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Thierry Martin
09-20-2013,
The Chart of the Day is Power Solutions International (PSIX). The stock was right near the top of the New High List when I sorted for its 346.20+ Weighted Alpha. Since the last Trend Spotter buy signal on 10/29 the stock has gained 18.41%.

They are engaged in producing and distributing power solutions for original equipment manufacturers of off-highway industrial equipment in the United States. The Company sells engines for stationary generators, oil and gas equipment, forklifts, aerial work platforms, industrial sweepers, arbor equipment, agricultural and turf equipment. They also offer low-emission standard fuel and hybrid power solutions, and diesel power systems.

Thierry Martin
09-20-2013,
Stuff I?m Reading this Morning?

Investing advice for the average investor from one of history?s most above-average investors ? here?s what Ray Dalio thinks you should do: (TheTell)

Everybody?s re-doing their ladders to get shorter: ?Investors yanked $61.8 billion from intermediate-maturity debt funds in the first nine months of the year,while pouring $46.2 billion into bonds maturing in less than three years? (Bloomberg)

The S&P 500 has now spent a full year above its 200-day moving average. Hope you didn?t spend all this time trying to short it. (CrossingWallStreet)

?buying IPO shares on the open market when they start trading ? represents the worst of both worlds, simultaneously paying the maximum price for the shares, and investing in a company that doesn?t even get the full benefit of its own IPO value.? (NerdsEyeView)

Barry: The recovery?s great if you were rich already. (Bloomberg)

Is Netflix?s new user interface really the future of TV? (Wired)

Is stock market efficiency actually hurting the economy? (Fortune)

When I hear ?Hedge Fund Trading Coach?, why do I think of Will Ferrell and Andy Dick doing an MTV Awards skit? (DealBook)

Will institutions ever starve the hedge fund beast? (FT)

This is like an Onion article ? economists just now realize that the poor behave differently than the rich in the real world. (BusinessWeek)

Dougie?s 10 Laws of Stock Market Bubbles is a great read. (TheStreet)

Cullen Roche: To detect bubbles, focus on fundamentals relative to people?s behavior. (PragCap)

Steve Ballmer has earned a cool $1.7 billion since firing himself. I may try this? (Quartz)

How?s this for a social experiment ? Switzerland is going to start paying every citizen a salary just for being alive. (NYT)

Evoking online trust. (SethsBlog)

These are the five best steakhouses in New York City. Let the riots commence as we all fight over this list ? to the death. (NYP)

Thierry Martin
09-20-2013,
My former employer, The Economist, once the ever tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its ?Big Mac? index of international currency valuations.

Although initially launched by an imaginative journalist as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.

The index counts the cost of McDonald?s (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.

What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the Hong Kong dollar, the Chinese Yuan (CYB), and the Thai Baht are cheap. I couldn?t agree more with many of these conclusions. It?s as if the august weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas.

I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool, than a speedy lunch.

Thierry Martin
09-20-2013,
?It always sounds smarter to be bearish than bullish,? said Ron Baron, CEO of Baron Capital Group.

Thierry Martin
09-20-2013,
As the market continues to flirt with all-time highs, a considerable amount of churn is taking place beneath the surface. Investors are increasingly flocking to companies that are seemingly big and safe, while shedding exposure to smaller and riskier names.

It's a logical move, considering the current bull market is getting along in years. Indeed, I extolled the virtues of mega-cap stocks back in August, and you can still find some great bargains among America's largest companies.

Yet if the market is going in this direction, it also means that smaller stocks are falling to levels that hold real appeal. And in no sector is this divergence more apparent than in biotechs. The biggest biotech stocks appear fully priced -- while their smaller brethren are now far from their 52-week highs.

Thierry Martin
09-20-2013,
One of the most underappreciated areas of health care is also instrumental for human development. Baby formula isn't exactly a market that many investors would consider a growth industry -- but that could be about to change.

The United Nations estimates that the world's population could hit 11 billion by 2100, up from a current 7 billion. That's many more mouths to feed. One of the biggest markets for baby formula is China: With 1.3 billion people and a birth rate of 1.2%, that's 15.6 million babies a year.

The baby formula market is huge and growing -- so what's the best way to invest in it?

Mead Johnson Nutrition (NYSE: MJN) is the only pure-play pediatric nutrition company, and one that has a strong presence in China, to boot.

Mead covers all stages of pediatric development, from newborns to 5-year-olds. It generates over 75% of its revenue from outside the U.S., most notably from China, which accounts for over 25% of its revenue. Infant formula makes up around 60% of revenues, with children's nutrition accounting for the other 40%. Mead's major products are sold under the Enfa brand.

Mead was spun off from Bristol-Myers Squibb (NYSE: BMY) in 2009. It hasn't been easy for Mead investors over the past couple of years, but things may be about to change: A cycling out of bad news could lead to a relief rally, while a rising middle class in China is driving long-term growth.

MJN has been on a roller-coaster ride over the past few years, with the latest pressure coming from a U.S. inquiry into Mead's China business.

Thierry Martin
09-20-2013,
Random Thoughts



It never ceases to amaze me that a market can be off to the races on one day and then have a shoulder shrug on the following day.

The Ps went straight up last Friday but on Monday they just sat there. They were able to tack on a smidge, and at these levels, that's enough to keep them just shy of all-time highs.

As I preach, you should never take an index at face value. However, unless there are a plethora of internal clues suggesting otherwise, you also shouldn't argue with a market that is at or very near all-time highs.

As I have been saying, there has been some internal weakness such as the recently mentioned debacle de jours. For the most part though, most sectors remain in uptrends and, like the market, many also remain at or near new highs.

With last Thursday's shakeout/fakeout behind us (in the spirit of a Double Top Trend Knockout, email me if you need the pattern), I still think this we could be seeing new highs on the horizon. You know the routine though, continue to take things one-day-at-a-time. In markets, you often get a big up day, a pause day, then upside follow through. So, hopefully, Monday's action was just the "pause that refreshes."

Bonds continued to slide but with somewhat less vigor. They appear to be returning to the bottom of their trading range-near the August/September. Hopefully, they stay in this range. A Goldilocks environment with stable rates and stocks rising would be awesome.

So what do we do? Although the buy signal in the Q's is still valid, to my surprise I'm still not seeing a whole lot of new meaningful setups. As I have been saying, this is probably a good thing. This could be the database telling us to continue to let things shake out a bit. Considering this focus mostly on the management of existing positions. As usual, honor your stops. As I've been discussing, stops can help to adjust your portfolio. If we continue higher, your shorts will stop out and all you'll be left with is longs.

Futures are soft pre-market.

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

Best of luck with your trading today!

Dave
omgmachines.com/ericx
__________

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

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

Thierry Martin
09-20-2013,
Quote of the day

Andrew Huszar, ?Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy.? (WSJ contra BI)

Chart of the day



The S&P 500 has spent the last year above its 200 day moving average. (Crossing Wall Street)

Markets

Ten laws of stock market bubbles. (Doug Kass)

A look at S&P 500 sector breadth. (Bespoke)

Everything you need to know about stock market crashes. (The Reformed Broker)

Strategy

When active management makes sense. (Rick Ferri)

Ray Dalio thinks you shouldn?t bother trying to generate alpha. (The Tell)

On the dangers of not knowing what you own. (research puzzle pix)

How to tidy up your financial life. (Bucks Blog)

If you don?t know how your financial advisor is compensated you may want to figure it out. (WSJ)

Congratulations David on ten years of investment writing. (Aleph Blog)

Companies

A stock to play the Bakken Shale boom. (Vitaliy Katsenelson)

Blackberry ($BBRY) needs a miracle worker. Maybe they have found it in new CEO John Chen. (Fortune)

Hedge funds

Hedge funds have turned to trading coaches to boost performance. (Dealbook)

Hedge funds have become big players in distressed muni bonds. (WSJ)

Why are institutions so tolerant of high hedge fund fees? (FT)

Finance

Corporate boards are getting coaches on how to deal with activist investors. (Dealbook)

Good luck trying to identify the victims of insider trading. (Dealbook)

Financial innovation is pretty depressing these days. (Bloomberg)

Is it time to start trying higher ticker sizes for small caps? (Term Sheet)

Thierry Martin
09-20-2013,
They say to never trust a skinny cook, the logic being that any chef who works in a kitchen all day and creates irresistible dishes probably can't help but overindulge and pack on a few pounds.

For much the same reason, I find it reassuring when a mutual fund manager invests their personal cash in his or her own fund. And I like it even better when CEOs and other top executives stash a sizable percentage of their net worth in their own company's stock.

Conventional wisdom says that it's a bullish sign when a company invests in itself through stock buybacks. If that's true (and in most cases it is), then what does it say when these same managers sink a few million dollars of their OWN money in the shares?

After all, board members, directors, chairmen and other upper executives know the business and the industry better than anyone else. Who understands the inner workings of Apple (Nasdaq: APPL) better than Tim Cook? Who has their finger on the pulse of online advertising quite like Google boss Larry Page?

These well-connected individuals also have access to privileged information that the rest of us don't get to see. That's not to insinuate anything underhanded; public companies don't have to disclose everything. The point is, when these people act, they do so with good authority.

Personally, I don't pay terribly much attention to insider sales. Can they be an indication of trouble ahead? Sure. But they could also mean that the seller is simply diversifying his holdings or raising cash to pay for his daughter's wedding or grandson's college education. Bottom line, sales aren't necessarily a red flag.

On the other hand, insider purchases tend to be far more instructive. You only invest in a stock for one reason: you believe it's undervalued and headed higher. And again, when a chairman or CFO is the one buying, you can bet they aren't doing it on a whim -- but have sound supporting evidence.
The numbers back this up. There have been numerous empirical studies done over the years to quantify the effect.

A recent study at the University of Illinois found that stocks receiving heavy insider support historically outperform the market by 4.8% in the year following the transactions.

These and other studies examined different groups of stocks under different methodologies. But taken together, they do point to the same conclusion: Stepped-up levels of insider buying often foreshadow market-beating returns.

If one inside buyer is a positive show of confidence, then two or three (or more) all buying in unison sends an even louder message.

With all this in mind, I went in search of stocks that had strong levels of insider ownership relative to the overall share count. And since I'm more interested with insider buying activity that has taken place over the past few weeks or months in anticipation of an upward move or positive catalyst, I screened for stocks whose insider buying volume through the third quarter had shown the biggest surge relative to the same point last year. To tighten up the results, I also looked for companies with steady earnings prospects and, of course, generous current yields (4% or better).

Here are some of the more notable stocks that made the cu

Thierry Martin
09-20-2013,
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
November 12, 2013

Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA

Thierry Martin
09-20-2013,
Stocks were heading lower on Tuesday morning on fears that the Federal Reserve may began tapering off on their stimulus. The $85 billion-per-month bond buying program has been going strong, but some fear that the cutting back may begin following the recent strong jobs data and the rise in Treasury yields. The Atlanta Fed President, Dennis Lockhart, and Minneapolis President, Narayana Kocherlakota, are due to make comments later this afternoon. Richard Fisher, President of the Federal Reserve Bank of Dallas, said, ?We?ve changed and impacted the markets because of our intervention and I understand there?s a sensitivity, but markets should also bear in mind that this program cannot go on forever. The balance sheet is $4 trillion and there are limits to what the Federal Reserve can do.?

Shares of BP were up slightly higher after the company announced that they reached a fuel supply deal with Russian oil firm Rosneft. The deal totals nearly $6 billion on refined products. This deal comes on the coattails of a deal made earlier this year for BP to purchase $5.3 billion in crude oil. That deal also followed the hiring of BP?s former senior trader, Marcus Cooper, to Rosneft as head of their trading business in Geneva. In the last year, Rosneft has been selling large amounts of crude oil to trading houses like Glencore, Vitol and Trafigura. The filing that went through today said that Rosneft agreed to sell up to 3.2 million metric tons of fuel, totaling nearly $2.6 billion, to BP Singapore between November 2013 and December 2014. They will also sell 1.44 million metric tons of diesel for $1.77 billion from the Black Sea port of Tuapse. Marcus Cooper, who took over the trading operations position in Geneva at Rosneft, said, ?BP will have a bigger trading presence in the straight-run fuel oil market in China. BP is taking a view on the straight-run market next year.?

Shares of Dendreon Corp (DNDN) were up over 7% after the company announced their plans to cut nearly 15% of their workforce. The company missed analysts?s sales expectations of their prostate-cancer drug and will slash 150 jobs to eliminate operating expenses. By cutting these jobs, Dendreon will save roughly $125 million in expenses, after the company takes a $7.5 million charge tied to severance pay this quarter and the following. The prostate-cancer drug Provenge came in with third-quarter revenue around $68 million, missing the $75 million analysts?s were expecting. This was down 13% from this same time last year. Mark Schoenebaun, an analyst with ISI Group, said, ?Despite the restructuring to save cash and runway, we believe the negative sales trajectory will put pressure back on the stock today.?

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

Thierry Martin
09-20-2013,
If you missed the news last week, U.S. GDP rose a reported 2.8% in the third quarter instead of the 2% economists expected. This was framed as bad news in many news stories because the jump resulted from businesses holding larger-than-expected inventories.

Just over a week earlier, the U.S. Census Bureau released a report on the inventory-to-sales ratio showing inventories weren't really a problem.

When a business sees sales rising, it will often increase its inventory to meet the higher demand. The relationship between inventory and sales can be summarized in a ratio that shows how many days' worth of inventory is available based on the amount of sales recorded in a day.

The inventory-to-sales ratio was 1.29 in the most recent report, which used data from August, down from 1.3 a year ago. Inventories rose 3.1% from a year ago, while sales increased 4.2% over that time. We would expect to see inventories increase if sales are rising, and the decline in the ratio shows that sales are rising faster than inventories.

News reports seem to reflect the mood of the market, and that is the basis for the "magazine cover indicator." According to this indicator, when the media develops a consensus, the market moves the other way. In other words, popular media can be a contrary indicator of the markets.

The magazine cover indicator has been the subject of academic research that supports its efficacy. One study, a 2007 University of Richmond paper titled "Are Cover Stories Effective Contrarian Indicators?" looked at feature stories in Businessweek, Fortune and Forbes over a 20-year period to determine whether positive stories are associated with superior future performance and negative stories are associated with inferior future performance for the featured company.

The paper's authors concluded that there is "a statistically significant correlation between the appearance on the cover of one of the magazines and the subsequent performance of the company's stock."

Over the years, it has been applied not only to stocks, but to the market as a whole.

In addition to bullish cover stories, there is constant media coverage of the markets, and in our opinion, that coverage has taken on a bearish tone. The GDP report is one example. The Twitter (NYSE: TWTR) IPO is another.

Many articles compared Twitter's first day of trading to the 1999 Internet bubble. Twitter may be overvalued, but one example is not enough to demonstrate a bubble. The 1999 stock market was unique, and the media coverage of the time was uniformly bullish, as day traders became media stars. The magazine cover indicator worked in 1999 as that market turned lower while the news was bullish.

Thierry Martin
09-20-2013,
The nature of capitalism is both competitive and evolutionary. When entrepreneurs strike upon a bold new idea like social media and begin to profit from it, it?s just a matter of time before that idea spawns legions of competitors. As that industry matures, only the fittest ultimately survive and prosper, with companies like Facebook (FB) and Twitter (TWTR) currently dominating the public equity space. Intriguingly, one small but unique over-the-counter concern, Quint Media, Inc. (QUNI) recently arrived on the social media scene with a singular goal: to render these other established social media sites obsolete.

Quint Media, Inc., operates as a digital and social media company in the United States. It focuses on connecting people with content relating to their passions, interests, and each other. The company?s Quint Media network is engineered with a digital ecosystem, matching content that is customized to user-interests. It primarily focuses on brands relating to lifestyle, entertainment, and fashion.

On Monday, Quint unveiled its flagship product, the Exley digital entertainment news platform?designed to be the ?TMZ? of smartphones worldwide. In case you?re not familiar with TMZ, it?s currently television?s premier celebrity news, gossip and video site, which also has an online presence. Exley is just the first of many entities that Quint plans to roll out as part of its strategy to become a global media network.

Specifically, Quint is aiming to get the drop on TMZ and established ?old school? social media entities by optimizing Exley?s content, along with all of the company?s subsequent social media endeavors?for smartphones. In fact, Quint management is operating under the fundamental premise that social media first-movers like YouTube and Facebook are at a fundamental disadvantage when it comes to exploiting the power and immediacy of smartphones. That?s because the smartphone revolution occurred well after these companies initially drew up their business plans?with those heavy-hitters initially focused on lap-top based advertising models.

Looking at the chart below, you don?t have to be business major or statistician to fully appreciate the remarkable growth story that smartphones have become.

Thierry Martin
09-20-2013,
Change is the only constant in the world.

This is particularly true when it comes to the Internet. It was only in 1989 when the first commercial dial-up Internet service provider (ISP) was launched. Few realized that this ISP, named The World, would spark a radical global revolution.

Visionary companies jumped on board as the public started using the Internet as a means of shopping, information and entertainment. Many companies took to the stock markets to raise capital for a foray into the Internet frontier. If your company name included "dot-com," investment banks were probably clamoring to take it public. Companies that were little more than an idea and some rented office space were able to raise millions quickly and easily.

Not since the Dutch tulip mania of the 1600s had the world seen such an investment frenzy, but the vast majority of these companies failed to gain traction after the initial hype. Names like Webvan, eToys.com, Flooz.com and Kozmo.com, plus hundreds of others, have been relegated to the dustbin of history despite massive funding and the leadership of aggressive, intelligent entrepreneurs. Many of these firms were simply before their time, as consumers and businesses just weren't ready to use the products and services offered.

The Internet craze cumulated in the bursting of the dot-com bubble in 2000. Billions of dollars were lost by investors and the first wave of Internet companies. Most folded, never to be heard from again -- but a few survived the debacle and are with us to this day.

One of these dinosaur companies is among the earliest ISPs. Promoting itself with the relentless mailing of disks offering free Internet access trials, this company was soon part of the largest corporate merger in history.

This dinosaur, of course, is none other than AOL (NYSE: AOL).

This iconic ISP launched its IPO in 1992 at $11.50. Shares rocketed more than 680% by 1999, and after a series of acquisitions, old-school media empire Time Warner (NYSE: TWX) agreed to merge with AOL, creating the biggest media company on the planet.

Since that time, the company has struggled to find its footing. By 2003, shares of AOL Time Warner closed at just $15, and AOL now seems torn between its role as a once-leading Internet portal and its current role as a media company.

A decade later, AOL is still struggling, but the future looks bright for investors. Although net income plummeted 90% in the third quarter from a year ago, revenue increased 6%, to more than $560 million. The drop in net income was due to a write-down of AOL's troubled local news segment, Patch. AOL's shares could continue to climb higher if the company focuses on its primary competencies and cuts costs rather than throwing good money into ill-suited ventures.

One of the primary reasons for my optimism is the growth of real-time bidding and digital display advertising. Spending on automated ads is forecast to grow nearly 74% to more than $3.3 billion this year, according to eMarketer. AOL has an AdTech unit that specializes in targeting high-end, cutting-edge digital advertisers. It is this market that will serve as the catalyst to improve AOL's bottom line. The company recently launched a sell-side platform called Marketplace, which helps advertisers maximize their value. AOL has positioned itself to capture this next wave of advertising revenue.

A look at the technical picture shows shares have spiked from a low in the $33 range in mid-October to a high just above $43 before recently hitting resistance.

Risks to Consider: Despite the recent upswing, AOL is still struggling. Massive cost cutting is needed to keep the company on track for increased profits. Always use stop-loss orders and diversify when investing.

Action to Take --> I am a firm believer in the future of digital display advertising and real-time buying platforms. AOL is positioned to capture a share of this rapidly growing market. Buying on a breakout close above $43 with an 18-month target price of $65 and a $38 initial stop level makes solid technical and fundamental sense right now.

- David Goodboy

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

The Japanese Bull Market turns one. (CassandraDoesTokyo)

How Wall Street sees the world in one slide. (BusinessInsider)

All of a sudden iron ore shipments to China are exploding. (Bloomberg)

John Hussman: All the classic signs of a crash are manifesting themselves, so why will this time be different? (ZeroHedge)

Greggy: If there's going to be a crash, it'll be in the Treasury market. (DragonflyCapital)

Yes, the equal-weight S&P 500 ETF generates significant alpha - but hold up, wait a minute! (IndexUniverse)

LOL, the average private equity investor merely breaks even. (FocusOnFunds)

Time to slay some of these zombie hedge funds and put them out of everyone's misery. (Hedgeweek)

Matt Levine: Financial innovation is depressing. (Bloomberg)

Just how crowded is the "low volatility anomaly" trade right now? Craig Lazarra of S&P Dow Jones Indexes weighs in. (ETFTrends)

Finra is surprisingly candid in its report on the inherent conflicts of the brokerage industry (spoiler alert: the whole f*cking thing is one giant conflict): (NerdsEyeView)

Lockheed Martin working on a terrifying new vehicle that can fly, swim and drive on land. (FloatingPath)

Meet David Merrell, the financial advisor who located his office inside a fitness gym. (WSJ)

REMINDER: Backstage Wall Street is now on Kindle!


The Reformed Broker

Thierry Martin
09-20-2013,
Income investors often set a minimum dividend yield as a requirement for their buy decisions. That eliminates a number of stocks from consideration. This requirement could also increase market risk since it tends to limit investments to just a few sectors.

A diversified portfolio should hold more than large drug companies and big-name tech stocks that are no longer growing rapidly but are paying large dividends. Covered calls can increase the number of stocks that income investors can select from and help them diversify their portfolio without sacrificing income.

A covered-call strategy involves selling call options on a stock you own. Selling calls generates instant income known as a premium.

A covered call allows you to participate in the upside of the stock, while the income will help offset any downside. This is an excellent strategy for income investors to consider, and I want to use an example of a trade I like right now to illustrate the amount of income that is possible.

Arkansas Best (Nasdaq: ABFS) is a trucking company that has been around since 1935. It operates about 3,700 tractors and 20,000 trailers in long-haul and local pickup delivery operations. Arkansas Best also provides logistics support to its customers, using its IT systems to help companies manage inventory and schedule deliveries and pickups. Additionally, it leverages its internal processes and infrastructure to provide emergency roadside assistance to other trucking companies.

Revenue grew 25% last year and 45% in the first quarter of 2013. For the full year, analysts expect 9.4% revenue growth.

The company is stable but has been unprofitable for several years. Analysts expect a return to profitability this year with earnings per share (EPS) of $0.21 and a significant jump in profits to $1.70 a share in 2014. If they are right, now would be an ideal time to invest in ABFS.

Income investors, however, might not like the low dividend of $0.12 a year, a yield of just 0.4%. But the company has demonstrated its commitment to rewarding shareholders

Thierry Martin
09-20-2013,
During bull markets, often the best way to trade is to go with the momentum. That's usually the route I like to take, but there's another way to trade that can also net you big results.

That is to identify sectors that have come under fire that have the potential to move much higher -- that is, value trades. The multi-national industrial mining sector fits this bill.

One great way to invest in this sector is with iShares MSCI Global Metals & Mining Producers (NYSE: PICK). This exchange-traded fund (ETF) holds the biggest industrial mining companies, including BHP Billiton (NYSE: BHP), Freeport-McMoRan Copper & Gold (NYSE: FCX) and Rio Tinto (NYSE: RIO).

Although PICK is down 12% year to date, the fund has seen some strong buying during the past four months, rising 27% since its July 5 low.

Thierry Martin
09-20-2013,
There are only 4 days left until the equity option expiration on November 15. My short dated November expiration play turned out to be wildly successful, with all nine of these trades quickly turning profitable. Including the six positions we now have on board, the last 14 consecutive Trade Alerts have been profitable, raising the success rate of our service to a stunning 85%.

The Mad Hedge Fund Trader?s model trade portfolio has three remaining positions that are deep in-the-money that expire that day. So, it is important that we tread carefully to get the full benefit.

I received a few emails from readers whose option holdings have already been exercised against them, and have asked me for advice on how best to proceed. So, here we go.

The options traded on US exchanges and referred to in my Trade Alerts are American style, meaning that they can be exercised at any time by the owner. This is in contrast to European style options, which can only be exercised on the expiration day.

The call option spreads that I have been recommending for the past year are composed of a deep out-of-the-money long strike price plus a short portion at a near money strike price.

When stocks have high dividends, there is a chance that the near money option you are short gets exercised against you by the owner. This requires you to deliver the stock equivalent of the option you are short, plus any quarterly dividends that are due. Don?t worry, because your long position perfectly hedges you against this possibility.

You usually get notice of this assignment in an email after the close. You then need to email or call your broker back immediately informing him that you want to exercise your remaining long option position to meet your assigned short position.

This is a gift, as it means that you can realize the entire maximum theoretical profit of the position without having to take the risk of running it all the way into expiration. You can either keep the cash, or pile on another short dated option spread position and make even more money.

This should completely close out your position and leave you with a nice profit. This is not an automatic process and requires action on your part!
Assignments are made on a random basis by an exchange computer, and can happen any day. Exercise means the owner of the option that you are short completely loses all of the premium on his call.

Dividends have to be pretty high to make such a move economic, usually at least over 3% on an annual rate. But these days, markets are so efficient that traders, or their machines, will exercise options for a single penny profit.

Surprise assignments create a risk for option spread owners in a couple of ways. If you don?t check your email every day after the close, you might not be aware that you have been assigned. Alternatively, such emails sometimes get lost, or hung up in local servers or spam filters, which occasionally happens to readers of my own letter.

Then, you are left with the long side deep out-of-the-money call alone, which will have a substantially higher margin requirement. This is equivalent to going outright long the stock in large size.

This is a totally unhedged position now, and suddenly, you are playing a totally different game. If the stock then rises, you could be in for a windfall profit. But if it falls, you could take a big hit. Better to completely avoid this situation at all cost and not take the chance. You are probably not set up to do this type of trading.

