile of Marissa Mayer one year plus into running Yahoo ($YHOO). (Vanity Fair)

Business

Comparing Europe?s Ryanair to America?s Southwest ($LUV). (flightfox via @thebrowser)

Merck ($MRK) is in hot pursuit of the next Ambien. (New Yorker)

Startups

How to become an angel investor. (WSJ)

Don?t start a company, kid. (Big Nerd Ranch)

On the value with sticking with struggling investments. (A VC)

Eighteen lessons for founders on raising money. (Medium)

Robots

Delivery by drone is not a big joke. (Farhad Manjoo)

Do we really want robots occupying more of our personal space? (FT Alphaville)

Google ($GOOG) wants to be a player in robotics. (NYTimes)

2014 is going to be the year of the ?Internet of things.? (Quartz)

Content

How a Gawker editor identifies viral content. (WSJ)

How to burst your own ?filter bubble.? (Technology Review)

A list of reasons why our brains love lists. (New Yorker)

On the economics of ghostwriting. (Priceonomics Blog)

Health

Walk faster, people. (Well)

Are allergy shots a thing of the past? (NYTimes)

Health care spending is slowing. (James Surowiecki)

Food

Does intermittent fasting help you lose weight? (WSJ)

How to get the most out of your bowl of pho. (Medium)

The 20 best craft breweries of 2013. (Paste)

Movies

The 13 best movies you didn?t see in 2013. (Wired)

The Coen Brothers movies ranked. (Slate)

How binge-watching Netflix-style will change our culture. (New Republic)

The highest grossing movies in the US are declining in quality. (Priceonomics Blog)

Excerpts

An excerpt from Scott Adams? How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life. (BoingBoing via @timharford)

An excerpt from Glen Berger author of Song of Spider-Man: The Inside Story of the Most Controversial Musical in Broadway History. (Slate)

Love and Math: The Heart of Hidden Reality by Edward Frenkel is a book about ?mathematical love.? (Farnam Street)

Ben Bradlee Jr.?s The Kid: The Immortal Life of Ted Williams looks to be the ultimate biography of the greatest hitter. (Slate, WSJ)

An interview with Malcolm Gladwell author of David and Goliath: Underdogs, Misfits, and the Art of Battling Giants. (Knowledge@Wharton)

John Thomas
05-08-2013,
The Chart of the Day is Micron Technologies (MU). I found the stock by sorting the New High List for frequency, and then used the Flipchart feature to review the charts skipping over those that didn't have positive gains for the last week and month.

It provides semiconductor memory solutions. The company's memory solutions serve customers in a variety of industries including computer and computer-peripheral manufacturing, consumer electronics, CAD/CAM, telecommunications, office automation, network and data processing, and graphics display. The company's mission is to be the most efficient and innovative global provider of semiconductor memory solutions.

John Thomas
05-08-2013,
Random Thoughts


It was yet another mixed day in market land.

The Ps sold off fairly hard, losing nearly ?%. This action keeps them in a shorter-term trading range. Again, they haven't changed much in around three weeks. Longer-term they still look okay. They remain in an uptrend and they only appear to be consolidating.

John Thomas
05-08-2013,
The Chart of the Day is Cepheid (CPHD). I found the stock by sorting today's New High List for frequency, eliminating the stocks that haven't had positive gains for both the last week and month. I used the Flipchart feature to review the charts. Since the Trend Spotter signaled a buy in 10/18 the stock gained 13.57%.

The Company develops, manufactures and markets microfluidic systems that integrate, automate and accelerate biological testing. Their systems are miniaturized instruments that analyze complex biological samples in a disposable cartridge by combining molecular biology with microfluidic technology that processes small quantities of liquid, typically using components fabricated with computer chip technology. These systems rapidly perform all of the steps required to analyze complex biological samples.

John Thomas
05-08-2013,
Markets were headed higher on Wednesday after the number of unemployed Americans reached a five-year low. The Labor Department reported that the unemployment rate fell to 7.0%. They also said there was an addition of 203,000 jobs in November. A level this low in unemployment has not be seen since November 2008. The data surpassed economists expectations of November jobs increasing only 180,000 and the unemployment rate to fall to 7.2%. September and October jobs were upwardly revised 8,000 new positions. During the month of October there were government employees who were counted as unemployed due to the partial government shutdown. With the increasing amount of positive economic data continuing to roll out, some speculate that the government may start finally pulling back on the Fed?s bond buying program. Eric Stein, co-director of the Global Income Group of Eaton Vance Investment Managers, said, ?The U.S. labor market is still far from healed, but it certainly is moving in the right direction. The number puts December on the table, but it isn?t a certainty,? when referring to the Fed?s possible bond tapering.