If you don?t have the cash in your account to cover this, you could get a margin call. If you ignore this call as well, your broker will close out your position at market without your permission.

It could produce some disconcerting communications from your broker. They generally hate issuing margin calls, and could well close your account if it is too small to bother with, as they create regulatory issues.

In order to get belt and braces coverage on this issue, it is best to call your broker and find out exactly what are their assignment policies and procedures. Believe it or not, some are still in the Stone Age, and have yet to automate the assignment process or give notice by email. An ounce of prevention could be worth a pound of cure here. You can?t believe how irresponsible some of these people can be.

Consider all this a cost of doing business, or a frictional execution cost. In-the-money options are still a great strategy. But you should be aware of all the ins and outs to get the most benefit.

Thierry Martin
09-20-2013,
Many investors look to buy and sell stocks based solely on near-term business conditions. If management raises guidance for the next quarter, shares rally. And if management takes note of some near-term headwinds, investors flee.

A great example: Shares of insurance giant American International Group (NYSE: AIG) fell 6.5% on the day of its earnings release in late October when CEO Robert Benmosche noted that the company's property and casualty insurance businesses were far healthier than a few years ago but still not generating the returns that they should.

Investors were also disappointed that a planned asset sale of its aircraft lease finance business may not happen. AIG could instead sell part of that business in an IPO and retain a majority stake.

Thierry Martin
09-20-2013,
With stocks continuing to deliver gains week after week, the question is: Which ones should be the strongest over the short term? According to the charts, tech stocks might have an edge.

Economic News Keeps Fed on Hold
SPDR S&P 500 (NYSE: SPY) gained 0.61% last week, closing higher for the fifth week in a row. The gain was due to a 1.35% rally on Friday that reversed losses for the week.
SPY has now closed higher in 16 of the past 22 days (73%) since bottoming in early October. This is an unusually strong market. Over the past 1,000 trading days, there has been an average of 12 up closes over 22 days (54.5%). Strength in the stock market is often followed by more strength, and I expect to see more gains in the stock market in the next few weeks.

Friday's gains could show that traders are getting comfortable with economic growth. GDP could grow as it did in the third quarter while unemployment remains high, a combination that should keep Fed policy on hold. This is bullish for the stock market.

Friday's reversal came after GDP beat expectations and stock prices fell on Thursday. On Friday, the employment report showed that a strong economy will not be enough to lower unemployment and force the Federal Reserve's hand.

One of the Fed's objectives for quantitative easing is to reduce unemployment. October data showed there were a significant number of jobs created, but the percentage of the population in the workforce fell to a 35-year low. The report also showed an unusually high percentage of part-time jobs in the economy.

These two facts indicate that the unemployment rate might not drop even as thousands of jobs are created. Potential workers that have left the labor force could reenter the workforce when they believe jobs are available. Employers might also be able to expand their businesses without hiring by converting part-time jobs to full-time jobs, which will not impact the overall unemployment rate.

This is a difficult employment environment for the Fed to tackle, and it has tied the end of QE to lower unemployment.

If stocks continue higher, as they should for at least the next month or so, PowerShares QQQ (Nasdaq: QQQ) could be the leader into the end of the year.
The chart below shows QQQ with the KST indicator. This indicator was developed by Martin Pring, who explained its name as follows:

"Tired of hearing market forecasters talking about their indicators as if they were guaranteed to make the user rich, I called it the KST, because it stands for 'K'now 'S'ure 'T'hing. I've learned after all my years trading that nothing is a sure thing, but the indicator does offer a good charting rendition of the economic growth path that revolves around the business cycle."

Thierry Martin
09-20-2013,
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.

In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.

Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.

When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.

GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.

Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.

Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.

GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.

GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.

GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.

I think an investment in GTAT at these low levels could pay off big.

Thierry Martin
09-20-2013,
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.

In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.

Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.

When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.

GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.

Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.

Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.

GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.

GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.

GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.

Thierry Martin
09-20-2013,
For today's essay, it would be wise to remember the old investing adage: "The trend is your friend."

As most investors already know, investing in trends is one of surest ways to success in the stock market. But while the phrase itself is simple enough to understand, we often find that most investors don't know which trends to follow... or even worse, invest in the wrong ones.

Specifically, we generally find that investors want to focus on economic trends... things like interest rates and global debt/GDP ratios. Some investors go so far as to follow the cover model for the current year's issue of The Sports Illustrated Swimsuit Edition, believing that when the model comes from the U.S., the S&P 500 is likely to outperform.

Not to berate the homemade economists of the day, but these investors are most likely wasting their time.

The truth is, economic trends can (and should) be mostly ignored by investors.

Even economists -- people who have dedicated their entire lives to following macroeconomics -- can't accurately predict when a major economic event has (or will) occur. It took the National Bureau of Economic Research (NBER) 15 months to announce that the recession ended in 2009 was officially over.

But if not the economy, then what trends should investors focus on?

StreetAuthority analyst Michael J. Carr answers that question in his latest issue of Maximum Profit. As Michael recently told his subscribers:

As investors, it is more important to focus on trends within the stock market rather than trying to beat the experts to a recession call. As the strength of the economy changes, investors move between different sectors in the stock market. Spotting these trends can be more valuable than beating the NBER to announce when a recession starts.

As the economic cycle progresses, investors become more and less aggressive. This behavior leads to sector rotation in the stock market.

As one of the largest investment research companies in the country, our experts here at StreetAuthority have made careers out of assessing these kinds of trends. From commodities specialist Dave Forest to our resident high-yield expert Nathan Slaughter -- there isn't a corner of the investing universe that doesn't get covered by at least one of our talented analysts.

Michael J. Carr has now taken that research one step further...

A few months ago Michael developed an investing system designed to individually analyze each of the trends that the StreetAuthority analysts are covering. Using this proprietary system, Michael weeds through all the analysts' recommendations -- across all their premium newsletters -- and selects the stocks he thinks have the most potential to outperform the market in the coming months.

The results thus far have been promising...

On August 16, Michael's system identified a "buy" on Hexcel Corp. (NYSE: HXL), a $4 billion industrial manufacturing company with a focus on lightweight materials used to build airplanes and wind turbines.

Amy Calistri originally identified Hexcel in her August issue of Stock of the Month. At the time, Amy thought growing orders for airplanes would spur demand for the company's lightweight transportation materials.

Turns out she was right.

Thierry Martin
09-20-2013,
The Chart of the Day is Ubiquiti Networks (UBNT). I found the stock by using Barchart to sort today's New High List for Weighted Alpha and this stock was 280.70+. You can see from the chart that there have been a series of Trend Spotter buy signals including the one on 9/26. Since then the stock is up another 18.98%.

They are engaged in the business of designing, manufacturing and selling broadband wireless solutions worldwide. Their products and solutions include radios, antennas and management tools and other applications in the unlicensed radio frequency spectrum.

Thierry Martin
09-20-2013,
Random Thoughts


You have to be careful not to chase your own tail when a market is hovering around new highs.

Thursday was ugly but Friday was a do over for the Ps and Rusty.

The Quack snapped back nicely too but didn't quite erase all of Thursday's losses. Still, over a 1 ?% gain is nothing to sneeze at.

As I said on Friday morning: "...if, and that's a big if, the market rallies an takes out Thursday's high, I think it would be off to the races. It would suggest that Thursday's action was just a shakeout/fakeout. In fact, I'm seeing buy setups in the Q shares. They have a Double Top Knockout look to them (email me if you need the pattern).

Errata-On Friday I wrote "inverse Q shares." I meant to write "leveraged." I know, big difference.

Considering the above, now that the shakeout/fakeout is behind us, I think this we could be seeing new highs on the horizon. You know the routine though, take things one-day-at-a-time.

Thierry Martin
09-20-2013,
As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.

That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.

Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.

Here?s Goldman?s chart ?

Thierry Martin
09-20-2013,
As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.

That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.

Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.

Here?s Goldman?s chart ?

Thierry Martin
09-20-2013,
Quote of the day

Josh Brown, ?If the entities in control of trillions of dollars all want asset prices to be higher at the same time, what the hell else should you be positioning for?? (The Reformed Broker also BI)

Chart of the day



Forget IPOs. Companies are issuing bonds and secondaries at a record clip. (WSJ)

Markets

Are we in a bubble? (Crossing Wall Street)

The case for muni bonds. (The Guardian)

More signs of investor enthusiasm for equities. (FT Alphaville, WSJ)

The implied volatility on gold miners is coming down. (Focus on Funds)

Apple

Japan has become a growth market for iPhones for Apple ($AAPL). (WSJ)

On the disconnect between Apple the company and its stock. (Kevin Kelleher)

Thierry Martin
09-20-2013,
Carl Icahn, Henry Kravitz, Sumner Redstone and a host of other financial pros make their money by using complex strategies that reduce risk while maximizing potential gains. However, there is one strategy that towers above all others when it comes to minting members of the billionaires' club.

The best part is that today, every investor can participate in this strategy -- without the need for hundreds of millions of dollars, inside information, or a seat at the corporate roundtable. This strategy, which was very popular in the 1980s, has enjoyed a dramatic resurgence during the bull market of the past several years, thanks to huge corporate cash reserves, low interest rates and volatility, and the increasing importance of cutting costs and boosting growth to keep shareholders happy.

That's the funny thing about bull markets: No matter how high the market climbs or the returns earned, it's never enough to gratify investors. That's why this strategy has become so popular that more than $650 billion of transactions have taken place this year alone, with the biggest deals creating headlines around the world.

The strategy I'm talking about is mergers and acquisitions, or M&A. You may have heard of the Warren Buffett-led $23 billion takeover of Pittsburgh-based ketchup maker Heinz and the merger of airlines U.S. Airways (NYSE: LCC) and AMR Corp. Those deals and many others have taken place this year alone. Pending deals include private equity firm Cerberus Capital Management looking to buy BlackBerry (Nasdaq: BBRY) and clothier Men's Wearhouse (NYSE: MW) being pursued by rival Jos. A. Bank (Nasdaq: JOSB).

The way through which big investors -- even those not directly involved with individual M&A deals -- make fortunes is with a strategy known as merger arbitrage. In fact, you don't even have to be a big investor to use merger arbitrage, which is simply the selling of the acquiring company's shares and the concurrent buying of the acquired company's stock. The way it works is the target company's shares often sell at a discount to the value of the company doing the acquisition due to the risk of the merger not occurring or being delayed. It is the difference in price -- which becomes profit for the investor.

Thierry Martin
09-20-2013,
Apocalyptic fears have gripped the minds of Americans over the past few years, and Hollywood has capitalized on them with movies, television series and reality shows. While a zombie virus may be far-fetched, fears of inflation and market volatility are better grounded in reality.

Out of Alabama comes a story that underlines what becomes important if inflation really does get out of control. A would-be car buyer whose credit was less than exemplary made an unconventional down payment -- a shotgun.

While this is certainly more of a lesson in subprime lending standards going beyond real estate, there is a small sliver of knowledge to take away here. In a highly inflationary environment, gold becomes less important than "real" hard assets -- practical items like food, water, shelter and, of course, weapons.

Before the survivalists start sending this article to everyone they know, let's step back and take a look at the gun-making industry from a pragmatic point of view. We know that fear creates opportunities for profit, and this is reflected in the number of gun sales amid the Obama administration's position on gun control.

Shares of gun makers have soared this year: Smith & Wesson (Nasdaq: SWHC) is up 34%, and Sturm, Ruger & Co. (NYSE: RGR) is up 63%. Even after Congress rejected new restrictions on gun ownership, these companies have continued to post record gains.

Smith & Wesson has been reporting impressive numbers and yet remains undervalued by Wall Street. It has a price-to-earnings growth (PEG) ratio of just 0.3, and in its most recent quarter, earnings rose 42% from the same period last year. Margins have been climbing as well, to 42% from last year's 37%. Management is optimistic and has raised its expectations for next year, to $615 million in revenue and earnings per share (EPS) in the range of $1.30 to $1.35. The company also expects annual growth of more than 30% over the next five years.

Smith & Wesson's price-to-earnings (P/E) ratio of just 8.5 compares favorably with its largest competitor, Sturm Ruger, which trades at 15.3 times earnings. Smith & Wesson looks better from a price-to-sales standpoint as well, at 1.2 versus 2.3 for Sturm Ruger. The fact that Sturm Ruger reported EPS gains of 72% but has a forward P/E of 18 is evidence that the Street views its growth as unsustainable.

Smith & Wesson is also committed to developing better products, as seen in its increase in R&D spending, up to $1.3 million from $1.1 million in the same quarter last year. The focus on superior weapon manufacturing seems to be paying off. Recently, the company signed a five-year contract with the Los Angeles Police Department, which was impressed by the quality of its trademark M&P pistol series.

Smith & Wesson is growing at more than twice the industry's expected rate of 13%, but considering that it's trading at less than 9 times earnings, SWHC would still look like a buy if it were growing at half its expected rate. SHWC currently does not pay a dividend, but management recently announced a $15 million round of share buybacks.

The average analyst target price for this stock is about $13.50, which gives Smith & Wesson 27% upside from current price levels.

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

Hedge funds cutting their bullish bets on gold. (Bloomberg)

"In short, it looks as if developed economies? central banks will unleash further monetary easing on their economies and hence the global economy." (BusinessInsider)

Jason Zweig: There are worse things on earth than carrying cash at a negative return in a bull market. (WSJ)

Look who's hiring and spending again! State and local governments become a tailwind. (CalculatedRisk)

For some reason, JPMorgan and other big banks may be rethinking having their traders in chatrooms with names like "The Cartel". (WSJ)

Howard Marks, Warren Buffett, Josh Harris and other value investors made the crisis their bitch. (NYT)

How many simple simon traders just got their heads blown off by that false inverse head-n-shoulders in the TLT? (PriceActionLab)

Oh no, they're writing articles about how Mom & Pop are buying stocks again! Probably a guaranteed top because we're all such clever contrarians, aren't we. (WSJ)

The secret to investing is that there is no secret to investing. (ValueWalk)

When Wall Street packages managed futures for their retail clients, the result is billions of fees paid and zero gains leftover for investors. And somehow you're surprised by this. Are you new here? (WaPo)

Vitaliy Katsenelson's favorite stock to play the Bakken Shale. (InstitutionalInvestor)

All those "smart beta" ETFs based on backtesting the last 30 years downplay how unique the environment has been. (FocusOnFunds)

Investors are using the GREK ETF to frontrun Greece's entry into MSCI's Emerging Markets indices. (ETFTrends)

Morgan Stanley wealth manager arrested for secretly filming multiple girls having sex with him. (DailyNews)

How badass is Amazon? They've just convinced the US Postal Service to begin making Sunday deliveries for them. (NYT)

I LOVE this photo series of once-great bank buildings repurposed for the McConomy. (BusinessInsider)

REMINDER: Backstage Wall Street is now on Kindle!

Thierry Martin
09-20-2013,
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.

In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.

Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.

When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.

GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.

Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.

Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.

GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.

GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.

Thierry Martin
09-20-2013,
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.

In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.

Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.

When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.

GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.

Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.

Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.

GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.

GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.

GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.

I think an investment in GTAT at these low levels could pay off big.

Thierry Martin
09-20-2013,
This month, The Reformed Broker blog turns five years old.

I'm not exactly sure which day in November of 2008 was my first day and I forgot what my first post was about. I've written more than 8,000 posts here since then, I can't say I remember each of them but my hope is that I at least remember the kernel of truth of the realization that each of them have been built around.

Because that's what this is all about, after all.

Each year on TRB's blogiversary, I do a bit of an internal inventory, taking stock of what's changed over the prior year. This has been a pretty momentous one for me.

In 2013, I became a full-time cast member of both Fast Money and the Halftime Report on CNBC, arguably the two most interesting and dynamic shows in all of financial TV, warts and all. Each day, I get to interview the world's greatest market minds as they pass through - El-Erian, Gundlach, Arnott, Gabelli, Wein, Roach, Acampora, Icahn, Bogle, Birinyi, Yamada, the list is endless - almost every day another multi-billion dollar asset manager or strategist whose brain I can pick. It's an amazing experience, I'm seeing the markets through a lens that I could never have imagined years ago.

I've surpassed 60,000 followers on Twitter and have seen millions of unique users come through the blog over the last year. I've been named to all kinds of awesome lists:

Top 140 Twitter Feeds of 2013 (TIME)
Most Innovative People Under 40 (Business Insider)
Bloomberg's Twitter A-List (Think Advisor)
Top Financial Advisors on Twitter (WSJ)
106 Finance people to Follow (Business Insider)

There are more, I'm never not blown away and grateful, especially when I respect so many of the other people on these lists. I really appreciate the members of the media and the press who continue to reference my stuff and link to the site. It means a lot to me personally.

Barry and I also launched our own firm this past year, turning our financial advisory and asset management practice into its own RIA. The preparation and hard work that went into this cannot be overstated, we killed ourselves to get every detail right from the outset - to make sure there would be minimal disruption to the clients. It worked, thank God. Everything has gone better than we could have hoped for. We owe a lot of people.

Thierry Martin
09-20-2013,
This month, The Reformed Broker blog turns five years old.

I'm not exactly sure which day in November of 2008 was my first day and I forgot what my first post was about. I've written more than 8,000 posts here since then, I can't say I remember each of them but my hope is that I at least remember the kernel of truth of the realization that each of them have been built around.

Because that's what this is all about, after all.

Each year on TRB's blogiversary, I do a bit of an internal inventory, taking stock of what's changed over the prior year. This has been a pretty momentous one for me.

In 2013, I became a full-time cast member of both Fast Money and the Halftime Report on CNBC, arguably the two most interesting and dynamic shows in all of financial TV, warts and all. Each day, I get to interview the world's greatest market minds as they pass through - El-Erian, Gundlach, Arnott, Gabelli, Wein, Roach, Acampora, Icahn, Bogle, Birinyi, Yamada, the list is endless - almost every day another multi-billion dollar asset manager or strategist whose brain I can pick. It's an amazing experience, I'm seeing the markets through a lens that I could never have imagined years ago.

I've surpassed 60,000 followers on Twitter and have seen millions of unique users come through the blog over the last year. I've been named to all kinds of awesome lists:

Thierry Martin
09-20-2013,
Quote of the day

Todd Wenning, ?The key to managing investment mistakes, as I?ve come to learn the hard way, is to admit them quickly, correct the mistake, and use the expensive lesson to improve your investment process.? (Clear Eyes Investing via Monevator)

Chart of the day

Thierry Martin
09-20-2013,
As one of the original wise men of the financial blogosphere, David Merkel has always been a crucial read for me.

In 2004, he had done a magnificent piece on the fundamentals of market tops for TheStreet.com's Real Money pay site. Thankfully, Barry excerpted the post for The Big Picture back in 2006 so it exists on the modern web, outside the catacombs. Tom Brakke unearthed it this morning and I got the chills reading it just now - all of the fundamental signs of a top that David discussed nine years ago can be observed in the markets today.

It's uncanny how things never change. Read this and tell me you don't see these exact same things playing out as we speak.

Here's David (via Barry via Tom, lol)...

***

Item 1: The Investor Base Becomes Momentum-Driven
Valuation is rarely a sufficient reason to be long or short the market. Absurdity is like infinity. Twice infinity is still infinity. Twice absurd is still absurd. Absurd valuations, whether high or low, can become even more absurd if the expectations of market participants become momentum-based. Momentum investors do not care about valuation; they buy what is going up, and sell what is going down.

You?ll know a market top is probably coming when:

a) The shorts already have been killed. You don?t hear about them anymore. There is general embarrassment over investments in short-only funds.

b) Long-only managers are getting butchered for conservatism. In early 2000, we saw many eminent value investors give up around the same time. Julian Robertson, George Vanderheiden, Robert Sanborn, Gary Brinson and Stanley Druckenmiller all stepped down shortly before the market top.

c) Valuation-sensitive investors who aren?t total-return driven because of a need to justify fees to outside investors accumulate cash. Warren Buffett is an example of this. When Buffett said that he "didn?t get tech," he did not mean that he didn?t understand technology; he just couldn?t understand how technology companies would earn returns on equity justifying the capital employed on a sustainable basis.

d) The recent past performance of growth managers tends to beat that of value managers. In short, the future prospects of firms become the dominant means of setting market prices.

e) Momentum strategies are self-reinforcing due to an abundance of momentum investors. Once momentum strategies become dominant in a market, the market behaves differently. Actual price volatility increases. Trends tend to maintain themselves over longer periods. Selloffs tend to be short and sharp.

f) Markets driven by momentum favor inexperienced investors. My favorite way that this plays out is on CNBC. I gauge the age, experience and reasoning of the pundits. Near market tops, the pundits tend to be younger, newer and less rigorous. Experienced investors tend to have a greater regard for risk control, and believe in mean-reversion to a degree. Inexperienced investors tend to follow trends. They like to buy stocks that look like they are succeeding and sell those that look like they are failing.

g) Defined benefit pension plans tend to be net sellers of stock. This happens as they rebalance their funds to their target weights.

Item 2: Corporate Behavior
Corporations respond to signals that market participants give. Near market tops, capital is inexpensive, so companies take the opportunity to raise capital.

Here are ways that corporate behaviors change near a market top:

a) The quality of IPOs declines, and the dollar amount increases. By quality, I mean companies that have a sustainable competitive advantage, and that can generate ROE in excess of cost of capital within a reasonable period.

Thierry Martin
09-20-2013,
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.

Investing

Personal finance for (Twitter) engineers. Advice from Wealthfront. (Business Insider)

An interview with Michael Mauboussin author The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing on the role of luck and
skill in investing. (Forbes also Inc.)

Morgan Housel talks with Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. (Motley Fool)

Can Legos ever be an investment? (Monevator)

The story of Jesse Livermore, the greatest trader who ever lived. (Crossing Wall Street)

Finance

Some advice for young investment professionals. (A Dash of Insight)

David Swensen does not have nice things to say about Wall Street. (Yale Daily News via @m_c_klein)

A rave review for A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A by John Weir Close. (Economic Principals)

How to use the Heath brothers? book Switch: How To Change Things When Change Is Hard to drive client behaviors. (Nerd?s Eye View)

Economics

A dozen investors comment on the folly of macroeconomic forecasting. (25iq)

What can we learn from the Great Depression. (Free exchange)

John Kay recommends five books on ?economics in the real world? including David Landes? The Wealth and Poverty of Nations. (Five Books)

Technology

What can we learn from 37 billion dollar startups launched since 2003. (TechCrunch also A VC, Nabeel Hyatt, Version One Ventures)

The genius of Twitter ($TWTR) is that harnesses some very basic human impulses. (Businessweek)

Because of the use of autopilot, pilots are ?forgetting how to fly.? (The Atlantic)

Energy

Technology is disrupting the electric utility model. (The Atlantic)

Why diesel is more expensive than gas in the US. (Business Insider)

An excerpt from Gregory Zuckerman?s The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters. (The Atlantic)

Food

The hunt for a better egg. (WSJ)

The legacy of the late chef Charlie Trotter. (NYTimes)

Sports

Why kids are losing interest in baseball. (The Atlantic)

What would happen if baseball went to a 16-game schedule? (Joe Posnanski via kottke)

What it is like to be a minimum wage player in Major League Soccer. (BuzzFeed)

Entertainment

Thierry Martin
09-20-2013,
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.

Investing

Personal finance for (Twitter) engineers. Advice from Wealthfront. (Business Insider)

An interview with Michael Mauboussin author The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing on the role of luck and
skill in investing. (Forbes also Inc.)

Morgan Housel talks with Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. (Motley Fool)

Can Legos ever be an investment? (Monevator)

The story of Jesse Livermore, the greatest trader who ever lived. (Crossing Wall Street)

Finance

Some advice for young investment professionals. (A Dash of Insight)

David Swensen does not have nice things to say about Wall Street. (Yale Daily News via @m_c_klein)

A rave review for A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A by John Weir Close. (Economic Principals)

How to use the Heath brothers? book Switch: How To Change Things When Change Is Hard to drive client behaviors. (Nerd?s Eye View)

Economics

Thierry Martin
09-20-2013,
By many measures, 2013 is shaping up to be the best year for initial public offerings (IPOs) since 2007.

The volume of new offerings has surged, and hot new issues such as FireEye (Nasdaq: FEYE), Rally Software (Nasdaq: RALY) and Epizyme (Nasdaq: EPZM) have already bagged triple-digit gains. This week's well-received IPO from Twitter (NYSE: TWTR) is merely icing on the cake.

Yet amid the good news, some IPOs have been duds. Companies with short track records or an open-ended path to operating losses have been tossed in the IPO dust bin.

But in the rubble, you can find some deep value plays -- and building products firm Ply Gem Holdings (NYSE: PGEM) is one of them. The recent IPO has traded down but now holds considerable upside.

Thierry Martin
09-20-2013,
Markets were heading higher on Friday after the job market unexpectedly rose last month. The Labor Department announced that there was an addition of 204,000 new jobs in October, however the unemployment rate still crept up to 7.3% from September?s 7.2%. The new job data blew past the 125,000 job increase that economist were expecting. They also expected the unemployment rate to increase, but only by a tenth of a percentage point. The announcement this morning also showed there was an additional 60,000 jobs added in September than originally thought. The higher than expected data was further evidence that the 16-day partial government shutdown did not have a strong affect on the job market. Russell Price, a senior economist at Ameriprise Financial Services, said, ?Clearly what transpired was businesses viewed the shutdown as a temporary phenomenon and the economy was still growing and would continue to grow going forward.?

In a separate report released on Friday morning, the Commerce Department announced that U.S. consumer spending was up slightly. The also reported that household savings were on the rise. Spending was up 0.2% in September after a 0.3% climb in August. This was on point with the 0.2% increase that economists were expecting. There was a decrease of 1.3% in consumers purchasing of long-lasting manufactured goods. In the same report it showed that there was an increase of 0.5% in American?s income. This was the highest increase since February. The rise in September was partially attributed to the end of the government furloughs. Household savings were up to 4.9% of Americans after-tax income. This was up from 4.7% in August.

Shares of McDonald?s (MCD) were down slightly after the company missed sales expectations for October. The company announced that global sales at stores open at least a year were up 0.5%, however this was below the 0.6% analysts were expecting. Comparable store sales ales were up 0.2% in the U.S. This also fell short of the 0.7% analysts had expected. Sales took a 2.8% dive in their Asia Pacific, Middle East and Africa regions.

That?s all for the day. Have a great weekend, loyal readers!
All the best,
Jack Aubrey, Oakshire Financial

Thierry Martin
09-20-2013,
The Chart of the Day is Mastech Holdings (MHH). I found the stock by using Barchart to sort the New High List for Weighted Alpha and this stock has a WA of 265.90+. Since the Trend Spotter gave a buy signal on 9/24 the stock has gained 60.01%.

It provides Information Technology services in the disciplines which drive today's business operations. Clients turn to Mastech for comprehensive I.T. services including: I.T. Consulting; OneSource Co-Managed projects and supplemental I.T. resources. Mastech's niche focus includes Business Intelligence/Data Warehousing; Enterprise Resource Planning; Service Oriented Architecture; Web Development and I.T. Project Management. Mastech also provides Recruitment Process Outsourcing services and Brokerage Operations Staffing services through its RPOworldwide and Global Financial Services subsidiaries. Mastech is a certified minority-owned business enterprise.

Thierry Martin
09-20-2013,
When I was a kid, I went to a Catholic grade school. And because our school was affiliated with a church, I volunteered to be an altar boy.

On the surface, it was a great way to make myself look good. I knew my parents would be happy. But in reality, it was just a good excuse to get out of class. I knew that every week, whether it was sunny, rainy, warm or cold, there were going to be a couple of funeral processions that would need altar boys to help celebrate Mass.

Even though being an altar boy at a funeral doesn't sound like much fun, it was an early lesson about the nature of demand -- mortality wasn't just predictable, it was undeniable.

But looking forward, that undeniable trend is accelerating. With more than 10,000 baby boomers retiring every day, the National Funeral Directors Association projects the U.S. death rate will increase from 8 deaths per 10,000 people to 10 by 2045.

That is setting the stage for a wave of demand for "death care" products and services. And there is one company ready to cash in.

This little-known market leader is one of the largest death care service providers in North America. It owns more than 1,400 funeral homes and 375 cemeteries in 43 states and eight Canadian provinces. It just announced a major acquisition of its largest competitor that is expected to produce $3 billion in annual revenue. That has driven a 72% gain in just the past two years. Take a look below.

Thierry Martin
09-20-2013,
The former boiler room king, Jordan Belfort, is ready for his closeup as The Wolf of Wall Street heads into theaters this December.

I loved his book and I had met most of the old Stratton Oakmont guys fifteen years ago during my early days in the Long Island brokerage scene. I've always said that if Jordan had used his powers and charisma for good rather than evil, he'd have been a billionaire. Guys I knew who had worked with him and gotten into trouble because of him still worshipped at the altar of Jordan years after the fact. To this day there are still thousands of brokers using the scripts and selling methods he had devised, albeit not to sling garbage house stocks (let's hope).
In a new profile at BusinessWeek, Jordan Belfort lets us in on where he is now...

Jordan Belfort, aka the Wolf of Wall Street, hates it when people describe him as a criminal. ??Convicted stock swindler??it?s like it hurts my heart,? he says, practically shuddering. ?I know it was true, but it?s not who I am. I say to my son, I say it to everybody who I try to mentor: We are not the mistakes of our past. We?re the resources and capabilities that we glean from our past. And it?s so true.?

Keep Reading:
Jordan Belfort, the Real Wolf of Wall Street (BusinessWeek)

Thierry Martin
09-20-2013,
This is an early (and incomplete) edition of the daily linkfest. We will catch back up tomorrow.

Daniel Gross, ?We should think about IPOs like draft picks in sports.? (The Daily Beast)

Market breadth has been deteriorating. (The Reformed Broker)

How are hedge funds doing this year? (FT Alphaville)

Two headlines: one story. (A Dash of Insight)

Changing dynamics in the US buyout market. (Sober Look)

There are always some investors who think ?it is different for me.? (Rick Ferri)

Did Twitter ($TWTR) really leave money on the table? (Ivanhoff Capital)

Wall Street won the Twitter IPO. (Quartz)

Small caps: active or passive? (IndexUniverse)

Investors are paying a lot for future growth. (Jack Altman)

A solid employment report. (Calculated Risk)

Rail traffic is accelerating. (Pragmatic Capitalism)

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

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



The post Friday links: IPOs as draft picks appeared first on Abnormal Returns.

Thierry Martin
09-20-2013,
We've all accidently cut ourselves and stuck a bandage on it to stop the bleeding, then gone about our business. Usually the wound heals after a couple of days, and all is good.

On occasion, though, a simple cut can turn complicated.

Say I've cut my finger and it begins to fester. I go to a doctor's office and have a blood sample drawn and shipped to a lab for analysis. The doctor makes an educated guess as to which antibiotic might clear the infection and prescribes a 10-day supply.

By the time your blood has gone through the routine tests to identify the infection and determine the correct antibiotic, five days have passed.

But after a few days -- and pills -- you feel better. This time the doctor guessed right, averting a possible crisis. However, more than 250,000 people die from sepsis -- the spread of bacteria from a point of infection -- every year. A simple infection from a cut, or pneumonia, or any number of sources can quickly turn to sepsis -- which can be deadly without prompt and proper treatment.

Until recently, doctors had to rely on antiquated tests that took days to deliver results and accurate treatment. Without a quick way to differentiate between bacteria and viruses, prescribing the right antibiotic is little more than a crapshoot.

Last year saw the emergence of a new breed of molecular diagnostics -- known as in-vitro or IVD -- that involves tests that identify a patient's nucleic acids or proteins (blood or urine) or foreign objects outside the body.

These devices can diagnose sepsis and identify the proper antibiotic -- right in the doctor's office. The process takes just 2 1/2 hours after a positive blood culture and requires only five minutes of a technician's time, with greater than 95% accuracy.

This technology truly has life-saving potential -- and it's a potential moneymaker for investors.

The global in-vitro diagnostic market was valued at $49.2 billion in 2012 and is expected to reach $69.1 billion by 2017. It is forecast to be the highest-earning segment in the $455 billion medical technology industry throughout those five years.

Right now, two companies are battling it out in this arena: One is a good investment for today, Cephid (Nasdaq: CPHD), the other possibly for tomorrow, Nanosphere (Nasdaq: NSPH).

Thierry Martin
09-20-2013,
This is so cool! Probably the only time I'll ever appear on a list with Banksy and the President of Cinnabon...
From Business Insider:
We're constantly amazed by revolutionary new companies, products, and ideas ? especially when they're launched by young people.
We found the most inspiring innovators and entrepreneurs under the age of 40.
Whether they're in finance, tech, sports, entertainment, media, science, food, or retail, these people are introducing amazing new products and ideas and shaking up their industries forever.

Thierry Martin
09-20-2013,
Random Thoughts

You can't argue with a market making new highs but you also can't take them at face value.

As you know, lately I have been concerned about the action in sectors like Biotech that could be rolling over. I've been concern about the alarming amount of debacle de jours-stocks that have been getting whacked. And, I've also been concerned about the lack of forward progress the indices (sans the Dow).

Even though Thursday's action didn't surprise me in the least, it still caused quite a few F bombs to be dropped in my office.

Let's look at what happened on Thursday.

The Ps peeped up to nearly all-time highs but unfortunately, they found their high and began to sell off hard-losing 1 1/3% for the day.

The Quack was hit even harder. It lost nearly 2% for the day. This action has it breaking down out of its shorter-term sideways trading range.

Keep an eye on 1725 in the Ps and 3800 in the Quack. Those are the previous breakout levels.

It is not a line in the sand but it would be a level(s) where you certainly should consider pulling in your horns.

Speaking of previous breakout levels, the Rusty (IWM) was also disappointing. It lost nearly 1 ?%. This action puts it back below its prior breakout levels-circa 108 in the IWM.

With the Rusty down big it is no big surprise that internally it was ugly. Weaker areas like Biotech continue their slide. Areas that have been trading sideways at best like the Semis came in hard. Areas like Shipping that were just breaking out came right back in. I can go on and on. As you would expect, there were also quite a few debacle de jours.

So, tell me something good Big Dave. Well, I did just save a lot of money on my car insurance. Something good? Reminds of Viking ship joke when the captain says "Good news, we finally get to change our underwear. Okay, you change with him, and you change with him, and you....." Seriously, if, and that's a big if, the market rallies and takes out Thursday's high, I think it would be off to the races. It would suggest that Thursday's action was just a shakeout/fakeout. In fact, I'm seeing buy setups in the inverse Q shares. They have a Double Top Knockout look to them (email me if you need the pattern).

So what do we do? Honor your stops on your longs. If this thing gets ugly, you'll be taken out of your longs and all you'll be left with is shorts. This is part of the portfolio ebb & flow I often discuss (see webcasts). I hope, and I hate to use the word hope, this does not happen. I'd much rather be stopped out of my shorts for a loss but have my longs more than make up for it. I'm still not seeing a lot of new meaningful setups. Again, this actually might be a good thing. It could be the database, (continuing to ) tell me to let things shake out a bit.

Thierry Martin
09-20-2013,
Legendary activist investor Carl Icahn has had a tremendous run. In recent years, he's made a quick fortune on many of his investments, thanks to a combination of savvy stock-picking and occasional cage-rattling.

But even Icahn has an off day.

Earlier this year, he bought 6 million shares of oil refiner CVR Refining (NYSE: CVRR) just as the entire refinery industry was at a multi-year peak. Shares were trading above $30 when Icahn bough CVR, though as I cautioned in this mid-summer article, refinery stocks subsequently took it on the chin as pricing spreads narrowed between Brent crude and West Texas Intermediate (WTI) crude.

Although other refiners such as Valero (NYSE: VLO), HollyFrontier (NYSE: HFC) and Marathon Petroleum (NYSE: MPC) have stabilized or risen since I wrote that piece, Icahn's pick has really fallen out of bed. The fund manager is now sitting on a 28% loss on CVRR.

Thierry Martin
09-20-2013,
From January through May I had wholesalers from all the big ETF and mutual fund shops in my office pitching us bank loan funds as a diversifier and an interest rate hedge for our income-focused models. State Street rolled one out as an ETF with Blackstone / GSE doing the portfolio management. iShares had one too, then DoubleLine launched one, etc.

Bank loans, in securitized form, tend to offset rising rates because they roll over frequently at ever-higher interest rates to the borrowers. Thus, if you own the interest stream on a portfolio of loans, as rates rise, theoretically, so should the income you're pulling in. The loans in the portfolio mature and new loans are struck with borrowers at ever-higher rates. And, as Christine Benz at Morningstar explains, they do a really good job at diversifying you as well, with a very negative correlation to long-term treasurys.

But there's a catch (when is there not?) - bank loans are highly correlated, for a bond asset class anyway, to US stocks. This is a risk-on asset class, after all, and will trade lower based on the threat of defaults picking up across the economy, just like junk bond ETFs will. Eventually.

Here's Christine:

Bank-loan funds' correlation with high-quality bond funds is also pretty low. That's perhaps not surprising when you consider that bank loans are typically beneficiaries when rates rise (their yields tick up to keep pace with LIBOR), whereas high-quality bond funds get hurt. During the past decade, bank-loan funds have exhibited a slightly negative correlation with the Barclays Aggregate Index and an even lower correlation (-0.35) with long-term Treasuries. The 10-year correlation with short-term bonds is higher (0.57) and higher still for equities (0.61) and high-yield bonds (0.87).

Thus, even though bank-loan investments may help mitigate the pain in a rising-rate environment, investors expecting these funds to provide ballast in an equity market shock might not get it here. In 2008, the typical bank-loan fund lost 30% of its value, though higher-quality offerings such asFidelity Floating Rate High Income (FFRHX) held up substantially better.

Like all products, strategies or asset classes, bank loans can work if used appropriately and with the right understanding of their idiosyncrasies and risks. But to just toss them into a portfolio as part of the bond category would be a mistake. There's nothing bond-like about them in a recessionary environment or during an equity market sell-off. They will not be your safe assets in an economic crisis.

Understand that while you're mitigating one risk (interest rates), you're taking on another one.

Thierry Martin
09-20-2013,
I like buying stocks, not selling stocks -- unless, of course, I am selling them for a big profit.

And while I suspect that this market is headed higher over the next couple of months, and that you should be buying the "air pockets," I also think there are certain stocks that need to be jettisoned from your holdings due to a lack of upside catalysts in the short and/or intermediate term.

One of the stocks I think is headed lower is tech giant Cisco Systems (Nasdaq: CSCO). The network equipment maker has long been a stalwart in the tech space, and I've been buying and selling CSCO shares with very good results since the late 1990s. So far this year, Cisco shares are up 20.5%. Unfortunately, over the past three months, the stock has tumbled more than 11%.

The trouble with CSCO shares started midway through August, which not coincidentally was when the company reported fiscal fourth-quarter earnings. Although it managed to beat earnings expectations, Cisco's sales were less than impressive.

Perhaps more importantly, Cisco announced plans to slash about 5% of its workforce, presumably in an effort to maintain profit margins in the wake of soft sales. The laying off of some 4,000 workers was read as a warning sign by Wall Street. Since that time, CSCO has been downgraded by Credit Suisse and MKM Partners.

Given Cisco's recent sell-off, as well as its softening business, this is one tech stock that you should consider getting rid of.

Another high-profile stock that deserves to be on the chopping block is homebuilder Lennar (NYSE: LEN). Despite very strong earnings in its most-recent quarter that showed EPS jumping 35% year over year and easily besting expectations, the stock has traded poorly.

Fear of a tapering of the Federal Reserve's $85 billion-a-month bond-buying program caused interest rates to rise over the summer, and that's caused many traders to bail out on homebuilder stocks.

LEN is down 11% this year, and though the stock has edged a bit higher over the past two months, there certainly doesn't seem to be any substantive catalysts going forward for this homebuilder's shares. The housing market recovery may not yet be over, but right now, Lennar doesn't seem to be riding that wave.

Fear over the aforementioned Fed tapering and rising interest rates has also hurt the commodities space, as gold and copper prices have come under increased selling pressure.

And that puts Newmont Mining (NYSE: NEM) in a tough spot. As one of the biggest gold and copper miners in the world, Newmont is being hurt by falling gold prices and a lack of demand for copper. Gold prices are in a bear market, and although global growth is taking place, industrial demand for copper has been uncharacteristically soft.

Also plaguing the miner's shares was the recent downgrade of the company's credit rating by rating agency Standard & Poor's. Newmont's credit was reduced to BBB from BBB+, largely as a result of weak third-quarter revenues that missed analysts' expectations. Weakness in the company's gold business was cited as the reason for the revenue miss.

The bottom line here is that NEM is likely to continue its downward spiral, and that means more pain added to the stock's year-to-date drop of more than 40%.

Action to Take --> If you own any of these three stocks, it's time to move on. You might consider re-entering these stocks once they sink to more-attractive

Thierry Martin
09-20-2013,
?Oh, how I despise the yen, let me count the ways.? I?m sure Shakespeare would have come up with a line of iambic pentameter similar to this if he were a foreign exchange trader. I firmly believe that a short position in the yen should be at the core of any hedged portfolio for the next decade.

To remind you why you hate the currency of the land of the rising sun, I?ll refresh your memory with this short list:

* With the world?s structurally weakest major economy, Japan is certain to be the last country to raise interest rates. Interest rate differentials are the greatest driver of foreign exchange rates.

* This is inciting big hedge funds to borrow yen and sell it to finance longs in every other corner of the financial markets.

* Japan has the world?s worst demographic outlook that assures its problems will only get worse. They?re not making enough Japanese any more.

* The sovereign debt crisis in Europe is prompting investors to scan the horizon for the next troubled country. With gross debt well over a nosebleed 240% of GDP, or 120% when you net out inter agency crossholdings, Japan is at the top of the list.

* The Japanese long bond market, with a yield of only 1%, is a disaster waiting to happen.

* You have two willing co-conspirators in this trade, the Ministry of Finance and the Bank of Japan, who will move Mount Fuji if they must to get the yen down and bail out the country?s beleaguered exporters.

When the big turn inevitably comes, we?re going to ?110, then ?120, then ?150. That works out to a price of $200 for the (YCS), which last traded at $62. But it might take a few years to get there.

If you think this is extreme, let me remind you that when I first went to Japan in the early seventies, the yen was trading at ?305, and had just been revalued from the Peace Treaty Dodge line rate of ?360. To me the ?83 I see on my screen today is unbelievable. That would then give you a neat 17-year double top.

Thierry Martin
09-20-2013,
?If you?ve lived long enough on Wall Street, you know that we shoot our wounded and eat our young,? said Brad Hintz, an analyst with Sandford Bernstein.

Thierry Martin
09-20-2013,
I don't really like the term "post-mortem" because nothing actually died today or whatever. But it's late and I'm tired, having spent three straight days running back and forth from the floor of the NYSE into meetings and conference calls. Also, the life insurance company just told me they want a colonoscopy done, sick perverts.

Here's me and Doctor J in Twitter Country today, btw:



Anyway, $TWTR did pretty much what I'd guessed it would on the first day - opened huge, rallied a bit from the opening tick and then settled back down at about where it began the day. I got filled on a small amount in my personal account but truthfully I hope they crush this thing a la Facebook in the coming months so I can really be a part of it long term.

Art Cashin told us that floor rumors suggested 75% of the IPO's shares went to the 25 largest accounts in the country. Which is at it should be - you didn't think they were paying all those trading commissions for execution in the year 2013, did you? Certainly not for the research either, get real.

In the meantime, Twitter's basically priced as though they've already achieved their goals, but in reality they haven't even begun. At its current valuation, it would be the 137th largest stock in the S&P 500 and larger than General Dynamics, Yahoo, Time Warner, Kraft, General Mills and another 300-something companies that all earn money and mostly pay dividends. At 45 bucks, this is the ultimate leap of faith.

Thierry Martin
09-20-2013,
In the go-go days of 1999, Warren Buffett grew very concerned.

Not because his value style of investing had grown unpopular, but because investors were becoming delusional in their zeal for further gains.

In a speech he made to friends, as recounted in a 1999 article in Fortune magazine (that was published just a few months before the market peaked and then plunged), Buffett warned that "once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks."

A simple test of how much stocks were loved: The aggregate value of the largest 5,000 U.S. companies (as measured by the Wilshire 5000) exceeded the GNP of the U.S. economy. In fact, a market melt-up took this ratio up to 150% by early 2000 (meaning the Wilshire 5000 was 50% larger than the U.S. economy), which set the stage for one of the most painful corrections ever for investors.

This ratio eventually dipped well below 100%, which for Buffett, has been seen as a time of deep value for stocks. "If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you," he told Fortune in a 2001 follow-up.

Indeed stocks went on to deliver solid gains into that decade, but by 2007, Buffett's handy ratio again flashed red. Stocks were becoming so frothy that this measure once again exceeded 100%. The resulting market blow-off in 2008 was another painful lesson for investors, but at least put the market deep into value territory, setting the stage for the bull market we've been enjoying ever since.

Yet as we head towards the end of 2013, investors need to once again tread cautiously, because Warren Buffett's market valuation tool is again in the red zone.

Thierry Martin
09-20-2013,
There are few legal monopolies.

One commonly cited example in the public markets is Sirius XM (Nasdaq: SIRI). Sure, Sirius is the only satellite operator in the market, but radio listeners have alternatives -- including the likes of local broadcast radio. Even other common monopolies have alternatives, such as the U.S. Postal Service, where you can opt to use FedEx (NYSE: FDX) or UPS (NYSE: UPS). However, is there any market in which customers don't have a choice?

But what if there were a legal monopoly that embodied "customer captivity"? Imagine a company that has agreements that give it unrivaled power. And imagine that this same company operates in the fastest-growing industry in the world -- the Internet.

That company is VeriSign (Nasdaq: VRSN), which has a virtual monopoly on Internet domains.

This company has a high level of customer captivity, meaning that its customers rely heavily on its services and cannot get said services elsewhere. VeriSign offers domain name registry services. What this means is that VeriSign operates the authoritative directory of dot-com, dot-net, dot-cc, dot-tv and dot-name domains.

The company saw a sizable pullback in late 2012, after the Internet Corporation for Assigned Names and Numbers (ICANN) approved its agreement as the primary registry for dot-com domains but disallowed the company's request for pricing increases. So dot-com domain fees will remain flat through 2018. The market initially took this as bad news but soon realized that VeriSign still has a monopoly on the domain registry industry. VRSN is now back on an upward trend.

Thierry Martin
09-20-2013,
There are a million different ways to observe market internals and breadth, but only a few important ones. Measuring the amount of stocks above a given moving average makes sense - as the broader market makes keeps making new highs, the last thing you want to see is leadership narrowing and less stocks in their own individual healthy uptrends. Unfortunately, as the S&P has been pushing into record territory, we've seen a bit of a divergence for its 500 components - although the overall numbers themselves are still healthy.

Oppenheimer's well-respected technician, Carter Worth, has been bearish for a while now, having issued his now notorious one-word research report over the summer, which simply said "Sell". Bulls would argue that he's possibly biased and is looking for things to confirm that earlier view.

That being said, he's got a very good point here in a research note from November 4th:

Specifically, if one tracks stocks in the S&P 500 above their respective 150-day moving average and measures "breadth" based on this method?based on trend (stocks in healthy uptrends typically don?t fall below their 150-day moving average while stocks that are deteriorating do just that)... then one gets a much different picture.

Thierry Martin
09-20-2013,
When I was 14, my grandmother gave me 200 shares of a small insurance company called Statesman Group, which eventually became American International Group (NYSE: AIG).

The certificates were buried somewhere in my father's law office, but dividend checks appeared in my mailbox every three months. (I remember they were usually for about $50. That was big money for a teenager in the early 1980s.)

I always thought -- and still do -- that that was the neatest thing in the world: getting paid just to own stock.

Historically, many equity investors have felt the same way -- especially after the drubbing of the dot-com bubble burst, the 2001-'02 bear market and the most recent bear market resulting from the financial crisis and Great Recession. Companies that have consistently paid and increased their dividends tend to perform well in times of market uncertainty. The iShares Select Dividend ETF (NYSE: DVY) is proof positive of that sentiment.

Thierry Martin
09-20-2013,
Thursday links: the quiet period

Quote of the day

Bill Hambrecht, ?The quiet period is stupid.? (Fortune)

Chart of the day

Thierry Martin
09-20-2013,
There are two major concerns facing investors right now. First, the global economy is not yet showing signs of a long-awaited upturn. Indeed, the U.S. is shaping up to be on much more solid footing than its peers (at least as evidenced by U.S. corporate profit growth in the current earnings season). That argues for companies that more squarely focused on the U.S., which usually means small-cap stocks.

Second, the rising market tide has lifted many boats, and it's getting harder to find true bargains. But they still exist.

I went scanning for GARP (growth at a reasonable price) stocks among the S&P 600 (small-cap index) and found more than a dozen stocks that are poised for robust profit growth in 2014, while trading at reasonable earnings multiples. (I only included companies with a market value between $250 million and $1 billion to exclude micro-caps or mid-caps that may be hiding in this small-cap index).

A quick review of the list reveals no clear themes. We don't find a cluster of stocks in any given industry, and instead need to look at these companies on a case-by-case basis. Here's the select group.

GARP Small Caps

Thierry Martin
09-20-2013,
pic via @AnthonyQuintano

The stock has yet to open as of this posting but opening price chatter is north of 40 per share. This would be a substantial print if it happens, a victory for both the company and the underwriters. And then we see if it holds.

In the meantime, the broader markets are weak after a surprise rate cut from the ECB. It's amazing to witness simultaneous deflation fears and a tech bubble all at once.

Interesting times.

Thierry Martin
09-20-2013,
Random Thoughts

As I began writing this morning, I thought, with most indices relatively unchanged lately (sans the Dow), it's probably important not to chase your own tail.

Speaking of tales, based on Wednesday's action, it looks like we're back to a tale of two markets. The S&P plowed along its merry way, tacking on nearly ?%. This has it just shy of all-time highs.

And, speaking of all-time highs, the Dow banged out all-time highs. I'm guessing that the media had quite a field day with that one.

The Quack gapped higher but found its high in early trading and began to sell off to end slightly lower for the day. Net net, it hasn't made in progress in the last three weeks.

The Rusty (IWM) also had a strong start that fizzled. It ended down nearly ?% on the day.

The Rusty is more indicative of what's been happening mostly as of late. A few big cap stocks are leading the way, propping up the indices while internally, things have been a little mixed.

There's still some debacle de jours out there and some sectors are looking questionable at best. Biotech got clocked for nearly a 3% loss. Recently stronger areas like Shipping, and Transports overall for that matter, sold of fairly hard on Wednesday.

On a positive note, Metals & Mining, led mostly by Steel & Iron and Copper, is attempting to break out to multi-month highs. Even within the sector, things aren't all good though-Gold & Silver are lagging here.

Retail managed to close at all-time highs. Software also made new highs.

On the surface, with the indices just shy of new highs, one would think that all is good in the world.

Speaking of the world, Foreign Shares (EFA), which have been lagging as of late, came back to life, gaining nearly 1%--another mixed signal.

As I've been saying lately, there's good, bad, and ugly. It really is a tale of two markets.

So what do we do? Again, you can't go crazy bearish as long as the indices can stay at or near new highs. I do think it is okay to fire off a short or two. Of course, make sure you really like the setup(s) and wait for entries. I'm not seeing a lot of new meaningful setups on the long side at this juncture. This actually might be a good thing. The database, along with all the internal mixed signals, could be trying to tell me to let things shake out a bit.