In a separate report released on Friday by the Commerce Department, it showed that consumer spending was up in October. Spending increased from a 0.2% rise in September to a 0.3% increase in October. This followed a slight 0.1% gain in wages and salaries. Personal savings was down to 4.8% from September?s 5.2%. The increase in spending was attributed partially to purchases of long-lasting items such as vehicles and non-durable goods, like clothing and utilities. Consumer spending accounts for nearly 70% of economic activity. Russell Price, a senior economists at Ameriprise Financial Inc. said, ?People are feeling better, that?s a positive for the holiday season. This year I don?t see the same strong fiscal headwinds ahead of us to impede our momentum.?

Shares of J were up on Friday morning after the company announced that they would be spinning off their Lands? End clothing portion of the business into a separate company. They will do so through a distribution of the stock to the company?s shareholders. This announcement was first made public in October when Sears said they were thinking about separating both Lands? End and the Sears Auto Center into separate companies. The auto portion was not mentioned in the announcement. Brian Sozzi, an analyst with Belus Capital Advisors, said, ?It makes you question the value of what Sears is sitting on. It may have to continue dismembering itself to stay alive today and shrink from the inside out.? He continued to say that the move shows that the Sears was not able to attract a buyer willing to pay the right price for Lands? End.

That?s all for the day.

All the best,
Jack Aubrey, Oakshire Financial

John Thomas
05-08-2013,
Every quarter, many of us in the investing world eagerly anticipate the SEC filings that the world's largest (and greatest) investment managers are required to file.

There is no single 13F that is more eagerly anticipated than that of Berkshire Hathaway's (NYSE: BRK-B) Warren Buffett.

The Oracle of Omaha isn't just one of the greatest stock pickers the world has ever seen. He is also one of the most selective. He seldom makes a significant new addition to his portfolio, usually instead preferring to add to existing positions or buy nothing at all.

So when he makes a big purchase of a new stock, it's kind of a big deal.

In the most recent quarter, Buffett revealed a rare new portfolio addition: Exxon Mobil (NYSE: XOM) -- for a cool $3.4 billion. Even for Buffett, that's a big purchase.

Investors have been scrambling to answer two questions: Why is Buffett was buying Exxon -- and why now? Buffett has been familiar with Exxon for decades, so what's changed about the company that merits a $3.4 billion investment from Berkshire?

It certainly isn't because Exxon's stock price has dropped:

John Thomas
05-08-2013,
With stocks at all times highs, we're starting to hear a lot of experts tout that equities are trading at "premium valuations" -- which is financial lingo meaning stocks are expensive relative to their underlying earnings.

While those pundits are partially correct, there's more to the story...

The recent rally has pushed the price-to-earnings ratio (P/E) ratio for the S&P 500 from 13 in 2011 to its current value of 16. While the move is dramatic, valuations are still nowhere near the soaring levels we normally see during most market bubbles. For example, before the 2001 "Dot Com" collapse, the S&P's P/E ratio reached 46.1 before crashing back down.

So while the recent rally is impressive, there's still little reason to believe we're nearing a "market crash" similar to that which we experienced in 2001 and 2008... Until that starts to change, we remain bullish on stocks.

Sure, many stocks have become expensive, but a few remain absolute bargains. For example, certain small-cap stocks still have plenty of upside potential when compared to the broader market.

No, I'm not talking about fly-by-night penny stocks -- I'm talking about companies that are on the ground floor of a promising new trend or technology. These companies are poised for explosive growth and can deliver impressive profits to investors in years to come. In today's issue, I'd like to introduce you to one such company, which is trading at bargain prices after a recent selloff.

Is It Time To Buy This $1 Billion Game Changer?
SodaStream International (Nasdaq: SODA), the manufacturer of homemade soft drink machines and one of Andy Obermueller's favorite game-changing stocks is down 26% since June... is now the time to buy?