Futures are strong pre-market. Could this be d?j? vu all over again?

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

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

Twitter?s Market Valuation Suggests Wall St. Sees Huge Growth Potential (DealBook)

ECB liveblog, to cut or not to cut? SURPRISE RATE CUT (MoneyBeat)

Can European stocks see even more PE multiple expansion? (DrEdsBlog)

Bitcoin is exploding in price this week... what's behind the rally? (Bloomberg)

...but it's basically a joke, says Lil Weezy (BusinessInsider)

Unfortunately to those with balanced, diversified portfolios, there was no way to keep up with the Dow Jones this year. (PragCap)

Raise your hand if you're on Wall Street and getting a 5 to 10% bump in your bonus this year. Not so fast, bond traders. (DealBook)

"Am I being responsibly patient or irresponsibly greedy?" (AllStarCharts)

How the owners of all 30 NBA teams made their money. (MentalFloss)

Jaime Alexander seems fun... (HuffPo)

What "No" really means. (SethsBlog)

REMINDER: Backstage Wall Street is now on Kindle!


The Reformed Broker

Thierry Martin
09-20-2013,
The Chart of the Day is Gentium SPA (GENT). I found the stock by sorting the New High List for Weighted Alpha. Since the Trend Spotter signaled a buy on 7/15 the stock soared 573.25%.

It is a biopharmaceutical company focused on the research, development and manufacture of drugs to treat and prevent a variety of vascular diseases and conditions related to cancer and cancer treatments. Defibrotide, the Company's lead product candidate, is an investigational drug that has been granted Track Designation by the U.S. FDA for the treatment of Severe VOD, Orphan Drug status by the U.S. FDA for the treatment and prevention of VOD and Orphan Medicinal Product Designation by the European Commission for the treatment and prevention of VOD.

Thierry Martin
09-20-2013,
Any trader will tell you the trend is your friend, and the overwhelming direction for the US dollar for the last 220 years has been down.

Our first Treasury Secretary, Alexander Hamilton, found himself constantly embroiled in sex scandals. Take a ten-dollar bill out of your wallet and you?re looking at a picture of a world class horndog, a swordsman of the first order. When he wasn?t fighting libelous accusations in the press and the courts, he spent much of his six years in office orchestrating a rescue of our new currency, the US dollar.

Winning the Revolutionary War bankrupted the young United States, draining it of resources and leaving it with huge debts. Hamilton settled many of these by giving creditors notes exchangeable for then worthless Indian land west of the Appalachians.

As soon as the ink was dry on these promissory notes, they traded in the secondary market for as low as 25% of face value, beginning a century?s long government tradition of stiffing its lenders, a practice that continues to this day. My unfortunate ancestors took him up on his offer, the end result being that I am now writing this letter to you from California?and am part Indian.

It all ended in tears for Hamilton, who, misjudging former Vice President Aaron Burr?s intentions in a New Jersey duel, ended up with a bullet in his back that severed his spinal cord.

Since Bloomberg machines weren?t around in 1790, we have to rely on alternative valuation measures for the dollar then, like purchasing power parity, and the value of goods priced in gold. A chart of this data shows an undeniable permanent downtrend, which greatly accelerates after 1933 when Franklin Delano Roosevelt took the US off the gold standard, banned private ownership of the barbarous relic, and devalued the dollar. Gold bugs have despised him ever since.

Today, going short the currency of the world?s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long term growth rate is a no brainer. But once it became every hedge fund trader?s free lunch, and positions became so lopsided against the buck, a reversal was inevitable. We seem to be solidly in one of those periodic corrections, which began two weeks ago month ago, and could continue for months, or even years.

The euro has its own particular problems, with the cost of a generous social safety net sending EC budget deficits careening. Use this strength in the greenback to scale into core long positions in the currencies of countries that are major commodity exporters, boast rising trade and current account surpluses, and possess small consuming populations.

I?m talking about the Canadian dollar (FXC), the Australian dollar (FXA), and the New Zealand dollar (BNZ), all of which will eventually hit parity with the greenback. Think of these as emerging markets where they speak English, best played through the local currencies

Thierry Martin
09-20-2013,
As a rule, most investors are utterly preoccupied with earnings.

That's understandable, of course. At the end of the day, the goal of any business is to turn a profit. The problem comes when we focus on the bottom line to the exclusion of everything else.

At best, this offers an incomplete view of how a company is performing. At worst, it can mask underlying weakness.

In response to the last recession, businesses of all shapes and sizes streamlined their operations to cut costs and preserve cash. Many did an outstanding job of erasing red ink from the books. The deeper they slashed, the more money they pocketed.

At first, this delighted investors. They saw growing earnings each quarter and cheered. But eventually, they began to realize that the phantom "growth" was nothing more than belt-tightening. In many cases, revenues were actually flat or sometimes even falling.

You can boost your household disposable income by eliminating the $100 weekly maid service and the $100 weekly lawn care service -- but you'd much rather get a $200 weekly pay raise.

The same rings true in the business world, where you'd much rather attract new customers or increase prices. There's a limit to how much a company can cut. Plus, you have to look at what you're giving up.

Suspending all research and development (R&D) expenditures might look great for a while, until the company begins to fall a few steps behind competitors. Likewise, eliminating the marketing department might save millions, but end up costing even more when customers stop coming in the door.

As they say, you must spend money to make money.

Now, there is absolutely nothing wrong with cost-cutting initiatives. There's something to be said for a lean operation. But a business can't expand by contracting.

So if you want to find thriving companies that are in a position to distribute more cash to investors, then it all starts on the top line.

After all, before you turn the first dollar of profit, somebody has to come in the door and buy something.

With all this in mind, I went out in search of healthy companies with strong -- and, in some cases, accelerating -- sales growth. Specifically, I screened for businesses with annual revenue growth of at least 20% in each of the past two fiscal years and a healthy outlook for the remainder of 2013.

Of course, you can't look at sales in isolation either. So I also looked for 8% or better growth in operating income and a minimum 3.5% dividend yield. Here are a few notable finalists.

Thierry Martin
09-20-2013,
Short sellers love to focus on major themes, and one of their favorite themes involves unsustainable dividends. The shorts know that any time a dividend must be cut or eliminated, shares can drop sharply as the primary appeal of such high-yielders disappears.

Case in point: Frontier Communications (NYSE: FTR), which currently has a short position in excess of 200 million shares. (I recently discussed this telecom's impending dividend woes.)

But Frontier's not alone. A few of its peers in the telecom industry are also at risk of a painful dividend cut, and it's unwise to focus on their current unsustainable dividend yields.

1. Consolidated Communications (Nasdaq: CNSL)
Current yield: 8.3%
This local and long-distance phone company has supported an impressive $1.55 a share annual dividend since 2006. Trouble is, over the years, business has steadily deteriorated as its client base slowly defects to large wireless service providers. In years past, Consolidated typically generated around $15 million in annual operating cash flow, which was just enough to support the dividend. But operating profit fell 40% in 2012 to below $10 million, and of greater concern, free cash flow turned negative for only the second time in the past eight years.

Though Consolidated's year-over-year growth looks impressive thanks to acquisitions, organic growth remains negative. And as is the case with Frontier, this company carries a hefty amount of debt ($1.2 billion as of June), and an eventual rise in interest rates will lead to surging interest costs. Management would be wise to conserve cash now by slashing the dividend before that happens.

Thierry Martin
09-20-2013,
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

John Picerno, ?(Q)uite a lot of what appears to be a good deal in the exploding list of ?enlightened? strategies in the land of ETFs and mutual funds is just an excuse to charge more for something that can be accessed less expensively and more efficiently through other means.? (Capital Spectator)

Chart of the day

Thierry Martin
09-20-2013,
The big moment has finally arrived: Twitter is expected to price its initial public offering tonight after the bell tonight. Your boy will be live from New York Stock Exchange from 3pm on CNBC's Closing Bell with Maria Bartiromo and Bill Griffeth for live coverage and all the breaking news.

My Twitter born-on date was March 2nd, 2009 - the week the market bottomed and the end of the bear market. Correlation? Causation? LOL

Find your Twitter born-on date here, btw: http://twbirthday.com/

In the early days, Twitter was really just another broadcast tool for links to my blog. Then I started making friends and contacts from around the limited investor and trader community that had sprouted up. Then I started interacting with some of my favorite financial reporters and by the end of 2009, the crew had come together. Back in the day it was me, Joe Weisenthal, Heidi Moore, Kelly Evans, Epicurean Dealmaker, smithy Salmon, Phil Pearlman, Justin Paterno (zerobeta), Howard Lindzon, Stacy-Marie Ishmael, Jordan Terry (aka The Analyst), Dan Primack, Katie Rosman, John Carney, Dasan, Brian Shannon and a bunch of others. We were the Financial Twitter OGs - back before anyone else even cared that what we were doing even existed.

But my how things have changed - for the better! Now just about everyone is on Twitter, under a real name or an alias. Buffett's on, Icahn's on, Bloomberg is crating us, the world is paying attention to the stuff we chatter about. It's so cool to have connected with so many of you - traders, investors, reporters, bankers and analysts - over the years, an opportunity that could never have arisen if not for blue bird.

Anyway, it's been a long road toward an IPO for the revolutionary social messaging service, but things really kicked into high gear once Facebook's stock price had regained its IPO level, see: There Are No Coincidences in Banking.

Anyway, tune in as we get the offering price and whatever other tidbits should happen to surface, see you there!
Follow me on Twitter here: @reformedbroker

Thierry Martin
09-20-2013,
There are few legal monopolies.

One commonly cited example in the public markets is Sirius XM (Nasdaq: SIRI). Sure, Sirius is the only satellite operator in the market, but radio listeners have alternatives -- including the likes of local broadcast radio. Even other common monopolies have alternatives, such as the U.S. Postal Service, where you can opt to use FedEx (NYSE: FDX) or UPS (NYSE: UPS). However, is there any market in which customers don't have a choice?

But what if there were a legal monopoly that embodied "customer captivity"? Imagine a company that has agreements that give it unrivaled power. And imagine that this same company operates in the fastest-growing industry in the world -- the Internet.

That company is VeriSign (Nasdaq: VRSN), which has a virtual monopoly on Internet domains.

This company has a high level of customer captivity, meaning that its customers rely heavily on its services and cannot get said services elsewhere. VeriSign offers domain name registry services. What this means is that VeriSign operates the authoritative directory of dot-com, dot-net, dot-cc, dot-tv and dot-name domains.

The company saw a sizable pullback in late 2012, after the Internet Corporation for Assigned Names and Numbers (ICANN) approved its agreement as the primary registry for dot-com domains but disallowed the company's request for pricing increases. So dot-com domain fees will remain flat through 2018. The market initially took this as bad news but soon realized that VeriSign still has a monopoly on the domain registry industry. VRSN is now back on an upward trend.

Thierry Martin
09-20-2013,
Manhattan is the most exclusive real estate market in the world.

The tiny, 34-square-mile island is home to Wall Street, the global headquarters of the United Nations and some of the most powerful and influential companies in the world.

That exclusivity has driven big gains for one of Manhattan's most prized properties. Since going public in the spring of 2010, Madison Square Garden (NYSE: MSG) is up a market-crushing 198%.



But if you missed out on that impressive run, don't worry. The most exclusive real estate market in the world is setting the stage for another big winner.

Thierry Martin
09-20-2013,
via Mother Jones:

we mapped which industries gave the most to state-level campaign donors for the 2012 election (ballot initiatives and party PACs excluded) and limited our search to the top business in each state. We also excluded unions, law firms, and nonprofits, since political giving from these entities can be associated with a variety of industries.

Thierry Martin
09-20-2013,
The Chart of the Day is China Sunergy (CSUN). I found the stock by sorting the New High List for Weighted Alpha and this stock has a WA of 848.00+. Since the Trend Spotter signaled a buy on 9/3 the stock is up 321.40%!

It is a manufacturer of solar cell products in China. They manufacture solar cells from silicon wafers utilizing crystalline silicon solar cell technology to convert sunlight directly into electricity through a process known as the photovoltaic effect. China Sunergy sells solar cell products to Chinese and overseas module manufacturers and system integrators, who assemble solar cells into solar modules and solar power systems for use in various markets.

Thierry Martin
09-20-2013,
Random Thoughts


Name: dreamstime_xs_21793044.jpg Views: 22 Size: 79.7 KB

The market sold off a bit but then recovered. The Quack actually made it back to the plus column, albeit slightly.

Even though the Rusty ended off a bit, internally, the market seemed okay. Most stocks ended flat at worse.

The indices have been a little sideways as of late. On a net net basis, the Ps are relatively unchanged over nearly the last 2 weeks. Ditto for the Quack. In fact, it is relatively unchanged for over 2 weeks.

Even though they haven?t made must forward progress shorter-term, both the Ps and Quack are just shy of all-time and multi-year highs respectively. As a trend guy, I?m not going to argue with a market hovering around its old highs.

Futures are strong pre-market so we could see those highs challenged, at least in early trading.

Getting back to the internals, several areas managed to bang out new highs including, but not limited to Restaurants, Retail, Shipping, and Defense.

All isn?t great in the world though. Several areas such as Biotech and Banks have lost momentum as of late.

Speaking of the world, the EFA (EFA) have lost some momentum as of late too, trading back to their recent breakout levels.

Bonds (TLT) were hit fairly hard. They remain stuck in a low level sideways range.

So what do we do? I think the plan remains mostly the same. As a trend follower, you don?t want to argue with new highs. Therefore, as long as the indices can stay at or near new highs, don?t become crazy bearish. Do continue to look for clues internally. Based on some recent internal weakness (see column archives, click on the calendar on the upper right of this page), I wouldn?t completely ignore the short side just yet. Do make sure you wait for entries. That, in and of itself, might keep you out of new trouble. In fact, as mentioned recently, use liberal entries while the market finds its way. This has helped us to avoid more setups than we?ve taken over the last few weeks. I?m still bullish on Solar and other Alternate Energies (we are long TAN) and I think selected Metals & Mining have potential (we are long SLCA).

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

Best of luck with your trading today!

Dave

__________

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

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

Thierry Martin
09-20-2013,
With a 23% spike since Labor Day, the Spanish stock market may be the hottest in the world right now.

Considering that Spain has one of the world's highest unemployment rates (exceeding 25%), and that its economy that grew a scant 0.1% this summer, the euphoria is simply unexpected. But investors are often well-served by focusing on distressed assets that may have hit bottom.

In fact, three of the world's richest men (Warren Buffett, Bill Gates and Mexico's Carlos Slim) are taking the plunge. They're not buying Spanish companies because business conditions are good. They're doing it because Spanish assets are quite cheap in relation to both the money that has been invested in them already, and in comparison to other European assets.

News of an emerging Spanish revival among global investors was triggered by a $150 million purchase by Gates' investment firm of Fomento de Construcciones y Contratas (FCC), which is not traded on U.S. markets. The company has cleaned up its balance sheet and diversified its country exposure, but more than half of sales are tied to Spain, mostly in cement-making. Yet Spain, like China, has a massive glut of unsold homes that were built at the height of the bubble, and construction-related plays may not be the safest way to such a rebound.

Indeed any investments that depend on Spanish consumer confidence look risky. High levels of unemployment have been exacerbated by a sharp drop in wages. That's great news for corporate profits, but bad news for consumer spending.

Following the moves of Buffett and Slim is also challenging. They each invested in a set of assets (life insurance policies and bank branch leasebacks, respectively) that most investors simply can't do.

But that's no reason to ignore this opening. That's because in recent years, the Spanish government has enacted tough policies that led to short-term suffering but set the stage for a healthier long-term economic foundation. For example, labor laws have been loosened; provincial and municipal debt loads are starting to come down, thanks to a sharp drop in sp
ending. Other rays of hope:

Monthly retail sales turned positive in September for the first time in more than three years

? Foreign direct investment (FDI), a key measure of global interest in Spanish assets, is on track to hit 30 billion euros (about $40 billion) this year, roughly twice the levels seen in 2012

? Spanish bond yields are dropping, reflecting higher confidence that the risk of a major financial meltdown is receding.

Meanwhile, Spanish assets remain fairly inexpensive. The average Spanish stock, for example, trades for 1.38 times book value, which is near the bottom of the range of European markets (with Italy being the most inexpensive market). Spain's average dividend yield is also well above the pack.

Thierry Martin
09-20-2013,
Derivatives are simply investments that trade based on the price of something else. In other words, the price of a derivative is "derived" from something else.

Often that something else is an index, a stock or an exchange-traded fund (ETF). While derivatives can be customized and complex, there are also "plain vanilla" derivatives, and this variety includes ordinary call options and put options on stocks and ETFs.

An option is a derivative because the price of the option is based on the price of the underlying stock or ETF. Options give buyers the right to buy (in the case of a call option) or sell (with puts) a stock or ETF at a predetermined price (the strike price) before the option expires.

Options are typically used to leverage a move in an underlying stock or ETF, and they can potentially be used to provide portfolio insurance for individual investors.

In order to understand the costs and potential benefits of portfolio insurance, we will use an example.

Imagine an investor with an account worth $10,000 invested entirely in the stock market. If the investor believes that stocks are likely to fall 10% or more in the next year, the investor could attempt to hedge with an ETF like the ProShares UltraShort S&P 500 (NYSE: SDS). This inverse ETF is leveraged to go up twice as much as the S&P 500 Index falls on any given day.

SDS is rebalanced daily, so it will not follow the index exactly over longer periods, but it has moved in the same general direction as the underlying index.

SDS is currently trading at about $33.35. Buying 100 shares of SDS would require $3,335 and would reduce the exposure to the stock market to $6,665. If the rest of the account rose 20% and SDS fell 40%, your total account value would be about $10,000, while an account without SDS would be worth $12,000. So, buying SDS would hurt your account in a bull market.

If stocks fell 20% and SDS rose 40%, your account balance would also be about $10,000.

Instead of buying SDS, you could buy a call option with a strike price of $30 expiring in January 2015 that is trading for about $5.90. Buying call options is generally thought of as a bullish strategy, but when you buy a call option on a leveraged inverse ETF like SDS, you are actually making a bearish bet and therefore hedging your portfolio.

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

The 2-and-20 era is over. (FocusOnFunds)

Tesla gives investors a "reality check." (ValueWalk)

More signs that the Japanese economy is ready to break out. (BusinessInsider)

The supply of Twitter shares is set to increase dramatically in the months following the company?s IPO. (Quartz)

How should we think about Twitter's economic moat? (Morningstar)

How Dennis Gartman got rich by being wrong. (CrosshairsTrader)

Who are the top candidates for the Microsoft CEO gig? (Reuters)

Greggy: "this is thetime to tell Peter Schiff to go F? himself, sell your Gold and buy Stocks." (DragonflyCapital)

The biggest little secret in money management. (CapitalSpectator)

What the domestic energy revolution could mean for your portfolio. (BlackRock)

Twitter's users are young and super into news consumption. (journalism.org)

Mercedes Benz sales explode 15% in October, nearing new record. (Reuters)

Great parallel for investors: Hollywood still believes there is a tried-and-true formula to produce winners. (SethsBlog)

Why Eminem matters right now. (TheAtlantic)

Thierry Martin
09-20-2013,
One hundred years from now, historians will probably date the beginning of the fall of the American Empire to 1986. That is the year President Ronald Reagan ordered Jimmy Carter?s solar panels torn down from the White House roof, and when Chinese Premier Deng Xiaoping launched his secret ?863? program to make his country a global technology leader.



Is the End Near for the US?

The big question today is who will win one of the biggest opportunities of our generation.

Some 27 years later, the evidence that China is winning this final battle is everywhere. China dominates in windmill power, controls 97% of the world?s rare earth supplies essential for modern electronics, is plunging ahead with ?clean coal?, and boasts the world?s most ambitious nuclear power program.

It is a dominant player in high-speed rail, and is making serious moves into commercial and military aviation. It is also cleaning our clock in electric cars, with more than 30 low cost, emission free models coming to the market by the end of 2013. Looking from a distance, one could conclude that China has already won the technology war.

Not if Tesla?s (TSLA) Elon Musk has anything to say about it. Our only serious entrant in this life or death competition is the Tesla Model S-1, which has been on the market now for a year. At $80,000 per vehicle for the long range version that accounts for 90% of sales, production is now ramping up to a modest 40,000 units a year.

My Model X SUV won?t be delivered until January 2015. Elon tells me that he plans to bring out a $40,000, 300-mile range ?Next Gen? vehicle by 2018, which will reach 500,000 in annual production. And they will all be 100% ?Made in the USA.?

Thierry Martin
09-20-2013,
Manhattan is the most exclusive real estate market in the world.

The tiny, 34-square-mile island is home to Wall Street, the global headquarters of the United Nations and some of the most powerful and influential companies in the world.

That exclusivity has driven big gains for one of Manhattan's most prized properties. Since going public in the spring of 2010, Madison Square Garden (NYSE: MSG) is up a market-crushing 198%.

Thierry Martin
09-20-2013,
Have you heard about the "death gene"?

Not to worry -- I'll tell you about an antidote in a moment, but first consider this...
The death gene is the genetic variant that apparently can determine -- with disconcerting accuracy -- your likely departure time from this planet.

Researchers in Boston inadvertently made the discovery in the aftermath of a study that looked at sleep patterns. The scientists found that subjects with one particular genetic arrangement died just before 11 a.m., while another group with a different makeup passed away around 6 p.m.

Dave Forest, Chief Investment Strategist for StreetAuthority's Junior Resource Advisor, recently discovered a new kind of death gene.

It may not predict the demise to the hour like the Boston findings do, but it does tell us to the year -- and even the month -- when some of the biggest companies in the market might suddenly implode, and perhaps even cease to exist.

This potential terminal switch is something investors have grown so accustomed to that few think of it as a problem. But I believe it's going to rear its ugly head soon and perhaps often -- destroying billions in shareholder value, as formerly vibrant businesses are swiftly and suddenly rendered paralytic and inoperable.

In this instance, the Grim Reaper is debt.

The thing about debt, of course, is that sooner or later it comes due. And if a company doesn't have the cash to pay back maturing obligations or the ability to otherwise extend or "roll" the debt, the maturity date "is also the time when debt can turn into a death gene, wreaking havoc on firms that may appear to be healthy," Dave writes.

Dave pays particular attention to natural resource companies, a sector in which many of the big players -- along with some of the smaller ones -- are going to be facing potentially challenging payback issues over the next few years.

That's because falling commodity prices are squeezing cash flow and impeding the ability of borrowers to service or pay off their debts, according to Dave.

Thierry Martin
09-20-2013,
Have you heard about the "death gene"?

Not to worry -- I'll tell you about an antidote in a moment, but first consider this...
The death gene is the genetic variant that apparently can determine -- with disconcerting accuracy -- your likely departure time from this planet.

Researchers in Boston inadvertently made the discovery in the aftermath of a study that looked at sleep patterns. The scientists found that subjects with one particular genetic arrangement died just before 11 a.m., while another group with a different makeup passed away around 6 p.m.

Dave Forest, Chief Investment Strategist for StreetAuthority's Junior Resource Advisor, recently discovered a new kind of death gene.

It may not predict the demise to the hour like the Boston findings do, but it does tell us to the year -- and even the month -- when some of the biggest companies in the market might suddenly implode, and perhaps even cease to exist.

This potential terminal switch is something investors have grown so accustomed to that few think of it as a problem. But I believe it's going to rear its ugly head soon and perhaps often -- destroying billions in shareholder value, as formerly vibrant businesses are swiftly and suddenly rendered paralytic and inoperable.

In this instance, the Grim Reaper is debt.

The thing about debt, of course, is that sooner or later it comes due. And if a company doesn't have the cash to pay back maturing obligations or the ability to otherwise extend or "roll" the debt, the maturity date "is also the time when debt can turn into a death gene, wreaking havoc on firms that may appear to be healthy," Dave writes.

Dave pays particular attention to natural resource companies, a sector in which many of the big players -- along with some of the smaller ones -- are going to be facing potentially challenging payback issues over the next few years.

That's because falling commodity prices are squeezing cash flow and impeding the ability of borrowers to service or pay off their debts, according to Dave.

Integrated miners BHP Billiton (NYSE: BHP) and Vale (NYSE: VALE), along with gold major Barrick (NYSE: ABX), for instance, have large debt obligations that mature in 2013. These obligations equal nearly half of the annualized cash generated by the operations of these companies. And for BHP and Barrick, it doesn't end there: Each has some fairly significant debt-rolling to manage in 2014 and 2015.

If investors won't roll the debt, these particular companies likely will be able to cover their loans from cash flow. But extinguishing the debt in this manner would take a significant bite out of available cash.

Advantage: junior resource firms -- companies that most investors haven't yet discovered. The types of companies that have the potential to soar as their businesses grow. The types of companies that have little or no debt. The types of companies Dave writes about each month in Junior Resource Advisor.

And therein lies the antidote to the death gene...

Bob: How does debt factor in to your stock selection process in Junior Resource Advisor? What's the advantage of your methodology?

Thierry Martin
09-20-2013,
Random Thoughts




The Ps had a decent day, gaining a little bit more than 1/3%. The reason I use the word decent on such a small gain is because this action is enough to put them just shy of all-time highs. And, as a trend follower, I'm not going to argue with all-time highs.

The Quack was up a similar amount. This action puts it less than ?% away from multi-year highs. It has lost some steam as of late though. Notice that it is trading around where it was over two weeks ago.

I have been mostly concerned about the Rusty (IWM). The fact that it retraced 100% of its breakout is concerning. However, it did manage to put in a solid rally on Monday, tacking on over 1%.

The broad based Russell was indicative of what happened internally. It was good day. Areas in trends such as Defense and Transports (and subsectors thereof such as Major Airs and Shipping) managed to close at new highs. Some areas at lower levels longer-term such as Metals & Mining put in a solid day.

Thierry Martin
09-20-2013,
If you were to cross a Bugatti Veyron with a McLaren F1 -- two cars capable of reaching 60 mph in less than 3.2 seconds -- you'd get a super machine able to leap tall buildings in a single bound.

You get the same power when you take two high-flying sectors of the market and combine them into a single exchange-traded fund (ETF). That is the true beauty behind ETFs: the ability to invest in very precise niches of the market that, when multiplied, result in head-turning returns.
Today, let's look at a combination of small caps with health care and technology.

Small-caps stocks have been on a tear and are poised to continue their streak for some time longer. The iShares S&P Small-Cap 600 ETF (NYSE: IJR) hit an all-time high Oct. 29 and is up about 28% year to date. In fact, this index of core small caps is up 36% over the past 12 months, 50% over the past two years and 130% over the past five, outpacing the Dow Jones Industrial Average on all fronts.

As Bloomberg reports, in three out of the past four periods in which small-caps trounced the Dow so dramatically, equities kept moving higher and the U.S. economy strengthened the following year.

Investing in individual small-cap stocks can be tricky, though. They're capable of running up the hill very quickly but going downhill twice as fast -- with a steeper drop.

That's why I love these two ETFs: PowerShares S&P SmallCap Health Care (Nasdaq: PSCH) and PowerShares S&P SmallCap Info Tech (Nasdaq: PSCT). Up 38% and 33% year to date, respectively, these two top-performing ETFs offer safer ways to capitalize.

Thierry Martin
09-20-2013,
Everybody loves a lottery ticket. People will weekly put down their hard-earned money for a 1-in-175 million chance of being rich.
And that is the kind of fervor that has driven shares of Tesla Motors (Nasdaq: TSLA) up more than 450% over the past year. Sure, the automaker is increasing production and profits are increasing, but there is nothing that can explain the surge in the stock price like good old-fashioned irrational exuberance.

For investors who got in at the ground floor in 2010, congratulations. For those that have recently bought into the shares and are hoping on another quadrupling, you may want to read on.

You thought the car fire was bad
Shares of the $19.6 billion company tumbled 10% in the two days after an Oct. 1 video showed a Model S on fire in California. CEO Elon Musk eventually identified the cause of the fire as a loose piece of metal from a passing truck that punctured the car's battery. The National Highway Traffic Safety Administration has said it will not investigate the incident, but shares of TSLA still have not recovered to their pre-video high.

Worse than the car fire, however, is the possibility that Tesla may soon see much of its gross profits go up in smoke.

Bloomberg West recently reported that the California Air Resource Board is re-evaluating its assignment of tax credits for zero-emission vehicles. These tax credits are given to automakers for each year to incentivize production of environmentally friendly vehicles that might otherwise not be profitable. The companies can then sell these credits or use them against their own taxes.

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

Is the tech sector in a massive bubble? You tell me: (BusinessInsider)

Jan Hatzius (Goldman): Here's what could be coming next for the Fed. (BusinessInsider)

Famed value investor Steve Romick (FPA Crescent) continues to back away from stocks as prices rise. (ValueWalk)

So is this really a "stockpicker's market"? Let's look at dispersion and see... (ETFTrends)

PIMCO's Total Return has just lost the world's largest mutual fund crown. Guess who snatched it... (Bloomberg)

SAC Capital is officially out of the other-peoples-money game. (Bloomberg)

Has Steven A. Cohen Bought Off the US Government? (NewYorker)

The very wealthy have almost 40% of their assets in cash, just 25% in stocks - Citi. (NetNet)

More than half of American workers made less than $27,000 last year, a lower median annual wage than 1998. (AlJazeera)

Ari Weinberg: Why smaller hedge funds are converting to the mutual fund wrapper. (WSJ)

Is Business Insider in talks with Gawker to merge? (TalkingBizNews)

"I want to be a millennial when I retire" - LOL (NYT)

Are Oakley's new Asian Fit sunglasses racist or just science? (Quartz)

Here's how your favorite candies got their names

Thierry Martin
09-20-2013,
Throw away your wallet. Toss out all those heavy, antiquated coins. Burn your checkbook. Cut up your credit cards.
But make sure you keep your mobile phone.

It's how you soon may pay for almost everything you buy using a method some call the "mobile wallet" and others term "mobile money" but is most commonly known as mobile payment solutions.

Mobile payment transactions are exploding. According to a report by Gartner Research, these types of payments totaled roughly $171.5 billion in 2012, a 62% rise from $105.9 billion in 2011. In 2012, roughly 212 million people worldwide made mobile payments, up 32% from nearly 160 million users in 2011.

More importantly, Gartner expects mobile transactions will grow at an average pace of 42% a year. By 2016, the firm forecasts the mobile transaction market will be worth $617 billion with 448 million global users.

This amazing growth outlook means tremendous opportunity for mobile payment service providers. Traders tapping into the trend now could also make stellar returns.

Of the publicly traded mobile payment solutions companies, the one I like best is NXP Semiconductors (Nasdaq: NXPI) based on its solid chart and increasing revenue and profits.

The hardware manufacturer has a specialized chip that enables mobile devices to communicate with each other in a close range, allowing the secure transmission of payment information. This near-field communication (NFC) chip should be a strong growth catalyst.

As my colleague Andy Obermueller pointed out in a recent article, sales of NXP's NFC chips grew 19% in 2011 and 41% in 2012. Merrill Lynch expects the company's chip sales will increase an additional 30% this year. By 2015, NFC chip sales are expected to account for 35% of the company's total revenue. (Another colleague of mine, David Goodboy, recently had an interesting take on an unexpected potential rival to NXP.)

It's clear that as mobile payment technology becomes increasingly commonplace, demand for NXP's chips could surge.
From a technical perspective, NXPI's chart is bullish.

Thierry Martin
09-20-2013,
You often hear about medical breakthroughs that have the potential to be game-changers. One of those, stem cell therapy, has come of age and is just beginning to reach critical mass, providing new avenues to treat previously untreatable diseases and ailments, including diabetes, Parkinson?s disease, eye disorders, spinal cord injuries and cancer. As a result, a large number of companies are entering the stem cell arena, one of which we are profiling today ? Life Stem Genetics, an interesting young company currently trading on the over-the-counter market under the symbol LIFS.

Before discussing the specifics of Life Stem?s business, it?s important to get a brief overview of what stem cells are and how they are used therapeutically. Stem cells are biological cells found in all multicellular organisms that can divide (through mitosis) and differentiate into diverse specialized cell types. They can also self-renew to produce more stem cells. In mammals, there are two broad types of stem cells: embryonic, which are isolated from the inner cell mass of blastocysts, and adult stem cells, found in various tissues. In adult organisms, stem cells and progenitor cells act as a repair system for the body, replenishing adult tissues.

Prior to any stem cell-related therapy taking place, a patient?s stem cells must first be extracted for use by clinicians ? a process known as ?harvesting.? Autologous adult stem cells (ASCs) can be sourced in three ways: through bone marrow, which requires literally drilling into bone; through adipose tissue, which is extracted via liposuction; or through blood, which requires a process called pheresis, wherein blood is drawn from the donor (similar to a blood donation), passed through a machine that extracts the stem cells and returns other portions of the blood to the donor.

That?s where Life Stem Genetics comes in. What may ultimately separate Life Stem from the crowd is its patented and proprietary stem cell treatment approach. The company has developed a regenerative procedure developed and tested to promote spinal, joint, organ health and longevity by using the patient?s own platelet rich blood cells and ASCs. In a spa-like setting, patients undergo a four-hour stem cell extraction procedure. Life Stem?s specialists have already successfully treated professional athletes from Major League Baseball, the NFL, the NBA and others.

The harvesting approach Life Stem uses is fairy simple: fat is extracted from the patient?s abdomen, then the stem cells are isolated and returned through a simple intravenous drip. Fat cells are among the richest in the human body vis a vis their stockpile of stem cells, maximizing the efficiency of this process. In fact, these cells contain up to 500x more stem cells than bone marrow, and perhaps most significantly, a higher concentration of ?mesenchymal? stem cells. These mesenchymal cells are key because they are able to differentiate into all the various types of tissues, and they do this automatically via cell receptors that facilitate migration to the injured, damaged, or diseased tissue locations within your body.

The company is currently in the process of building its base of affiliate clinics in the U.S. and internationally. The clinics are designed to both extract stem cells and help treat the wide spectrum of diseases that stem cells can benefit. The first clinics outside the U.S. are already being planned for Hong Kong and mainland China, with the broader goal of expanding into Europe, Canada, and Australia. The company also plans on offering stem cell storage, and other regenerative medical treatment options.

Thierry Martin
09-20-2013,
There are a lot of belles at the ball, but you can?t dance with all of them.

While a student at UCLA in the early seventies, I took a World Politics course, which required me to pick a country, analyze its economy, and make recommendations for its economic development. I chose Algeria, a country where I had spent the summer of 1968 caravanning among the Bedouins, crawling out of the desert half starved, lice ridden, and half dead.

I concluded that the North African country should immediately nationalize the oil industry, and raise prices from $3/barrel to $10. I knew that Los Angeles based Occidental Petroleum (OXY) was interested in exploring for oil there, so I sent my paper to the company for review. They called the next day and invited me to their imposing downtown headquarters, then the tallest building in Los Angeles.

I was ushered into the office of Dr. Armand Hammer, one of the great independent oil moguls of the day, a larger than life figure who owned a spectacular impressionist art collection, and who confidently displayed a priceless Faberg? egg on his desk. He said he was impressed with my paper, and then spent two hours grilling me.

Why should oil prices go up? Who did I know there? What did I see? What was the state of their infrastructure? Roads? Bridges? Rail lines? Did I see any oil derricks? Did I see any Russians? I told him everything I knew, including the two weeks in an Algiers jail for taking pictures in the wrong places. His parting advice was to never take my eye off the oil industry, as it is the driver of everything else. I have followed that advice ever since.

When I went back to UCLA, I told a CIA friend of mine that I had just spent the afternoon with the eminent doctor (Marsha, call me!). She told me that he had been a close advisor of Vladimir Lenin after the Russian Revolution, had been a double agent for the Soviets ever since, that the FBI had known this all along, and was currently funneling illegal campaign donations to President Richard Nixon. Shocked, I kicked myself for going into an interview so ill prepared, and had missed a golden opportunity to ask some great questions. I never made that mistake again.

Some 40 years later, while trolling the markets for great buying opportunities set up by the BP oil spill, I stumbled across (OXY) once more (click here for their site). (OXY) has a minimal offshore presence, nothing in deep water, and huge operations in the Middle East and South America. It was the first US oil company to go back into Libya when the sanctions were lifted in 2005. (OXY?s) substantial California production is expected to leap to 45% to 200,000 barrels a day over the next four years. Its horizontal multistage fracturing technology will enable it to dominate California shale. The company has raised its dividend for the tenth year in a row, by 15% to 1.56%. Need I say more?

The clear message that came out of the BP oil spill is that onshore energy resources are now more valuable than offshore ones. I decided to add it to my model portfolio. Energy is one of a tiny handful of industries I am willing to put my money in these days (technology, industrials, and health care are the others).

Thierry Martin
09-20-2013,
?Everyone has got to re examine their theories here,? said Federal Reserve Bank of St. Louis president, James Bullard, about the failure of inflation to appear after five years of quantitative easing.

Thierry Martin
09-20-2013,
The notion of a wide moat around your castle has been around for centuries. The early moats were designed to repel rivals and prevent them from invading and conquering.

Today's moats also keep rivals at bay. Companies that have built a solid moat around their business, limiting the threat of competition and price wars to some degree, tend to garner higher valuations from investors.

How do we know that? Because the Market Vectors Wide Moat ETF (NYSE: MOAT) exchange-traded fund (ETF), which debuted in April 2012, is handily outperforming its benchmark, the S&P 500 Index.

Thierry Martin
09-20-2013,
Stocks moved up the fourth week in a row and have delivered a large gain in the first 10 months of the year. For now, there is no reason to expect a reversal in the trend.

Stocks Continue Setting New Highs
SPDR S&P 500 (NYSE: SPY) added another 0.15% last week and is now up 25.55% for the year, including dividends.

To put this performance into perspective, we can review data for the S&P 500 index going back to 1928. This year's performance would be the 22nd best year out of 86. After such a strong performance, many investors expect a decline, and the question becomes, "H ow bad will the decline be?"

In the past, large gains have been followed by losing years 43% of the time. Overall, 28% of the 86 years have closed down, so there is a slight bearish bias for 2014.

In each of the years that showed a gain larger than this year's, stocks cooled off in the next year and showed a loss or smaller gain. This information should be used in the next few weeks as we prepare expectations for 2014.

Earnings are likely to determine whether 2014 is an up or down year, and for now, earnings remain supportive of higher prices. Earnings reports for the third quarter are strong with about 69% of the companies in the S&P 500 that have already reported beating expectations, slightly better than the recent trend in this measure.

Based on earnings, the S&P 500 should be trading at about 1,800, which is near the current price. That would be about 17 times the expected full-year earnings. Traders will start looking ahead to next year soon, and based on earnings, the S&P 500 could top 2,000 in 2014. This supports higher prices for now. Seasonal tendencies and momentum both argue for more gains in the short term, and we are likely to see prices continue moving higher into the end of the year.

Last week, a reader emailed me that they were concerned about the possibility that I am wrong and prices could turn down suddenly. That is certainly possible. Their question was whether put options could help to protect wealth if that happens.

To answer this question, I will assume a reader has a $10,000 account and provide some examples.

A put option on SPY expiring in January with an exercise price of $177 is trading for about $4.55. One contract would cost $455. If the market falls about 10% from Friday's close of $176.21 to about $158.60, this option would be worth at least $18.40.

Here's how the math works: We start with $10,000 and subtract the cost of the option ($455). That means we have $9,545 invested in stocks, and we are assuming the portfolio matches the market change. The option is worth $1,840 if the market falls 10% and $0 if the market is unchanged or rises 10%. That value is added to the stock portfolio to obtain the value shown in the table below. For the 10% gain, for example, we have $9,545 gaining 10% and the option being valued at $0.

Thierry Martin
09-20-2013,
If the Ford F Series truck were a stock all unto itself, we?d be happy to sink all our savings into it and then go a?begging and a?borrowing to invest even more. That puppy?s one dog-gone batch of an automobile! We love it and so does the rest of the world, but, sadly, it?s also a Ford.



As the insert shows, Ford?s on track for a possible record sales year for the model, as YTD numbers are currently indicating sales of at least 750,000 units for the calendar year, 2013.

Sales of F Series vehicles are also a reliable indicator of the state of the markets in general ? you may have noticed that the chart above has the same contours as the S&P 500 over the last fifteen-odd years.

Pick-up sales, to be sure, are correlated to the economy, as they?re indicative of the health of small business and the construction industry. So it makes sense that the world?s best selling vehicle would move in tandem with markets.

The Lesson for Investors

And just as there can exist a stellar performer produced by a middling to ?OK? manufacturer of automobiles, so, too, we say, will the market offer individual outsized winners in a generally upbeat bullish run ? stocks that will outgas and outpower everything else that?s running, 4 x 4 or otherwise.

As proof, we note the following bit of chartitude from our colleagues at Bespoke, that amply demonstrates a point we?ve been repeating in these letters for some months now.

In short, there?s increasing evidence that the market is thinning.

Thierry Martin
09-20-2013,
Socially responsible investing is fine, I'm not here to pick on people who genuinely believe they can do good in this world by virtue of which stocks their mutual fund refuses to own. Whatever, it's probably harmless (even if it has very little impact and is probably a higher-fee scam in disguise in many cases).

But what about politically-aware investing? isn't this the same kind of thing in a different costume? From a marketing standpoint, I'd bet it's a homerun - people like to align themselves with likeminded individuals - so why not offer them a likeminded investment vehicle? The gold funds have been onto this idea for decades.

Just for fun, launch an ETF with the ticker symbol $AYN built around an index of companies with objectivist cultures like lululemon and see how much money comes in after doing some targeted media on the concept. Do some backtesting so you can find a carefully chosen timeframe over which the strategy beats a benchmark of your choice. You get the idea, this shit sells itself.

Take, for instance, the Congressional Effect Investor Fund (CEFFX). This is a fund that appeals to those who believe government does more harm than good and so it only invests when Congress is out of session. You can always find some moron to buy anything - despite trading flat for three years while the S&P has soared to new heights, there are still $12 and a half million dollars sloshing around inside this Frankenstein. Can you imagine whose money that is? Could be, like, a dead guy whose decedents haven't gotten around to filling out the estate paperwork in order to liquidate it.

Here's Index Universe on a new ETF IPO that's already raised $150 million out of the gates. It's been launched by an investment advisory firm and recommended, presumably, to people who confuse politics with investing or care more about the former than the latter. I'll let you read the description with no additional comment:

The well-established firm played a key role in developing and launching both the ETF and its issuer, the nonprofit firm Vident Financial. Following the challenges of 2008-2009, Ronald Blue & Co. set out on a long-form research project to see if it could develop strategies that would provide better outcomes for clients, while aligning with the firm?s overall values.

That research led to a strategy focused on the concept of human flourishing, tempered by the principle of the inherent uncertainty of day-to-day life and led to Vident Financial.

The new ETF reflects these concepts by tilting its exposure to countries and companies that have the right environment to support growth, including low debt, strong rule of law, economic freedoms and other factors. At the same time, it incorporates a risk-management and valuation strategy developed by Lattice Strategies, an ETF-focused strategy firm based in San Francisco, to ensure that the ETF provides strong risk-adjusted returns.

I have no idea how the returns will be, perhaps they will be excellent. Or perhaps they won't. I doubt it will matter, so long as the message stays intact and the affinity group is large enough to create an active marketplace for the concept over time.

Bon chance, true believers.

Source:

Thierry Martin
09-20-2013,
Socially responsible investing is fine, I'm not here to pick on people who genuinely believe they can do good in this world by virtue of which stocks their mutual fund refuses to own. Whatever, it's probably harmless (even if it has very little impact and is probably a higher-fee scam in disguise in many cases).

But what about politically-aware investing? isn't this the same kind of thing in a different costume? From a marketing standpoint, I'd bet it's a homerun - people like to align themselves with likeminded individuals - so why not offer them a likeminded investment vehicle? The gold funds have been onto this idea for decades.

Just for fun, launch an ETF with the ticker symbol $AYN built around an index of companies with objectivist cultures like lululemon and see how much money comes in after doing some targeted media on the concept. Do some backtesting so you can find a carefully chosen timeframe over which the strategy beats a benchmark of your choice. You get the idea, this shit sells itself.

Take, for instance, the Congressional Effect Investor Fund (CEFFX). This is a fund that appeals to those who believe government does more harm than good and so it only invests when Congress is out of session. You can always find some moron to buy anything - despite trading flat for three years while the S&P has soared to new heights, there are still $12 and a half million dollars sloshing around inside this Frankenstein. Can you imagine whose money that is? Could be, like, a dead guy whose decedents haven't gotten around to filling out the estate paperwork in order to liquidate it.

Here's Index Universe on a new ETF IPO that's already raised $150 million out of the gates. It's been launched by an investment advisory firm and recommended, presumably, to people who confuse politics with investing or care more about the former than the latter. I'll let you read the description with no additional comment:

The well-established firm played a key role in developing and launching both the ETF and its issuer, the nonprofit firm Vident Financial. Following the challenges of 2008-2009, Ronald Blue & Co. set out on a long-form research project to see if it could develop strategies that would provide better outcomes for clients, while aligning with the firm?s overall values.

That research led to a strategy focused on the concept of human flourishing, tempered by the principle of the inherent uncertainty of day-to-day life and led to Vident Financial.

Thierry Martin
09-20-2013,
Markets remained relatively flat on Monday morning after SAC Capital Advisors plead guilty in a federal insider trading case. SAC agreed to pay a $1.8 billion settlement in a case that has lasted nearly five years. They will end up paying a $900 million fine and another $900 million to the federal government. They will also end their investment advisory business. If a judge agrees to the settlement reached between the two parties, this will also resolve the civil case against SAC and their affiliates. The total amount does include a penalty totaling $616 million that SAC already agreed to pay which was to settle a civil lawsuit brought against them by the SEC for insider trading. The evidence was said to be ?voluminous? by a prosecutor and included electronic messages, instant messages, court-ordered wire taps, and consensual recordings.

Shares of Kellogg were trading higher, despite the company announced that they have plans to cut their workforce by 7% following weaker-then-expected sales for the year. Kelloggs currently has approximately 31,000 employees and are planning on cutting nearly 2,170 of those jobs. The total cuts will come by the end of 2017, however the company said, ?Some employee notifications will take place this week.? The company has been struggling to boost cereal sales in the North American market as more people are opting for breakfast items they can grab on the go. In the most recent quarter, Kellogg said their sales in the U.S. were down 2.2%. Earnings came in at $326 million, or 90 cents per share. They cut their revenue forecast for 2013 from the original 5% to 4-5%. Kellogg is responsible for making items like Tony?s Frosted Flakes, Rice Krispies, and Eggo waffles.

Shares of BlackBerry Limited (BBRY) were plummeting on Monday after the company?s takeover bid fell through. BBRY had plans to be bought out for $4.7 billion from Fairfax Financial Holdings Ltd. They did, however, come to an alternative agreement which includes a $1 billion bond deal. The new deal is supposed to be finalized later this month. Jack Ablin, chief investment officer at BMO Private Bank, said the company might still pursue other options, in selling off their patents. He continued to say, ?Looks like doors are closing on BlackBerry and they are going to be looking at fewer options,? Mr. Ablin said. The stock was down 35% from last year prior to the fall today. Barbara Stymiest, BlackBerry?s chairman, said ?The BlackBerry board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholder. This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position.

That?s all for the day.

All the best,

Thierry Martin
09-20-2013,
Markets remained relatively flat on Monday morning after SAC Capital Advisors plead guilty in a federal insider trading case. SAC agreed to pay a $1.8 billion settlement in a case that has lasted nearly five years. They will end up paying a $900 million fine and another $900 million to the federal government. They will also end their investment advisory business. If a judge agrees to the settlement reached between the two parties, this will also resolve the civil case against SAC and their affiliates. The total amount does include a penalty totaling $616 million that SAC already agreed to pay which was to settle a civil lawsuit brought against them by the SEC for insider trading. The evidence was said to be ?voluminous? by a prosecutor and included electronic messages, instant messages, court-ordered wire taps, and consensual recordings.

Shares of Kellogg were trading higher, despite the company announced that they have plans to cut their workforce by 7% following weaker-then-expected sales for the year. Kelloggs currently has approximately 31,000 employees and are planning on cutting nearly 2,170 of those jobs. The total cuts will come by the end of 2017, however the company said, ?Some employee notifications will take place this week.? The company has been struggling to boost cereal sales in the North American market as more people are opting for breakfast items they can grab on the go. In the most recent quarter, Kellogg said their sales in the U.S. were down 2.2%. Earnings came in at $326 million, or 90 cents per share. They cut their revenue forecast for 2013 from the original 5% to 4-5%. Kellogg is responsible for making items like Tony?s Frosted Flakes, Rice Krispies, and Eggo waffles.

Shares of BlackBerry Limited (BBRY) were plummeting on Monday after the company?s takeover bid fell through. BBRY had plans to be bought out for $4.7 billion from Fairfax Financial Holdings Ltd. They did, however, come to an alternative agreement which includes a $1 billion bond deal. The new deal is supposed to be finalized later this month. Jack Ablin, chief investment officer at BMO Private Bank, said the company might still pursue other options, in selling off their patents. He continued to say, ?Looks like doors are closing on BlackBerry and they are going to be looking at fewer options,? Mr. Ablin said. The stock was down 35% from last year prior to the fall today. Barbara Stymiest, BlackBerry?s chairman, said ?The BlackBerry board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholder. This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position.

That?s all for the day.

Thierry Martin
09-20-2013,
It was another perfect month for Income Trader's Amber Hestla...

A few weeks ago, three more "put" options Amber sold for her Income Trader portfolio expired worthless (when a put expires worthless, the seller keeps the premium they collected from selling the option as a 100% profit). The most recent victories mark Amber's 26th, 27th and 28th (out of 28) profitable closed trades.

If you're a regular StreetAuthority reader, you're likely familiar with Amber's put-selling strategy. If not, you can read our previous issues explaining it in detail here and here.

In short, Amber collects extra investment income by selling put options on stocks she thinks are undervalued. These "Instant Income" checks, as she calls them, usually range anywhere from $100... to $150 ... to even $200. (And this is just for one put option. Many of her readers scale up to collect even more income.)

Most of the time -- 93% in Amber's experience -- the option expires worthless and the money she collects is hers to keep as pure profit.

But if you read the above paragraphs closely, you'll notice I said Amber's current track record implies she's yet to close an unprofitable trade... So if 93% of the puts she's recommended have expired worthless, what happened to other 7%?

To answer the question, we first need to recap how options work...

A put option gives investors the right, but not the obligation, to sell a stock at a specified price before a specified date. So when you sell a put option, you have the obligation to purchase a stock from the put buyer if it falls below a specified price (the option's strike price).

For example, on top of the three contracts that expired worthless in Amber's portfolio this month, she also had a fourth that didn't. Specifically, the puts she sold in August on Green Mountain Coffee Roasters (Nasdaq: GMCR) expired "in the money" (the price of GMCR was trading below the option's strike price of $67.50 the day it expired). As a result, Amber was assigned 100 shares of GMCR on October 19 for $67.50 a piece.

At this point, you're probably thinking Amber only has two options: She can sell the shares immediately, or she can wait for the stock to rebound and sell them at a later date (remember, she already likes the company to begin with).

But unbeknownst to most, there's actually a third, potentially more lucrative strategy that Amber can employ in order to leverage her newly purchased shares of GMCR, and it's one that can reap big instant "dividends."

I'm talking about selling covered call options.