Andy originally recommended SodaStream in September of 2012, back when the stock was trading around $35 a share. At the time, Andy thought the company's contemporary soda maker could compete head to head against major soft drink companies like Coca-Cola (NYSE: KO) and Pepsi (NYSE: PEP). As he said of SodaStream back then:

Unsurprisingly, the machines and the flavorings are flying off the shelf. I like the device because it has a variety of sugar-free options. And the stuff is actually cost-effective versus name brands like Coca-Cola and Pepsi (NYSE: PEP), after the cost of the machine has been recouped. For families that drink a lot of soda, these savings can be appreciable -- or at least perceived as appreciable -- which might push a consumer into the roughly $100 purchase.

Turns out he was right. Just 11 months after his recommendation, the stock had already soared over 80% in value...



But after the meteoric rally and ensuing correction, the question becomes... does Andy still like the stock?

The short answer to that question: yes. In his most recent report -- "The Top 5 Game-Changers of Tomorrow" -- Andy details his bullish case for SODA:

SodaStream is going places. It's going into homes, and heaven only knows where else it could end up. My guess is that restaurant chains will figure out a way to make exclusive signature sodas that include alcohol, which would elicit thousands of machine sales and a significant quantity of lucrative customized product.

What's next?

I predict that sooner or later SodaStream is going to be acquired.

It's just too little money for too rich of an opportunity. At today's share price, SODA is worth $1.2 billion. In an acquisition, let's put the sticker price at an even $3 billion. Coke has nearly $10 billion in cash and nearly that again in short-term investments! Pepsi has almost $8 billion in cash on the books, plus enough inventory on hand to come up with another $4 billion.

John Thomas
05-08-2013,
?Tis the season: Amazon Smile is giving $20 to your favorite charity when you buy a Kindle Fire HDX during the next week.

Quote of the day

Brad Feld, ?Sometimes you have to stop doing things to make more progress.? (FeldThoughts)

Chart of the day



S&P 500 breadth continues to deteriorate. (The Short Side of Long)

Markets

Market bellwethers are rolling over. (Charts etc.)

The case for REITs. (SurlyTrader)

Affluent investors are holding onto cash like a security blanket. (FT)

Options skew is elevated. (The Short Side of Long)

Hedge funds

Hedge funds are getting crushed in 2013 by the runaway S&P 500. (Bloomberg)

Seth Klarman and David Tepper are returning cash to investors. (II Alpha, ibid)

Investors are pulling money from Eddie Lampert?s hedge fund. (Dealbook, WSJ)

Sears Holdings ($SHLD) is spinning off Land?s End. (Reuters)

Strategy

Why we should expose ourselves to opposing viewpoints. (Above the Market)

Options selling has not been a rough road the past few years. (research puzzle pix)

Why current retirement withdrawal strategies need a rethink. (Rekenthaler Report, InvestmentNews)

Technology

Palantir is now valued in excess of $9 billion. (Businessweek, Bits)

AngelList is the Nasdaq of our generation. (Andreas Klinger via @mattermark)

There are too many damn messaging apps. (TechCrunch)

ETFs

How big a problem is index-frontrunning. (IndexUniverse)

A closer look at the Cambria Foreign Shareholder Yield ETF ($FYLD). (TheStreet)

Where investors put their money in 2013. (Focus on Funds)

Global

Spanish stocks are overvalued. (FT Alphaville)

South Africa is getting crushed by the reversal of the commodity cycle. (Sober Look)

The case for greater public investment. (Economist)

Economy

The November non-farms payroll report surprises to the upside. (Calculated Risk, Capital Spectator, Daniel Gross, smithy Salmon, Bonddad Blog)

How the Fed will read the NFP report. (Real Time Economics, MoneyBeat)

Rail traffic is chugging along. (Pragmatic Capitalism)

Corporate profits just keep on increasing. (Calafia Beach Pundit)

The evolving nature of men in the US workforce. (Political Calculations)

Earlier on Abnormal Returns

Simplify your investing to avoid ?opportunities for failure?. (Abnormal Returns)

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

Mixed media

Bitcoin fraud is a thing. (Dealbook)

American teens are still watching television. (The Atlantic)

What the Lightning adapter says about Apple ($AAPL). (Daring Fireball)

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