A call option is exactly the opposite of a put option. It gives the buyer the right -- but not the obligation -- to buy a stock from the call seller if it rises above a specified price before a specified date. When the seller actually owns the shares of the stock they're selling the call on, the option is considered a "covered" call.

By selling covered calls on GMCR, Amber was able to collect $129 in "Instant Income."

Thierry Martin
09-20-2013,
The Trade Alert service of the Mad Hedge Fund Trader has posted a new all time high in performance, taking in 46.05% so far in 2013. The three-year return is an eye popping 101.7%, taking the averaged annualized return to 35%. That compares to a far more modest increase for the Dow Average during the same period of 19%.

This has been the profit since the groundbreaking trade mentoring service was launched 35 months ago. These numbers place me at the absolute apex of all hedge fund managers, where the year to date gains have been a far more pedestrian 3%.

These numbers come off the back of a blistering week in the market where I added 5% in value to my model-trading portfolio. I called the top in the bond market on Monday, shorted the Treasury bond ETF (TLT), and bought the short Treasury ETF (TBT). Prices then collapsed, taking the ten-year Treasury bond yield from 2.47% to 2.63%.

I then pegged the top of the Euro (FXE) against the dollar, betting that the European Central Bank would have to cut interest rates to head off another recession. Since then, the beleaguered continental currency has plunged from $1.3700 to $1.3350 to the buck.

I then bet that the stock market would enter another tedious sideways correction going into the Thanksgiving holidays. I bought an in the money put spread on the S&P 500, and then bracketed the index through buying an in the money call spread.

Carving out the 2013 trades alone, 57 out of 71 have made money, a success rate of 80%. It is a track record that most big hedge funds would kill for.
This performance was only made possible by correctly calling the near term direction of stocks, bonds, foreign currencies, energy, precious metals and the agricultural products. It all sounds easy, until you try it.

My esteemed colleague, Mad Day Trader Jim Parker, has also been coining it. He caught a spike up in the volatility index (VIX) by both lapels. He also was a major player on the short side in bonds.

Thierry Martin
09-20-2013,
Random Thoughts



The Ps dipped a bit, found their low, and rallied a smidge on Friday. So far, their recent breakout remains intact and they only appear to have pulled back a bit.

The Quack ended flat on the day. Its recent breakout remains intact too but it has lost some momentum shorter-term, trading around where it was several weeks ago.

It seems like the recent rally has been really a big cap affair with the Ps leading the way.

It's really a tale of two markets. Under the surface all isn't as well as the Ps would suggest. The Rusty (Russell 2000), one of my favorites gauges for what lies beneath, retraced all of its recent breakout back to 108 (basis the IWM). It did manage to bounce off this level but still lost nearly 1/2 % on the day.

Many individual issues have been hit fairly hard as of late-see recent columns regarding recent debacle de jours.

Most sectors still remain in uptrends but some such as the Semis (especially Printed Circuit Boards), Banks, and Biotech have lost momentum.

Again, on the surface the market looks okay but it really has become mixed as of late.

So what do we do? Make sure you don't always take the market at face value. Dig through many stocks and sectors to make sure the indices aren't being propped up by just a few issues. Since things have become mixed, you want to make sure that you really really like a setup before taking it. And, if it does pass this litmus test, use a liberal entry to help ensure that you don't get triggered on noise alone. I think it's too early to go crazy bearish but I would consider a short or two just in case. Worst case, the market rallies and you lose a little on the shorts but make it all back on existing longs.

Futures are firm pre-market.

Thierry Martin
09-20-2013,
Random Thoughts



The Ps dipped a bit, found their low, and rallied a smidge on Friday. So far, their recent breakout remains intact and they only appear to have pulled back a bit.

The Quack ended flat on the day. Its recent breakout remains intact too but it has lost some momentum shorter-term, trading around where it was several weeks ago.

It seems like the recent rally has been really a big cap affair with the Ps leading the way.

It's really a tale of two markets. Under the surface all isn't as well as the Ps would suggest. The Rusty (Russell 2000), one of my favorites gauges for what lies beneath, retraced all of its recent breakout back to 108 (basis the IWM). It did manage to bounce off this level but still lost nearly 1/2 % on the day.

Many individual issues have been hit fairly hard as of late-see recent columns regarding recent debacle de jours.

Most sectors still remain in uptrends but some such as the Semis (especially Printed Circuit Boards), Banks, and Biotech have lost momentum.

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

Credit Suisse: These are the four things that could most likely cause a market correction. (BusinessInsider)

Barry: Welcome to my first Bloomberg View column! (Bloomberg)

Andy Kessler: Is Twitter about to revolutionize advertising? (WSJ)

Stock market sector performance relative to the S&P 500 this year. (BusinessInsider)

John Rekenthaler is not letting go of the managed futures funds are broken meme. (Morningstar)

OakTree's Howard Marks is now buying Chinese stocks as US markets grow more expensive. (Bloomberg)

Are bank loan funds, MLPs or long-short strategies really adding diversification to your portfolio? (Morningstar)

A new book with simple techniques to change investor behavior for the better. (NerdsEyeView)

Early critics of Abenomics predicted a Wall of Money" coming out of Japan to flood foreign assets markets. OK, where is it? (NYFed)

Unrepentant for beingwrongearly about nearly everything is a great asset gathering strategy. (Bloomberg)


Even after six years of recession, 69% of Greeks still want to stick with the euro. (WSJ)

Yves Smith goes hard at Jamie Dimon, calls him "the Lance Armstrong of Finance." (NakedCapitalism)

Chrystia Freeland: I don't know if you've noticed, but populists are starting to defeat plutocrats. (NYT)

This season's hot color combo for men is brown + blue. (GQ)

REMINDER: Backstage Wall Street is now on Kindle!

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

Credit Suisse: These are the four things that could most likely cause a market correction. (BusinessInsider)

Barry: Welcome to my first Bloomberg View column! (Bloomberg)

Andy Kessler: Is Twitter about to revolutionize advertising? (WSJ)

Stock market sector performance relative to the S&P 500 this year. (BusinessInsider)

John Rekenthaler is not letting go of the managed futures funds are broken meme. (Morningstar)

OakTree's Howard Marks is now buying Chinese stocks as US markets grow more expensive. (Bloomberg)

Are bank loan funds, MLPs or long-short strategies really adding diversification to your portfolio? (Morningstar)

Thierry Martin
09-20-2013,
Quote of the day

Eddy Elfenbein, ?A bubble is a bull market in which you don?t have a position.? (Twitter)

Chart of the day



Small cap stocks are no longer leading the rally. (StockCharts Blog, MoneyBeat)

Markets

Is the median S&P 500 stock overvalued? (Mebane Faber)

The term bubble is way overused. (Dragonfly Capital)

Jeff Miller, ?When a market theme hits USA Today, it is too late for action.? (A Dash of Insight)

Wet corn fields=high propane prices: the link. (WSJ)

Why interest rates look like they are headed higher once again. (StockCharts Blog)

Covenants? We don?t need no stinkin? covenants! (Sober Look)

Strategy

Why investors continue to underperform their funds: poor timing. (Jason Zweig)

Now is the time to start thinking about profiting from year-end tax selling. (Mark Hulbert)

John Rekenthaler, ?Managed-futures funds are a mess. ? (Morningstar)

Meet some mangers hanging out in cash. (Barron?s)

Thierry Martin
09-20-2013,
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,
November 2nd, 2013. The description reads as it does in the relevant linkfest:


Warren Buffett?s favorite market indicator shows the US stock market is overvalued. (FT Alphaville)
Five signs of market froth. (Brett Arends)
What the stock market has historically done in the last 20 days of a bull market. (Avondale Asset)
7 market lessons, relearned in 2013. (Ivanhoff Capital)
In the long run valuation matters. (Mebane Faber)
When high momentum stocks crack, pay attention. (Minyanville)
Where married couples met. (Priceonomics Blog)
The case for value stocks. (Institutional Investor)
The opportunity in bonds. (Humble Student)
James Altucher, ?Everyone is wrong almost all of the time and it makes zero sense to argue with them.? (Altucher Confidential)


What else you may have missed on the site this week:

What books Abnormal Returns readers purchased in October 2013. (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

Thierry Martin
09-20-2013,
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,
November 2nd, 2013. The description reads as it does in the relevant linkfest:


Warren Buffett?s favorite market indicator shows the US stock market is overvalued. (FT Alphaville)
Five signs of market froth. (Brett Arends)
What the stock market has historically done in the last 20 days of a bull market. (Avondale Asset)
7 market lessons, relearned in 2013. (Ivanhoff Capital)
In the long run valuation matters. (Mebane Faber)
When high momentum stocks crack, pay attention. (Minyanville)
Where married couples met. (Priceonomics Blog)
The case for value stocks. (Institutional Investor)
The opportunity in bonds. (Humble Student)
James Altucher, ?Everyone is wrong almost all of the time and it makes zero sense to argue with them.? (Altucher Confidential)


What else you may have missed on the site this week:

What books Abnormal Returns readers purchased in October 2013. (Abnormal Returns)


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

Thierry Martin
09-20-2013,
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.

Investing

Reduce the noise levels in your investment process. (Barry Ritholtz)

How social interaction drives active (vs. passive) investing. (Cleveland Fed via FT Alphaville)

Investment research is going to get transformed by big data. (Institutional Investor)

Is the conventional wisdom on equity allocations in retirement all wrong? (Monevator)

Is it time for financial planning to move towards a monthly retainer model? (Nerd?s Eye View)

Lists

A dozen things learned from Philip Fisher and Walter Schloss. (25iq)

Five lessons on management from Sir Alex Ferguson. (Above the Market)

Finance

Some good advice for anyone considering a career in finance. (Aleph Blog)

A profile of controversial hedge fund manager Dan Loeb. (Vanity Fair)

The man who helped shine a light on the scandal of corporate tax avoidance. (Wonkblog)

Dave Ramsey

A profile of Dave Ramsey the ?most important personal finance guru in America.? (Pacific Standard)

Why Ramsey?s advice works for many people. (smithy Salmon)

Economics

Three important lessons learned from the financial crisis. (Justin Fox)

The rise of the pass-through structure is changing American business. (Economist)

Amazon

Why Amazon ($AMZN) is not yet running a profit. (Remains of the Day)

Can Amazon compete in groceries? (Bloomberg)

Health

Relax, it?s probably not a spider bite. (Slate)

Sitting will kill you. (NPR, Well via @davepell)

Why do so many middle-aged actresses purvey unscientific health nonsense? (Salon)

Psychology

What happens when an amateur rebuts a ?celebrated psychological finding?? (Narrative.ly via @longreads)

Why selfish people cooperate. (Priceonomics Blog)

Kissing serves a number of purposes. (Well)

How anxiety can lead your decisions astray. (HBR)

Education

Thierry Martin
09-20-2013,
I believe in China.

I have no doubt that this nation of 1.35 billion consumers will continue to lead the global growth boom over the next several decades. In addition, I want to share with you an underserved Chinese market that will likely explode over the next several years. There are several companies poised to capture this consumer wave that has swept over the Western world but is in its infancy in China.

Although China might not see a double-digit economic growth rate again, its current growth in the mid-single digits appears sustainable with continued government support. In the most recent quarter, growth sank a two-decade low of 7.5% -- but compared with any other economy, this remains a very impressive rate. China's leading economic figure, Premier Li Keqiang, has vowed to keep growth at 7.5% or higher, though it's important to note that other Chinese officials have forecast lower growth over the next several years.

The truth is, the actual growth rate doesn't really matter much for investors. In fact, the International Monetary Fund (IMF) recently indicated that slowing growth will actually lead to a higher quality of growth, which in turn will boost employment, income and consumption. The IMF goes further by projecting that the higher quality of growth will lead to China surpassing the United States as the world's largest economy by 2030.

The most exciting and potentially profitable forecast I found in the IMF's data is that with successful reforms, per-capita income in China could climb to 40% of the U.S. level by 2030. Think about this for a minute: a huge population with spending money in its pockets. It seems to me that this potential could not help but lead to a bull market the size of which has never been experienced in the history of mankind.

What I learned from a recent Business Insider Intelligence report is truly eye-opening in terms of scope and investment opportunity. The report shows that while the Chinese cellphone market is mature with slowing growth, the smartphone niche is rapidly expanding. This leads to growth in 3G subscriptions.

While China Mobile (NYSE: CHL) is the lead player in overall mobile subscriptions, it is lagging in smartphone subscriptions. Only 25% of China Mobile's clients are smartphone users. The reason for this is very interesting. It is because China Mobile's market is rural China, where people simply don't have the disposable income for smartphone data plans or 3G service. In addition, China Mobile's 3G network is substantially slower than the other major carriers' networks.

Two lesser-known companies are leading the smartphone data carrier revolution: China Unicom (NYSE: CHU) and China Telecom (NYSE: CHA). The Business Insider report forecasts that within the next year, smartphone sales in China will overtake sales of regular cellular handsets. Both China Unicom and China Telecom have a huge lead on China Mobile, with 45% of their subscribers being smartphone users.

Thierry Martin
09-20-2013,
Some quick afternoon links to take you into the weekend...

Warren Buffett was dead right about stocks five years ago, but oh how he was mocked. (WSJ)

Morgan Housel: Don't worry to much about being more intelligent, focus instead on being less stupid. (MotleyFool)

All of a sudden Oracle shareholders give a shit about Larry Ellison's pay package... (DealBook)

Joe Terranova gives you the 30,000 foot view of the markets heading into November. (Virtus)

Sean Darby (Jefferies) isn't terribly worried about the market's CAPE ratio (BusinessInsider) contra: (WorldBeta)

The flows into stocks and out of bonds are verging on a sell signal - BAML (TheTell)

Brazil is being colonized by China - and they're not thrilled about it. (Quartz)


The Reformed Broker

Thierry Martin
09-20-2013,
Quote of the day

Morgan Housel, ?Most financial advice tries to make people better investors. I?ve come to the conclusion that it?s more helpful to focus on how to become a less-bad investor.? (Motley Fool)

Chart of the day



The New High-New Low indicator is diverging from the broader market. (Charts etc.)

Markets

A look at major asset class performance for October. (Capital Spectator)

Why investors should hope that 2013 ends like 1995. (Market Anthropology)

Making the case that the stock market isn?t overvalued. (Business Insider)

Comparing the value of the S&P 500 to corporate credit. (Avondale Asset)

Thierry Martin
09-20-2013,
Stock futures crept up slightly higher on Friday morning, which indicates that the market could be in store for a rebound after two straight days of losses. The recent downturn has followed concerns of the Federal Reserve?s policy statement made on Wednesday that lead some investors to believe they might begin pulling in the reins on their stimulus program. The stimulus program, which totals $85 billion per month in bond purchases, has contributed to the 23% advance of the S&P 500 this year. Some are more skeptical of the Fed?s statement. Todd Schoenberger, managing partner at LandColt Capital, said, ?It seems the Fed is recycling its statements because the status quo remains, without a single clue as to when it will taper its current bond buying program. However, considering the macro data released since the previous meeting has been moderately weak and expected to improve over the next couple of quarters, it?s appropriate to predict the Fed will stay with the current $85 billion per month bond purchase program.?

Nissan Motor Co. announced that they were cutting their earnings forecast and planning on moving around leadership roles in efforts to deal with quality issues and more trying conditions in certain markets than originally expected. In the most recent July through September quarter, the company posted profits of $1.1 billion in net profit. This was a 2% increase over last year. Quarterly sales were up 16% to $25.4 billion. Nissan President and Chief Executive, Carlos Ghosn, said that they attribute the weaker-than-expected performance on many troubles. One of the strongest was a weakness in sales in emerging markets and extremely expensive recalls. Ghosn, said, ?Our slow performance required immediate action to be taken.? This was in reference to the immediate shuffle of top executives. Their chief operating officer, Toshiyuki Shiga, will be moved to a vice chairman position and they will appoint three new executives as COOs. ?I can tell you nobody is taking this as a kind of punishment. Everybody recognizes there is a need to rejuvenate. This is a good chance to start,? Ghosn said when speaking of the executive moves.

Wal-Mart (WMT) is hoping to get a leg up on other holiday retail businesses by pushing holiday shopping nearly a month early than usual. WMT is going to allow shoppers to purchase items online at special holiday prices starting today, shortly after midnight. There will be nearly 300 items available at special holiday pricing on Wal-Mart?s website, according to the company. Joel Anderson, president and CEO of Wal-Mart.com, said, ?It?s been a tough year for the average American family. It?s our job to be able to help our customers.?

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

All the best,
Jack Aubrey, Oakshire Financial

Related Articles

Thierry Martin
09-20-2013,
Stock futures crept up slightly higher on Friday morning, which indicates that the market could be in store for a rebound after two straight days of losses. The recent downturn has followed concerns of the Federal Reserve?s policy statement made on Wednesday that lead some investors to believe they might begin pulling in the reins on their stimulus program. The stimulus program, which totals $85 billion per month in bond purchases, has contributed to the 23% advance of the S&P 500 this year. Some are more skeptical of the Fed?s statement. Todd Schoenberger, managing partner at LandColt Capital, said, ?It seems the Fed is recycling its statements because the status quo remains, without a single clue as to when it will taper its current bond buying program. However, considering the macro data released since the previous meeting has been moderately weak and expected to improve over the next couple of quarters, it?s appropriate to predict the Fed will stay with the current $85 billion per month bond purchase program.?

Nissan Motor Co. announced that they were cutting their earnings forecast and planning on moving around leadership roles in efforts to deal with quality issues and more trying conditions in certain markets than originally expected. In the most recent July through September quarter, the company posted profits of $1.1 billion in net profit. This was a 2% increase over last year. Quarterly sales were up 16% to $25.4 billion. Nissan President and Chief Executive, Carlos Ghosn, said that they attribute the weaker-than-expected performance on many troubles. One of the strongest was a weakness in sales in emerging markets and extremely expensive recalls. Ghosn, said, ?Our slow performance required immediate action to be taken.? This was in reference to the immediate shuffle of top executives. Their chief operating officer, Toshiyuki Shiga, will be moved to a vice chairman position and they will appoint three new executives as COOs. ?I can tell you nobody is taking this as a kind of punishment. Everybody recognizes there is a need to rejuvenate. This is a good chance to start,? Ghosn said when speaking of the executive moves.

Wal-Mart (WMT) is hoping to get a leg up on other holiday retail businesses by pushing holiday shopping nearly a month early than usual. WMT is going to allow shoppers to purchase items online at special holiday prices starting today, shortly after midnight. There will be nearly 300 items available at special holiday pricing on Wal-Mart?s website, according to the company. Joel Anderson, president and CEO of Wal-Mart.com, said, ?It?s been a tough year for the average American family. It?s our job to be able to help our customers.?

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

Thierry Martin
09-20-2013,
Buying a house is a terrible way to profit from the recovery in the housing market.

Houses are illiquid assets. They carry high transaction costs. And they are loaded with expenses such as insurance, maintenance and taxes.
When you think about it, a house looks a lot like an "anti-dividend": Investors pay a lot of money to own them.

There's a better way to cash in on the recovery in housing. This leading homebuilder provides incredible leverage against the ongoing recovery in housing without the burdens of buying a house. And with shares recently dipping 28% while earnings estimates continue to surge, this is a rare chance to buy on a pullback. Take a look at the recent pullback in the chart below.

Thierry Martin
09-20-2013,
Random Thoughts



The Ps were a little soft but didn't come unglued, losing 1/3% on the day. So far, they only appear to be pulling back from their recent breakout. I'm not going to get too concerned here as long as they stay well above their prior breakout levels, circa 1725.

The Quack was also down a smidge. So far, its breakout remains intact but it has lost some momentum shorter-term, trading around where it was 2 weeks ago.

The Rusty was hit a little harder. It ended down just over ?%. So far, it too only appears to be correcting. However, this weakness here is more indicative of what has been happening internally lately. Although most sectors remain in uptrends-like the market itself-many individual stocks have been losing steam as of late. And worse, the debacle de jours continue to mount. Boyd Gaming (BYD) in the Resorts & Casinos was one of the latest victims. This action is typical of what I've been seeing lately-a sector that has been doing well on the surface with stocks getting hit beneath.

As I preach, determining your next course of action is a game of clues.

The good is that most sectors like the overall market, remain constructive. And, foreign markets are hanging in there.

The bad is that there are a few sectors such as Biotech that are stalling.

The ugly is the continued aforementioned debacle de jours. Hopefully, (and I know you should never use the word hope in this business) this isn't the tip of the iceberg.

Thierry Martin
09-20-2013,
The Chart of the Day is Lorillard Inc (LO). I found the stock near the top of the New High List when I sorted it for frequency. Not only did the stock gain 34.54% last year but it also paid a 4.34% dividend. Since the Trend Spotter issued a buy signal on 9/6 the stock is up 16.99%.

It is the third largest manufacturer of cigarettes in the United States. LO is the oldest continuously operating tobacco company in the U.S. Newport, theirs flagship brand, is a menthol-flavored premium cigarette brand and the top selling menthol and second largest selling cigarette in the U.S. The product line has five additional brand families marketed under the Kent, True, Maverick, Old Gold and Max brand names. These six brands include 44 different product offerings which vary in price, taste, flavor, length and packaging.

Thierry Martin
09-20-2013,
Recently, I wrote about the Nevadan wrinkle in the housing crisis where distressed homeowners are letting their horses go wild to make their mortgage payment.

Now neighboring California is facing a Chihuahua glut, where evicted homeowners are handing over their pets to animal shelters. The diminutive Mexican canine enjoyed a boom in popularity in recent years, thanks to movies like Beverly Hills Chihuahua and Legally Blonde.

Celebrities, like Paris Hilton, have also helped promote the breed, flaunting one in front of the paparazzi. Animal shelters in the Land of Fruits and Nuts have been so overwhelmed they have had to ship the ultra cute, but utterly useless animals to pounds as far away as Toronto.

Will the unintended consequences of Greenspan?s low interest policy never end? Give the poor Chihuahua?s a break!

Thierry Martin
09-20-2013,
?Those near 10% annualized yields in stocks and bonds are a thing of the past,? said Bill Gross, the managing direct and co-chief investment officer of the Newport Beach, CA based bond giant, PIMCO.

Thierry Martin
09-20-2013,
We?ve spent the last three weeks commenting on gold, so we?re going to do our best to refrain from going there this week, and instead focus on a few other corners of the investment universe.

Let?s start with high yield, an asset class we?ve done well with since the market bottomed in 2009 and about which we?ve written numerous times ever since.
In short, we still like it.

Here?s a chart of the iShares iBoxx High Yield Corporate Bond Fund (NYSE:HYG), the bellwether ETF of its class, with an average day?s turnover in the vicinity of $400 million.

Thierry Martin
09-20-2013,
With each passing quarter, Wall Street analysts tweak their forecasts and price targets, trying their best to predict what a company's sales and profits will look like three or six months from now.

That myopia has led them to miss out one of the greatest long-term success stories in the U.S. economy.

It isn't found in the engineering labs in Silicon Valley or the canyons of Wall Street. Instead, it's in places like Iowa, Nebraska, Texas and Pennsylvania. That's where our nation's most dynamic export opportunities have emerged on vast tracts of arable land. Consider this stat: The U.S. exported $29 billion in corn, wheat, soybeans, apples, pistachios and many other farm products in 1985. A decade later, that figure had doubled, and by 2010, surpassed $115 billion.

Thierry Martin
09-20-2013,
Quote of the day

Joshua Morgan Brown, ?Economics is extremely important to understanding the world in which we live, but the linear application of it can be deadly with actual money on the line.? (The Reformed Broker)

Chart of the day



Warren Buffett?s favorite market indicator shows the US stock market is overvalued. (FT Alphaville)

Markets

Thierry Martin
09-20-2013,
Berkshire Hathaway's cash position is back up to $40 billion. The media's take is that he has so much cash that he doesn't know what to do with it.
I think he knows exactly what to do with it - nothing.

I've been following Buffett for fifteen years and have read almost everything notable he's ever said or written. I think there are three primary reasons he is content with letting cash build for the moment and not buying anything:

1. He doesn't have to. Warren doesn't feel compelled to "play" any given themes or keep up with a particular benchmark for any specific short-term period of time. He judges his and Charlie's success based using several metrics, one of which is book value - did he grow the underlying value of the business itself or not? The company will not pursue deals or transactions that do not help accomplish this objective, period.

2. Markets are not cheap. Like other notable value investors, Berkshire does not see a plethora of great opportunities owing to the tremendous rise in virtually every investable asset class and sector. Buffett is known to buy panic. His crisis-era transactions - buying the country's largest railroad in 2009, extracting enormously profitable convertible preferred deals from GE, GS and BAC, etc - have been so insanely successful that he can sit back and simply collect the profits and bide his time. Warren and Charlie run into burning buildings with their wallets out, they don't scan the real estate listings for mansions
during a bull market.

3. He could pounce at any time. The next big dislocation in the stock market probably comes as a result of something the Fed ends up doing - whenever that is. A gradual end of QE won't necessarily be fatal to the economy, but it could be short-term detrimental to the stock market, it could even cause a massive correction or cyclical bear market (most of which last less than a year) . Warren looks forward to events like these while most investors live in fear of them. That's why he is who he is and we are not.

Thierry Martin
09-20-2013,
Random Thoughts


The Ps started firm but quickly found their high and then sold off fairly hard. They did manage to close off their worst levels but still lost ?%. This action gives up Tuesday's gains and it forms an outside day down.

The Quack put in a somewhat similar performance. It too formed an outside day down. I don't get too excited about a 1-day reversal pattern (like certain people who scream that it's the end of the world when the market makes a fat wrestler with a mawashi wedgie or a baby with a poopy diaper pattern). However, it does have to be scored as a negative day-duh.

Internally, it was a little uglier than the Ps and Quack would suggest. I suppose that's not a huge surprise when you see that the Rusty was down over 1 1/3%.

I remain concerned about the growing number of debacle de jours. PRXL and FLEX were the latest victims. In preparation for today's chart show, I made a list of recent stocks that have been hit hard. I'm mostly concerned about household names, higher volume stocks (vs. thin), and those stocks that were recently at higher levels. Here are some of the names that I found: AGCO,AKAM,ARIA,CETV,CNDO,CTXS,CVA,CYOU,DAN,FENG,FT I,HWAY,INVN,MWV,NQ,QLIK, RFMD,RYN,SANM,SOHU,SWK,SYMC,UBS,WU

This action suggests that these stocks were priced for perfection. One has to wonder if these are "Canaries in the coal mine?"

For the most part, most areas still remain in uptrends and so far, they have only begun to pull back.

Foreign shares continue to hang in there.

As you know, I'm a one day at a time kind of day guy. Yesterday was pretty ugly-to coin an oxymoron. One or two big updates would make all the difference in the world.

So what do we do? I think it's too early to run out into the streets and scream that the sky is falling. You can't completely ignore the aforementioned Canaries though. Focus mostly on the long side but use very liberal entries. This will help to avoid new positions should things worsen. I wouldn't rush out and sell the farm but you might consider putting on a short or two just in case. Worse case, you get stuck with a bad trade and your longs take off to more than make up for it. As usual, regardless of what you do, make sure you honor your stops.

Futures are soft pre-market.


Best of luck with your trading today!

Dave

__________

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


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Thierry Martin
09-20-2013,
Ever wonder how the super-rich manage their investments and retire on that private island with afternoon mojitos? A big part of it is investing in the assets not available to regular people like you and me.

I'm talking about private equity. Yes, the same asset class that made Mitt Romney and Carl Icahn mega-superstars of finance.

The problem is, unless you have a net worth in excess of seven figures or a salary above $200,000, then you are not allowed to invest in private equity deals.

These investments in struggling or new companies can go bust or can produce triple-digit returns in a matter of years, but you and I are not allowed on the playground.

An analysis of 146 public pension funds over the past year showed that private equity investments have earned a 10% annualized return over the past decade, well above the 5.8% return the funds made on the general stock market. The pension for Texas' Teacher Retirement System scored a whopping 15.5% annual rate over the past 10 years.

Thierry Martin
09-20-2013,
In the wake of the Federal Reserve?s decision not to taper and to leave interest rates unchanged, our long positions are soaring and our short positions are collapsing.

No surprise here, as both the Mad Hedge Fund Trader and the Mad Day Trader nailed the market?s reaction well in advance with a profusion of timely Trade Alerts over the last few days.

Treasury bonds have cratered, with the (TLT) down a full point. The short Treasury ETF (TBT) has gapped up nearly a point and a half. The S&P 500 (SPY) is down 1.5 points, while the Euro has given back nearly a penny against the US dollar.

Both our RISK ON/RISK OFF positions are working at the same time. As a result, we are seeing a surge upward in the performance of the Trade Alert Service model portfolio. More than half of the potential profit in all our existing positions can be realized on a mark to market basis.

If you want to book a day trade or an overnight profit here, go ahead and do so. You don?t get windfalls like this very often. Sit back and smell the roses.
As for myself, I am going to hang on a little longer. This makes it much easier for me to run the entire book into expiration, only 12 trading days away, which was the original plan.

Thierry Martin
09-20-2013,
In the wake of the Federal Reserve?s decision not to taper and to leave interest rates unchanged, our long positions are soaring and our short positions are collapsing.

No surprise here, as both the Mad Hedge Fund Trader and the Mad Day Trader nailed the market?s reaction well in advance with a profusion of timely Trade Alerts over the last few days.

Treasury bonds have cratered, with the (TLT) down a full point. The short Treasury ETF (TBT) has gapped up nearly a point and a half. The S&P 500 (SPY) is down 1.5 points, while the Euro has given back nearly a penny against the US dollar.

Both our RISK ON/RISK OFF positions are working at the same time. As a result, we are seeing a surge upward in the performance of the Trade Alert Service model portfolio. More than half of the potential profit in all our existing positions can be realized on a mark to market basis.

If you want to book a day trade or an overnight profit here, go ahead and do so. You don?t get windfalls like this very often. Sit back and smell the roses.
As for myself, I am going to hang on a little longer. This makes it much easier for me to run the entire book into expiration, only 12 trading days away, which was the original plan.

To refresh your memory, here are our current positions below:

Thierry Martin
09-20-2013,
So much BS is flying about over the Obamacare issue that I can?t resist the temptation to put in my two cents worth.

There was no chance this was going to work on day one, and I warned senior administration officials as much on many different occasions. Even the Massachusetts health care plan only saw 100 sign ups in the first month, and it was supported by both parties.

The fatal flaw? They believed the website developer, which anyone who runs on online business, such as myself, will tell you, is a great way to ruin your life.

The truly shocking revelation is that the lead development contract was handed out to a Canadian company. Hey, we out here in Silicon Valley have web development companies! One wonders why the government didn?t hand the whole project over to Google.

While the administration has applauded the millions who rushed to sign up in the early days, I believe that the headline we will see in six months or a year is that almost of them were already sick and uninsured, with diabetes, hypertension, or even cancer. Why the rush?

The government is essentially attempting to create 50 Amazon?s overnight with the many state insurance exchanges. It took Amazon, itself, 20 years to create just one Amazon, and that?s with my old friend, the brilliant Jeff Bezos, calling the shots and taking huge risks.

Having worked with the US military for 40 years, I can tell you that the government never throws anything away, not old tanks, old fighters, old weapons, and yes, old software. I can?t tell you how many times I jumped into a Navy or Marine cockpit, looked at the instrument panel, and said to myself ?You?ve got to be kidding. This thing belongs in a museum.?

For example, the B-52 Stratofortress intercontinental bomber, which was first designed in 1946 and built in 1952, is not scheduled for retirement until 2050, when it will be nearly 100 years old. Thank goodness for preventative maintenance!

So it is no surprise then to hear that the root of Obamacare?s software problems lies with its inter platform communication. Some of the software is brand new, some is 10 years old, and some 20 years old, and custom written by programmers who are probably dead by now. But it all has to talk to each other to function. Good luck with that!

Health care accounts for 12% of our GDP, or about $2 trillion, and employs about 18 million people. That amount of money generates gargantuan fees for lobbyists to maintain the gravy train for the private companies who run the system. This is an industry that has been sheltered from competition until now, which is why costs have been running away for 30 years.

As a result, virtually all information about Obamacare disseminated by the media is inaccurate. You see kids being interviewed on the street asked how much more they will have to spend on Obamacare compared to no coverage at all, and the figure comes to about $2,500 a year.

This is for kids who make $30,000-$40,000 a year. It is a big hit to be sure. But no one asks what will happen if they get hit by a car, or fall off their skateboards. That?s because there is only one answer: go to county hospital, and then file for bankruptcy. Still, most will end up paying the first year fine, which is $85.

This week?s talking point, manufactured by political consultants working in ill lit rooms for unknown companies funded by anonymous donors, is about the millions of cancellation letters that have been sent out by insurance companies individual alarmed private policyholders. I have read a few of these letters.

It turns out that the insured in question had bargain basement policies that really didn?t cover them for anything. They don?t find this out until they try to make a claim, which then gets denied. By setting new, higher standards to fit in the round holes of the public exchanges, the government is forcing the providers to raise the quality of care or quit the business, which they are doing in droves. Somehow, Obama was supposed to know they were going to do this when the law was written five years ago.

Thierry Martin
09-20-2013,
?I grew up trying to separate the emotion of the market from what reality is. Eventually, emotion is just a big sine wave that fluctuates around reality. Eventually, it will catch up,? said Lloyd Blankfein, CEO of Goldman Sachs.

\

Thierry Martin
09-20-2013,
"If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes."
- Peter Lynch, greatest stock market investor or all time

Up until 2008, it was a given that economists had no business anywhere near the trading desk. Their work was important as a framework toward understanding the interplay between the markets and the real world - but that was about the extent of it.

Then post-crisis, some of these guys became "rock stars". Which is fine up to a point. All of us market participants and investors can learn a lot from their research. But when they started putting out newsletters and alerts and "monitors" to traders and fund managers - as though there was some sort of actionable message embedded in their reports - things got strange. All of a sudden there were economists making equity market buy and sell calls in the media and there were even economics reporters "grading the trade" on TV.

Economics is extremely important to understanding the world in which we live, but the linear application of it can be deadly with actual money on the line. Thinking that low GDP growth would mean low stock returns would have sat you out of one of the best bull markets in history these past few years. It also would have made you miss the bottom of the European stock market and led you to have guessed that China, with its world-beating growth numbers, would outperform (it's actually had the fastest economic growth and the poorest stock market returns).

The reality is that there is no such positive correlation over various periods of time between economic data and stocks in any given country. And economic data in the short-term is every bit as unpredictable as stock market behavior, so basing a forecast for one on what you predict for the other is like picking out a sports jacket and slacks in the dark and hoping one is not navy while the other is black.

A study from the London School of Economics concluded that choosing where to invest based on favorable economic factors is actually a recipe for underperformance. Researchers Dimson, Marsh and Staunton said "take the records of 83 countries from 1972 to 2009 (the most comprehensive set available) and rank them by GDP growth over the previous five years. Investing each year in the countries with the highest economic growth over the preceding five years earned an annual return of 18.4%, but investing in the lowest-growth countries returned 25.1%." Another study by BNY Mellon looked at the S&P 500 versus US economic growth from 1970-2012 and concluded that there is no link whatsoever between the two.

PIMCO provides us with a perfect example of this mismatch and the damage it can do - each year it hosts a conclave of a few hundred of the smartest people in the world, they call it the Secular Forum. At the conclusion of this multi-day event, PIMCO issues a proclamation containing the conclusions they've drawn and the forecasts they're making as a result. The good news is that the firm has been exactly right about, well, everything since the start of the post-crash period. They actually invented the New Normal concept of persistently low economic growth, high unemployment and increasing social inequality back in 2009 - Bullseye!

The problem is, as Mohamed El-Erian was forced to admit at conference this spring, that they nailed the economy and yet they got the markets completely wrong. If you had listened to PIMCO's economic forecasts and then done the opposite of what they did with your portfolio, you'd have done spectacularly well.

My friend Eddy Elfenbein, a bottoms-up value stock picker who's been blogging at Crossing Wall Street since 1964, has made this point before. In a post this fall, Eddy showed a scatterplot chart of the annual change in price for the S&P 500 versus annual nominal gross domestic product. Not only does there appear to be no correlation whatsoever, you could squint and almost perceive a slightly negative correlation!

Bloomberg News reminds us of just how disconnected economics and stocks can be sometimes with an article about the top-performing market in the world, which just happens to exist amidst the world's worst economic story of the decade:

Thierry Martin
09-20-2013,
Warren Buffett loves to invest in stable businesses with few competitors.
One of his recent favorites is DaVita HealthCare (NYSE: DVA), which operates a network of dialysis treatment centers in the United States catering to patients that have diabetes-induced kidney failure. Buffett's Berkshire Hathaway (NYSE: BRK-B) has been a steady buyer for several years and now owns nearly 30 million shares, equating to a $1.8 billion stake.

But DaVita has a big problem on its hands. Dialysis is expensive, and the two biggest payees for this procedure, Medicare and Medicaid, have been pushing DaVita and its rival Fresenius Medical Care (NYSE: FMS) to swallow painful reimbursement cuts.

It's not just the administration of dialysis that is costly. Many patients end up with side effects related to iron deficiency and red blood cell production, which costs billions more to remedy. And these costly treatments don't even yield the desired medical outcomes.

Thankfully, one of the biggest providers of the drugs and chemicals used in dialysis has a solution to the problem. Little-known Rockwell Medical (Nasdaq: RMTI) has been testing an iron supplement that goes right into bone marrow.

Patients on dialysis stop producing erythropoietin, a key ingredient in the production of red blood cells. A 2012 IMS Midas study found that almost all dialysis patients -- more than 400,000 in the U.S. and more than 2 million worldwide -- suffer from anemia.

In response, drug companies have been selling erythropoiesis-stimulating agents (ESAs), which help produce red blood cells, but a great deal of iron is consumed in the process. As a result, patients need to receive iron on an intravenous (IV) basis, though the current IV drips end up storing much of the iron in the kidneys instead of the bloodstream where it should be circulating.

Rockwell's solution: soluble ferric pyrophosphate (SFP), which it plans to market under the trade name Triferic. The drug has completed all three phases of FDA-mandated clinical trials, with stellar results in terms of efficacy and safety.*SFP has much smaller molecules than iron-based compounds, which is why it doesn't get ensnared in the liver as iron supplements do. That allows doctors to administer much smaller doses of SFP than they have been doing with iron supplements. The risk of anaphylactic shock from too much iron in the liver is one of the greatest risks for patients on dialysis. SFP appears to eliminate that risk.

Moreover, SFP is far simpler to administer, and as a result, costs less money for firms such as DaVita to administer them. The more targeted action of SFP allows for smaller dosing of costly ESA drugs as well. Rockwell believes that DaVita and others will cut their total spending on ESAs from $2 billion annually to around $1.4 billion annually, a $600 million savings. And that's just in the U.S.

Thierry Martin
09-20-2013,
Today's Chart of the Day is Treehouse Foods (THS). I found the stock by sorting the New High List for frequency making sure the stocks had positive gains for the last week and month then panned through the charts. The stock broke out back on 10/11 and since then is up 7.32%.

It is a food manufacturer servicing primarily the retail grocery and food service channels. Its products include pickles and related products; non-dairy powdered coffee creamer; and other food products including aseptic sauces, refrigerated salad dressings, and liquid non-dairy creamer.

Thierry Martin
09-20-2013,
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Thierry Martin
09-20-2013,
When you think of domestic oil production in the United States, Wyoming probably isn?t the first area of the country that comes to mind as a major player. Texas has traditionally been a regional powerhouse in the industry, with South Dakota a rising force over the past decade. Right now, however, oil companies both big and small are setting their sites on exploiting the vast energy reserves in Wyoming?s Bighorn Basin, estimated to hold 2 billion barrels of recoverable oil and already home to eight of the 12 of the state?s largest oil fields.

In fact, Wyoming has a long and storied history as an oil heavyweight. Marathon Oil, formerly one of the largest producers in the United States, has been doing business in the state for over a century. And, in the early 1980?s, Davis Petroleum, led by legendary oil-man and billionaire Marvin Davis, uncovered what is known as ?the Muddy formation,? one of the largest and most significant oil and gas discoveries in the region. Bighorn Basin alone has already generated 3.1 billion barrels of oil.

Far from being ?tapped out,? however, estimates by the University of Wyoming put remaining recoverable Bighorn Basin oil reserves at over 2 billion barrels, with the potential for 3.5 million additional barrels waiting to be tapped. That?s in addition to the massive volume of Wyoming?s natural gas deposits, estimated to be a whopping 2 trillion cubic feet.

One intriguing young company that may be presenting a ground-floor opportunity for investors to capitalize on Bighorn Basin?s reemergence as a major energy-producing hub is Bison Petroleum, which just began trading on the OTC exchange under the symbol BISN. Bison has announced plans to first focus their attention on two of their longer-term lease blocks in the area, estimated by the company to hold approximately 20% of their overall potential resource holdings ? about 27 million barrels of recoverable crude.

Referred to by Bison as the ?Independence Prospect,? the company acquired these two leases in August. The first is a 100% Working Interest and 80% Net Revenue Interest in the 840-acre tract located in the heart of the Bighorn Basin. The Prospect?s two leases offset Marathon Oil?s 150 million barrel (MMBO) Spring Creek Field, and are less than 10 miles from the 475 MMBO Oregon Basin Field. An independent report on the Independence Prospect?s original acreage position estimates a potential of original oil in place (OOIP) of 135 MMBO.

In light of the prospect?s potential, the company announced on Wednesday that it is currently developing an exploration plan for these leases that includes 2D seismic acquisition, a Seep Study, and 3D seismic to define optimized drilling locations in the targeted Lower Cretaceous Muddy Formation. The company became aware of the Muddy?s potential by mapping fields nearby current production, with the Spring Creek Field showing possible hydrocarbons in the Muddy based upon well log characteristics. The Independence Prospect is located along several of the existing structures marbling the area, which are cut by numerous faults. Bison expects the Muddy accumulations to be between 2,000′ to 6,000′ drilling depths, with well-spacing potential at 10 acres per well.

These assets are located in close proximity to established industry infrastructure, allowing for rapid transition from discovery to production through the quick connection to the existing pipeline network, which contains spare capacity for potential crude production. The company is also employing a conventional drilling strategy, reducing both the technical complexity and cost of other approaches. Management believes that by focusing on historically proven basins and utilizing conventional drilling technology, it can achieve relatively low-cost production with substantially less capital risk than many of its industry peers.

Thierry Martin
09-20-2013,
When you think of domestic oil production in the United States, Wyoming probably isn?t the first area of the country that comes to mind as a major player. Texas has traditionally been a regional powerhouse in the industry, with South Dakota a rising force over the past decade. Right now, however, oil companies both big and small are setting their sites on exploiting the vast energy reserves in Wyoming?s Bighorn Basin, estimated to hold 2 billion barrels of recoverable oil and already home to eight of the 12 of the state?s largest oil fields.

In fact, Wyoming has a long and storied history as an oil heavyweight. Marathon Oil, formerly one of the largest producers in the United States, has been doing business in the state for over a century. And, in the early 1980?s, Davis Petroleum, led by legendary oil-man and billionaire Marvin Davis, uncovered what is known as ?the Muddy formation,? one of the largest and most significant oil and gas discoveries in the region. Bighorn Basin alone has already generated 3.1 billion barrels of oil.

Far from being ?tapped out,? however, estimates by the University of Wyoming put remaining recoverable Bighorn Basin oil reserves at over 2 billion barrels, with the potential for 3.5 million additional barrels waiting to be tapped. That?s in addition to the massive volume of Wyoming?s natural gas deposits, estimated to be a whopping 2 trillion cubic feet.

One intriguing young company that may be presenting a ground-floor opportunity for investors to capitalize on Bighorn Basin?s reemergence as a major energy-producing hub is Bison Petroleum, which just began trading on the OTC exchange under the symbol BISN. Bison has announced plans to first focus their attention on two of their longer-term lease blocks in the area, estimated by the company to hold approximately 20% of their overall potential resource holdings ? about 27 million barrels of recoverable crude.

Referred to by Bison as the ?Independence Prospect,? the company acquired these two leases in August. The first is a 100% Working Interest and 80% Net Revenue Interest in the 840-acre tract located in the heart of the Bighorn Basin. The Prospect?s two leases offset Marathon Oil?s 150 million barrel (MMBO) Spring Creek Field, and are less than 10 miles from the 475 MMBO Oregon Basin Field. An independent report on the Independence Prospect?s original acreage position estimates a potential of original oil in place (OOIP) of 135 MMBO.

In light of the prospect?s potential, the company announced on Wednesday that it is currently developing an exploration plan for these leases that includes 2D seismic acquisition, a Seep Study, and 3D seismic to define optimized drilling locations in the targeted Lower Cretaceous Muddy Formation. The company became aware of the Muddy?s potential by mapping fields nearby current production, with the Spring Creek Field showing possible hydrocarbons in the Muddy based upon well log characteristics. The Independence Prospect is located along several of the existing structures marbling the area, which are cut by numerous faults. Bison expects the Muddy accumulations to be between 2,000′ to 6,000′ drilling depths, with well-spacing potential at 10 acres per well.

Thierry Martin
09-20-2013,
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

David Merkel, ?Most market players don?t think; they mimic.? (Aleph Blog)

Chart of the day

Thierry Martin
09-20-2013,
Over the long term, value stocks tend to be winners. There are a number of ways to define value.

My preferred approach is to use the PEG ratio, which compares the price-to-earnings (P/E) ratio with the earnings growth rate. A PEG ratio of 1 indicates the P/E ratio is equal to the earnings growth rate and the stock is fairly valued. Value stocks have PEG ratios less than 1.

Value investors generally need patience to succeed. It can take time for the stock to deliver gains for a variety of reasons, but within a few years, value investing usually delivers results.

Options are usually thought of as short-term trading tools, but there are some options that expire in years rather than weeks or months. These options are called LEAPS, which stands for Long-Term Equity Anticipation Securities. Currently, there are now LEAPS available that will expire in January 2015 and January 2016.
Although they are long-term investments, LEAPS are the same as traditional options in every other way. Buying LEAPS allows you to participate in market gains with limited risk.

A call option gives the buyer the right to buy 100 shares of stock at a predetermined price (the strike price) at any time before expiration. The value of a call option increases as the price of the underlying stock increases. One advantage of call options is that they cost less than the stock. This means traders can capture a larger percentage gain when the stock trades higher.

However, many investors point out that options carry a greater degree of risk. And some traders avoid buying options because they do not receive any dividends.

To maximize the potential gains of options, we could limit our buying to non-dividend-paying stocks. We could also limit risk by only buying call options on large-cap stocks, which have demonstrated that they can survive the ups and downs of a business cycle. Another risk management tool is to buy call options on value stocks, which I define as stocks trading with a PEG ratio under 1.

Micron Technology (Nasdaq: MU) looks like a good candidate for this call option strategy. The computer memory maker lost more than 95% of its value after the 2000 market top. Unlike many stocks from that era, Micron has survived.

On the monthly chart, we can see that MU formed a base over the past 10 years and seems to be breaking out to the upside.

Thierry Martin
09-20-2013,
Goldilocks is famous for being very particular about her porridge. It couldn't be too hot or too cold. It had to be just right.

That reminds me of mid-cap stocks: Not too big, but not too small -- just the right mix of growth and stability.

Unlike small caps, mid-caps are multi-billion-dollar companies and sometimes even market leaders. That provides these companies with a nice touch of stability that small caps with values dipping below $1 billion usually don't offer.

But unlike global mega-caps such as Exxon Mobil (NYSE: XOM) and Microsoft (Nasdaq: MSFT) worth hundreds of billions and long past peak growth, mid-caps valued between $2 billion and $10 billion still have the ability to grow many times over in the long run.

These unique qualities have made mid-caps popular with investors looking for a balance between growth and stability. They have also produced market-crushing gains. In the past 12 years, the iShares Core S&P Mid-Cap ETF (NYSE: IJH) is up 223% against the S&P 500 Index's 62% return. Take a look at the big gain below.

Thierry Martin
09-20-2013,
Random Thoughts



The Ps had a decent day. They tacked on over ?%. This action keeps them at all-time highs.

It was mostly a big cap party but the Quack did manage to end up 1/3%. And, this is enough to keep it at multi-year highs.

The Rusty came in third with a little over ?% gain. This was enough to keep it at all-time highs-albeit barely.

Let's look at the good:

Like the indices, most areas remain at or near new highs. Consumer Non-Durables, Consumer Durables, Drugs, Energy, and Leisure to name a few. Areas at lower levels such at Metals & Mining continue to improve.

The Transports also ended at new highs.

Foreign shares (EFA) remain in a solid uptrend.

The Bad:

The Quack and Rusty have lost a little steam. They haven't made much progress over the last week or so.

The Ugly:

There continue to be quite a few debacle de jours. SANM and DAN are the latest victims. See recent columns for others.

Prognosis:

As I preach, you have to put together the clues and weigh the evidence. As you can see from the above, the good outweighs the bad and the ugly. You have to be careful not to fight the trend but you certainly don't want to become too euphoric and completely ignore the warning signs as they present themselves.

So what do we do? Even though there is some bad and ugly, not much has changed just yet: I'm still seeing some setups in trending stocks that have pulled back. These include areas such as Solar/Alternate Energies, Energy-Oil, Metals & Mining, Internet, Hardware, and Drugs. Therefore, continue to look to add/add back on the long side. As usual, make sure you wait for entries. As I preach, this, in and of itself, can often keep you out of new trouble. Continue putting together your momentum watch lists (or pay me to do it for you). Stocks like QTWW should be on that list--I'll do a Youtube soon on how to create momentum lists. Once again, as long as the market remains near new highs, I would avoid the short side for now. Regardless of what you do, make sure you honor your stops once triggered

Futures are firm pre-market.

Thierry Martin
09-20-2013,
The Chart of the Day is Astronics (ATRO). I found the stock by sorting the New High List for frequency then flipped through the charts. Since the Trend Spotter signaled a buy on 8/15 the stock is up 36.44%.

It is a manufacturer of specialized lighting and electronics for the cockpit, cabin and exteriors of military, commercial transport and private business jet aircraft. A major lighting and electronics supplier to the aircraft industry, its strategy is to expand from a components and subsystems supplier to an aircraft lighting systems integrator, increasing the value and content it provides to various aircraft platforms. Luminescent Systems Inc. its primary operating subsidiary which produces its aerospace and defense products.

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
16 new highs and up 15.30% in the last month
Relative Strength Index 81.20%
Barchart computes a technical support level at 45.83
Recently traded at 47.85 with a 50 day moving average of 41.36


Fundamental factors:

Market Cap $694.30 million
P/E 27.85
Revenue projected to grow 27.60% this year and another 32.40% next year
Earnings estimated to increase 41.40% this year , an additional 17.18% next year and continue to increase by 19.00% annually for the next 5 years.
Financial Strength is B++

Thierry Martin
09-20-2013,
Have you ever wanted to spend your summers basking in the sunlight at your mountain top Tuscan villa, surveying the manicured vineyards which produce your own estate bottled wine? Are you drawn by the cachet of claiming George Clooney as a celebrity neighbor on the model strewn shores of Lake Como? How about a luxury apartment that is walking distance from the Vatican?

Hedge fund managers are salivating at the prospect of one of the greatest fire sales in history, as assets of every description were being dumped in the wake of the hard times that hit Europe. On the menu are trillions of dollars of distressed loans hived off by desperately downsizing and deleveraging continental banks. Corporations are expected to dump money losing divisions and subsidiaries in a race to raise cash.

In many respects, these deals of the century represent the second shoe to fall after similar bargains were had in the US during the 2008 crash. Europe?s day of reckoning was postponed by four years, thanks to a recovery in the US, QE1, QE2, QE3, and Federal Reserve policies that kept interest rates at century lows.

The complacency in Europe since then has been staggering, with many turning their noses up, claiming it could never happen there. Some are predicting that the balance sheet scrub could take as long as a decade, similar to Japan?s tortuously long repair of its own banking system.

Some hedge funds are taking advantage of the wholesale withdrawal of European banks from the credit markets to beef up their own international lending?at much higher interest rates. The same funds, like Highbridge, similarly locked in enormous spreads in the US when conditions were dire.

Several American private equity firms are said to be setting up new European distressed asset funds to peddle to pension funds and high net worth individuals. Those who made similar investments in the US four years ago, made fortunes.
For individual investors the easiest and ripest pickings may be among the European bond ETF?s that already trade in the market. Many of these have suffered gut churning declines in recent months as the European melt down unfolded, despite offering yields multiples of what can be found at home.

Below is a short list of continental ETF?s you may want to consider:

PowerShares DB Italian Treasury Bond Fund (ITLY)

Wisdom Tree Euro Debt Fund (EU)

iShares S&P Citigroup International Treasury Bond Fund (IGOV)

SPDR Barclays Capital International Treasury Bond ETF (BWX)

Germany Bond Index (BUND)

Of course, the eternal question of when to buy is the open to debate. There have been enormous declines in European bond yields since the peak. It was a simple shortage of paper, not any ECB intervention that drove yields down so rapidly.

Aggressive traders are already starting to scale in.

Thierry Martin
09-20-2013,
?If you can?t catch the most extraordinary event in our lifetimes, what do we really know? How in the world did I miss it?? said Alan Greenspan, former chairman of the Federal Reserve.


go to the Mad Hedge Fund Trader's website

Highly recommended, unconventional trading service:

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

Okay, this is some shit you didn't expect - SAC is going to plead guilty to securities fraud! (WSJ)

Larry Fink, CEO of BlackRock: Fine, I admit there are a handful of bubbles right now... (Bloomberg)

Greggy on the "W" chart in the Dow that signifies a win. (DragonflyCapital)

Dan Greenhaus on just how insane this rally has been. (BusinessInsider)

Lee Cooperman: Here's what I think of the market and four of my favorite ideas. (MarketFolly)

My fave read this week so far, Barry O drafts an email to the 80's Reaganites as his bull market pulls ahead. (BusinessWeek)

JP Morgan sees 'most extreme excess' of global liquidity ever (Telegraph)

European business confidence explodes to 97.8 in September. (Bloomberg)

Is all hell breaking loose in Puerto Rico? David Kotok explains. (TBP)

John Cassidy on the Alan Greenspan non-apology. (NewYorker)

LOL, check out how the Washington Post covered the onset of the Great Depression back in the day: (WonkBlog)

The greatest books ever, a list for autodidacts. (FarnamStreet)

Something similar to this happened to me just this week when I found a twenty dollar bill in a sweatshirt pocket from last winter... (Guardian)

Down vests are hot this fall, here are the best ones out: (GQ) and (GQ)

Thierry Martin
09-20-2013,
Over the long term, value stocks tend to be winners. There are a number of ways to define value.

My preferred approach is to use the PEG ratio, which compares the price-to-earnings (P/E) ratio with the earnings growth rate. A PEG ratio of 1 indicates the P/E ratio is equal to the earnings growth rate and the stock is fairly valued. Value stocks have PEG ratios less than 1.
Value investors generally need patience to succeed. It can take time for the stock to deliver gains for a variety of reasons, but within a few years, value investing usually delivers results.

Options are usually thought of as short-term trading tools, but there are some options that expire in years rather than weeks or months. These options are called LEAPS, which stands for Long-Term Equity Anticipation Securities. Currently, there are now LEAPS available that will expire in January 2015 and January 2016.

Although they are long-term investments, LEAPS are the same as traditional options in every other way. Buying LEAPS allows you to participate in market gains with limited risk.

A call option gives the buyer the right to buy 100 shares of stock at a predetermined price (the strike price) at any time before expiration. The value of a call option increases as the price of the underlying stock increases. One advantage of call options is that they cost less than the stock. This means traders can capture a larger percentage gain when the stock trades higher.

However, many investors point out that options carry a greater degree of risk. And some traders avoid buying options because they do not receive any dividends.

To maximize the potential gains of options, we could limit our buying to non-dividend-paying stocks. We could also limit risk by only buying call options on large-cap stocks, which have demonstrated that they can survive the ups and downs of a business cycle. Another risk management tool is to buy call options on value stocks, which I define as stocks trading with a PEG ratio under 1.

Micron Technology (Nasdaq: MU) looks like a good candidate for this call option strategy. The computer memory maker lost more than 95% of its value after the 2000 market top. Unlike many stocks from that era, Micron has survived.

On the monthly chart, we can see that MU formed a base over the past 10 years and seems to be breaking out to the upside.

Thierry Martin
09-20-2013,
Quote of the day

Richard Thaler, ?If you want to get somebody to do something, make it easy. ? (Conversable Economist)

Chart of the day



The Citigroup Economic Surprise Index is about to turn negative. (Business Insider)

Markets

Q3 earnings have been disappointing. (Pragmatic Capitalism)

The Nikkei is at an interesting juncture. (Charts etc.)

Breadth participation by market cap. (Dynamic Hedge)

The case for value stocks. (Institutional Investor)

When high momentum stocks crack, pay attention. (Minyanville)

Strategy

How your stop-loss orders get messed with. (Brian Lund)

?Only a small percentage of traders are actually serious about trading.? (Mercenary Trader)

Quantitative techniques need not be about ?black boxes.? (Turnkey Analyst)

Random stuff happens. Don?t let is drive your decision making. (Bucks Blog)

Balanced fund investors have done themselves the least amount of damage through poor timing. (Morningstar)

Companies

Apple?s Q4 in charts. (TechCrunch)

Apple is in a lull. The question is when to get worried. (SplatF)

Google ($GOOG) now wants to dominate livestreamed video. (The Verge)

Aero has a big problem: antennae are power hogs. (WSJ also GigaOM)

Why McDonald?s ($MCD) kicked Heinz ketchup to the curb. (The Daily Beast)

Finance

Is the slow down in M&A secular not cyclical? (Dealbook)

The secondary market for pre-IPO shares has dried up. (WSJ)

Pay attention to land prices to suss out a real estate bubble. (Businessweek)

More hedge fund replication ETFs are coming. (IndexUniverse)

Thierry Martin
09-20-2013,
Quote of the day

Richard Thaler, ?If you want to get somebody to do something, make it easy. ? (Conversable Economist)

Chart of the day

Thierry Martin
09-20-2013,
What is astonishing about Starbucks and its global takeover to me is the fact that it keeps going - over 15% growth in the amount of stores (19,209 in more than 60 countries) over the last three years.

When, if ever, does the chain reach saturation point? More importantly, can Dunkin Brands pull off a similar feat (I'm betting that they can)?

Infographic below from the Washington Post:

Thierry Martin
09-20-2013,
Stocks were up slightly on Monday morning after industrial production reached its highest gain in over seven months. The Federal Reserve said that industrial output was up 0.6% in September, after a 0.4% rise in August. This beat out economists? expectations of a 0.4% gain. Production was up at nationwide factories, mines and utility plants to an annual rate of 2.3%. This is large step up from the second-quarter?s 1.1% rise. The Fed also announced that U.S. manufacturing output was nearly flat in September. The index crept up a mere 0.1% in September after a 0.5% gain in August. The reading was held back by a 0.5% decline in computer and electronic goods output. There was a 2% increase in automobile output but this is still a sharp decline from the 5.2% gain posted in August. Millian Mulraine, a senior economist with TD Securities, said, ?With manufacturing sector activity likely to moderate even further in October, on account of the fallout from the protracted government shutdown, we expect some of this unexpected buoyancy in industrial output to be surrendered next month.?

Shares of Burger King Worldwide were trading higher after the company reported a rise in profits after a decline in costs. Global same store sales were up 0.9% while costs dropped a staggering 90% in the third-quarter. Net profit was up to $68.2 million, or 19 cents per share, from the $6.6 million, or 2 cents per share this time last year. Revenue dropped nearly 40% to $275.1 million due to a company refranchise of nearly 520 restaurants. During the quarter the company had new promotions hit their restaurants, like the $1 Fry Burger, the Angry Whopper sandwich and their latest lower calorie ?Satisfries?. Daniel Schwartz, CEO, said, ?We believe that new products like this, combined with our focus on improving operations will enhance the guest experience and drive increased restaurant profitability.?

Shares of Apple were trading higher as the company prepares to release their fiscal fourth-quarter results after the close of the bell today. It is expected to show that the company?s earnings are still falling as competition continues to steal sales. Analysts? are predicting net income to file in around $7.2 billion, or $7.92 per share, which would be a 12% drop from last years $8.2 billion, or $8.67 per share. They are expected to have a 3% increase in revenue to $37 billion. The company recently announced their latest version of the iPad, which is thinner and lighter, called Air, and will go on sale starting November 1.

That?s all for the day.

All the best,
Jack Aubrey, Oakshire Financial

Thierry Martin
09-20-2013,
What do Campbell's Soup, Johnson & Johnson and Deere & Co. all have in common?

All three companies have survived and thrived through two world wars, the Great Depression, countless financial panics and periods of booms and busts... and for more than 100 years, they've continually generated wealth for their owners.

These companies survived, while hundreds of other companies came and went along with hard times.

All three of these names, alongside some others, owe their good fortune to what I call a "legacy asset investment," which has allowed them to throw off huge dividends and return capital to shareholders for decades -- regardless of interest rates, the economy or commodity prices.

It's also helped generate massive wealth for investors. Over the past 14 years, for every $1 the market gained, these stocks typically have gained $4 -- that's four times the growth and dividends -- for their shareholders.

So what makes these companies special?

First, I should explain what a "legacy asset" is. Legacy assets are companies or resources that have rewarded owners for generations, often thanks in part to a durable brand or service or infrastructure system that has stood the test of time.

And as I mentioned earlier, this allows them to consistently outperform the market. To prove it, I created the StreetAuthority Legacy Assets Index -- which is an equal-weighted portfolio of 10 "legacy asset" stocks that tracked the performance from late 1999 through the end of September, including all dividends reinvested.

You can see the results for yourself...

Thierry Martin
09-20-2013,
Investors are so over the whole gold thing now that five years of money printing have failed to produce inflation and the global economy has proved itself quite resilient amidst one political crisis after another.

Even central banks - including many in economically backwards, superstitious countries - are so over it.

Here's the Wall Street Journal:

Thierry Martin
09-20-2013,
Investors are so over the whole gold thing now that five years of money printing have failed to produce inflation and the global economy has proved itself quite resilient amidst one political crisis after another.

Even central banks - including many in economically backwards, superstitious countries - are so over it.

Here's the Wall Street Journal:


Central banks sold gold regularly until 2009. As a group, they became net buyers in 2010. The shift was driven by emerging-market central banks, which were grappling with rapidly rising foreign-exchange reserves that were a result of large trade surpluses.

Thierry Martin
09-20-2013,
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
October 28, 2013
Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA

Thierry Martin
09-20-2013,
When you think of stalwart mega-cap industrial stocks, Caterpillar (NYSE: CAT) certainly is one that comes to mind. The earth-moving equipment blue chip, Dow component, and long-time bellwether for the global economy, has been a big winner for investors and traders over the years, and for good reason.

During the past decade, there's been a huge infrastructure buildup in the emerging markets of Asia, especially China, and Russia, India and Brazil. The massive demand for heavy-duty construction equipment has made the iconic brand a mainstay on big building projects in nearly every corner of the globe.
Recently, however, demand for Caterpillar's products has waned, and that's caused a marked slowdown in the company's earnings growth, as well as a significant decline in CAT shares.

On the earnings front, the company recently released results for the third quarter, and they were anything but impressive. Third-quarter earnings sank 44% year over year, missing consensus estimates by a wide margin. The company reported earnings per share (EPS) of $1.45, down from $2.54 in the same quarter last year. Revenue disappointed as well, coming in at $13.4 billion, down from $16.5 billion in the same quarter a year ago.

The double whammy in the third quarter also came with the company cutting its full-year profit forecast, and the combined malaise caused the stock to sink more than 6% on Wednesday.

So far in 2013, CAT shares are down more than 9%. That's disappointing for a stock that has logged an impressive gain of more than 200% over the past five years.

Adding more woes to the Caterpillar tale is a confluence of bad decisions and bad luck in its mining division.

The bad decision was the 2011 acquisition of mining equipment company Bucyrus International for the costly sum of $7.5 billion. That bad decision happened to coincide with the global decline in mining equipment demand, the recent slowdown in China's infrastructure growth, and a decline in industrial commodity prices.

Thierry Martin
09-20-2013,
Stuff I'm Reading this Morning...

So whatever happened to that frenzy of deals we were expecting? (DealBook)

Investors are so over gold. (WSJ)

Great run of charts: Breadth by market cap. (DynamicHedge)

Dougie: Why Twitter is worth $32.50 a share and may double from its IPO. (MoneyBeat)

Billionaire Tweetfight between Carl Icahn and Bill Gross. Kill us now. (Bloomberg)

Lowlights from a pathetic earnings season. (PragCap)

How about a dating site for hedge funds and the accredited investors who love them? (HedgeWeek)

7 Market Lessons I Relearned in 2013. (Ivanhoff)

10 ways to up the noise and reduce the signal. Wait, what? (TBP)

Dana Anspach: 10 ways to wipe out your retirement savings. (MarketWatch)

There's a Google Smartwatch coming. Will it be self-winding? (WSJ)

The hottest new popstar on earth is from New Zealand and is 16 years old. And is way cooler that Katy or Miley. (RollingStone)

I think we can all agree to hate the Red Sox but love the Red Sox Girls. (TheBrigade)

REMINDER: Backstage Wall Street is now on Kindle!

Thierry Martin
09-20-2013,
?The consumers have voted with their eyeballs,? said Mark Mahaney, the Internet analyst at RBC Capital, about Google?s breakout through $1,000 a share.

Thierry Martin
09-20-2013,
The Chart of the Day is Affiliated Management Group (AMG). I found the stock by sorting the New High List for frequency then used the flipchart feature to find the chart I like. Since the Trend Spotter signaled a buy on 9/10 the stock is up 9.97%.

It is an asset management holding company which acquires majority interests in mid-sized investment management firms. AMG has developed an innovative transaction structure which it believes is a superior succession planning alternative for growing mid-sized investment management firms.

Thierry Martin
09-20-2013,
Quote of the day

Fred Wilson, ?Profits are critical to the health of a business, but that doesn?t mean a healthy business has to currently profitable.? (A VC also Om)

Chart of the day





Corn is way oversold. (The Short Side of Long)

Markets

In the long run valuation matters. (Mebane Faber)

Thierry Martin
09-20-2013,
This week?s focus is on transports and shipping. But before we get to the fuel-burning details, we?ve got good news to share. Let?s review two successful trades that turned out their profits very quickly.

Trade Recap

The first trade under review is our August 26th initiative, in which we purchased CALLs and sold PUTs on CBOE Holdings (NASDAQ:CBOE) in a letter called Options Strategy for a Takeover Play.

After speculating that CBOE Holdings looked ready for a takeover bid, we bought our March 55 CALLs for $1.20. We paid for them by selling March 40 PUTs for $1.00, so our up-front cost was only $0.20 for the trade. And as of last Friday?s close, CBOE shares sat barely half a percent off their all time highs, so our CALLs have profited very handsomely.

Here?s the way it charts ?

Thierry Martin
09-20-2013,
Striking it rich in the precious metal business is a goal far older than the United States.

In the 19th century, many Americans' ancestors traveled west across the country with dreams of building new lives. Some ventured west to find freedom and land, others moved west in search of fortune. It was the lure of riches -- in the form of precious metals -- that attracted these fortune-seekers to the faraway land of California.

Known as the California Gold Rush, over 300,000 fortune hunters traveled from all over the world to find wealth in the form of gold nuggets. Known as forty-niners in reference to the gold rush of 1849, many of the early gold seekers struck it rich while gold was easy to find and retrieve.

As the numbers of fortune seekers increased, however, it became more difficult to discover new sources of gold. Soon, the equation shifted, with most of the new miners losing money on their venture. The easy pickings were gone forever, and only the merchants selling mining supplies and the dream continued to create wealth.

Today, it is still possible -- though far more difficult -- to build great wealth in the precious metal business. Investors no longer have to face the hardships of the original forty-niners to profit from skilled mining companies. However, high risk still remains when investing in miners of precious metals. While this risk is no longer to life and limb, as it was for the forty-niners, heavy monetary risk remains for investors in this sector. In addition, the miners themselves face several layers of risk.

I recently learned from my father-in-law, a skilled and knowledgeable precious metal investor, of a clever way that certain mining companies use to greatly mitigate their risk factors while retaining the upside of striking it rich. These companies benefit from multiple mining operations, which spreads out these firms' risks, and actually lock in the purchase price of the mines' production, regardless of market price. Sound too good to be true? At first, I thought so, too, but a little research confirmed this remarkable strategy.

These companies are called streaming companies. At its essence, a streaming company is a firm that provides capital to mining companies in exchange for an agreement to purchase all or some of their precious metal production at a low pre-negotiated price. This arrangement eliminates market price risk and spreads the streaming company's risk out across many companies, mines, regions and projects.

In addition, streaming companies obtain leverage from the ability to purchase precious metal at a significant discount to market price. The streaming company also does not have to carry the significant costs of exploration, extraction, and production. It's all upside without the common risks associated with direct mining companies.

Two streaming companies are Silver Wheaton (NYSE: SLW) and Sandstorm Gold (NYSE: SAND). As their names suggest, Silver Wheaton focuses on silver miners, while Sandstorm targets gold miners. Let's take a closer look.

Sandstorm Gold is a Vancouver-based company that secures streaming agreements in exchange for funding from advanced-stage development projects and producing mines. The company has 16 projects under agreement, including a variety of gold, copper and zinc mining excursions. Sandstorm CEO Nolan Watson says his company has $100 million to deploy for future projects but is waiting for the bottom in the mining sector to execute the deals.

Technically, SAND bounced from the $4 area before finding resistance at the 50-day simple moving average in the $5.60 zone.

Thierry Martin
09-20-2013,
My kids will probably never become big Coca-Cola drinkers. First, we're not going to keep big 2-liter bottles of that kind of thing in the house and second, there are now so many alternatives to soda that what made Coke special to so many previous generations will probably be utterly lost on them.

During my routine run-through of large cap performance charts, I came across the old blue chip stalwart and was quite surprised. I couldn't believe how poorly it's been acting given the rising tide that's been lifting nearly everything else. And don't tell me that the "defensive" widows-n-orphan stocks are supposed to act badly in a risk-on tape - you'd be hard-pressed to find another high profile consumer staples stock that's been dribbling its way lower over the last few months as Coke has.

In the below chart, you're looking at two years of the SPY (S&P 500 ETF) and XLP (consumer staples sector SPDR) in blue and green respectively, with the glaring negative divergence in shares of KO below them (in yellow):

Thierry Martin
09-20-2013,
Random Thoughts


Friday was another good day for the Ps. They tacked on nearly ?% to close at all-time highs.

The Quack had an intra-day reversal but still managed to hold on to over 1/3%. This is enough to keep it right at multi-year highs.

The sector action still looks pretty darn good Defense, Consumer Non-Durables, Drugs, Leisure, Manufacturing, Media, Retail, and others managed to close at new highs. I suppose this isn't a shocker when the major indices themselves are at new highs.

Thierry Martin
09-20-2013,
With the recent decline in interest rates thanks to a strong bond market, dividend stocks are back in favor. Sectors that do well when bonds rally are setting up for a nice move higher.

HCP (NYSE: HCP) is a real estate investment trust (REIT) that owns and manages health care properties. I am not big on trying to figure out what stocks will do well under the Affordable Care Act (aka Obamacare) -- I'd rather look for stocks with charts that signal they are ready to go higher. With a generous 4.9% dividend yield and improving technical indicators, HCP is indeed set up for price gains.

As a group, stocks offering big dividends peaked in May when the bond market began to fall. At the time, the Fed first hinted that it was considering the tapering of its bond buying program. Utilities, REITs, housing and many consumer staples stocks headed lower as traders thought interest rates would rise.

Now that tapering seems to be off the table for a few months, dividend-paying stocks have regained favor. HCP in particular bottomed in early October and has been moving higher ever since.

On Oct. 3, there was a management shake-up, and the stock plunged 4.7% on exceptionally heavy volume. It continued lower the next day on an analyst downgrade, but the two-day event was an emotional event called a "selling climax."

Bullish investors basically threw in the towel and sold. Sentiment was excessively bearish and, theoretically, everyone who was going to sell did so. Bearishness was washed out, and in the absence of selling pressure, it didn't take much demand to get prices shooting higher from there. It was contrarianism at its finest.

Thierry Martin
09-20-2013,
If you can get a dividend higher than the yield on ten-year debt, it?s an opportunity we haven?t seen in our lifetime. On a five-year horizon, investing in large multinationals with high dividends will have a large payday,? said Lawrence Fink, CEO of BlackRock.

Thierry Martin
09-20-2013,
Quote of the day

Ryan Detrick, ?Next time you have a losing streak, ask yourself if it is your fault? Or the market?s fault? Hopefully, you realize the only way to get better is to take the blame, learn from it, and profit the next time.? (Schaeffer?s Trading)

Chart of the day

Thierry Martin
09-20-2013,
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, October 26th, 2013. The description reads as it does in the relevant linkfest:

I am so glad these people exist... (Bronte Capital)
99% of long-term investing is doing nothing. (The Dumb Money)
Got three minutes? Don?t check your phone. Do this instead. (Time Back via @allanschoenberg)
?Safe? stocks are expensive. (Mebane Faber)
Welcome back to the ?age of bullsh*t investments.? (NYMag)
How to reinvent yourself. (Altucher Confidential)
It?s taken some effort but retail investors are jumping back in. (The Reformed Broker)
Warren Buffett on the importance of luck in life. (Business Insider)
David Rosenberg earns the wrath of permabears for changing his mind. (WSJ)
If you feel compelled to do something: don?t. (Tony Schwartz)


What else you may have missed on the site this week:

Investing as a hobby. (Abnormal Returns)
Life?s too short: Fantex edition. (Abnormal Returns)


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

Thierry Martin
09-20-2013,
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.

Investing

A dozen things learned from Michael Price on investing. (25iq)

Flexibility is the key to maintaining withdrawal rates in retirement. (Vanguard via Total Return)

What assets should go in a ?desert island? portfolio looking out three years? (Research Affiliates)

Institutional investors are for the most part using broke investment models. (Above the Market)

On the dangers of overfitting your backtests. (Timely Portfolio)

Finance

Revisiting the 1987 crash from the lens of the Chicago pits. (Points and Figures)

What can physicists really add to finance? (FT)

A profile of Joe Mansueto, CEO and founder of Morningstar ($MORN). (FT)

Startups

On the downsides of the democratization of angel investing. (Wired)

The decline of Wikipedia. (Technology Review)

Food

A Vitamix blender will change your life. (Slate)

The company behind Sriracha. (Quartz)

Coffee vs. smoothies: which is better for you? (BBC)

Water continues to displace soda at the supermarket. (NYTimes)

Long lines at a restaurant are overrated. (Marginal Revolution)

Dating

On the rise of online dating. (Priceonomics Blog)

Young people in Japan have stopped having sex. (Guardian)

Flying

Airline seats are shrinking. (WSJ)

Winglets are getting an upgrade. (NYTimes)

Sports

Soccer players show signs of brain disease. (Scientific American)

An excerpt from Rich Cohen?s Monsters: The 1985 Chicago Bears and the Wild Heart of Football. (WSJ)

Books

On the unknowable: Noson S. Yanofsky?sThe Outer Limits of Reason: What Science, Mathematics, and Logic Cannot Tell Us. (Reading the Markets)

Why our need to be Social: Why Our Brains Are Wired to Connect is an inherent need according to Matthew Lieberman. (Scientific American)

A talk with Scott Adams author of How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life. (HBR)

An excerpt from an interview with Bill Watterson author of Calvin and Hobbes. (Mental Floss)

Thierry Martin
09-20-2013,
Biotechnology is a notorious minefield for investors. For every successful drug that survives the approval process, dozens more simply flame out. Millions of dollars of capital evaporate every time a clinical trial fails to produce positive results.

Yet a select group of biotech visionaries manage to strike it big -- time and again. They have a knack for spotting biotechnologies that ultimately prove their mettle through the Food and Drug Administration's rigorous process. And few have shown the gift of biotech insights like Randal J. Kirk.

Kirk has built his fortune by focusing on drugs that have blockbuster potential. And he's shown the patience to stick with them -- for years, if needed -- until his vision is realized. The payoff: He netted a $1.2 billion profit in 2007 when Shire (Nasdaq: SHPG) acquired New River Pharmaceuticals for $2.6 billion. New River had developed Vyvanse, a key drug in the treatment of attention deficit hyperactivity disorder (ADHD).

Four years later, Kirk struck gold again as Forest Labs (NYSE: FRX) paid him $600 million for his majority stake in Clinical Data, which had developed Viibryd, an anti-depressant drug that hit the market in 2011.

Since then, Kirk has remained off the radar. Sure he's been a major shareholder and director of small biotech firms such as Ziopharm Oncology (Nasdaq: ZIOP), Fibrocell Science (AMEX: FCSC), Oragenics (AMEX: OGEN), Halozyme Therapeutics (Nasdaq: HALO), and Synthetic Biologics (NYSE: SYN). His name routinely pops up on insider buying lists associated with these companies. But his real passion is for a company that's he's been nurturing for half a decade and recently took public in an initial public offering (IPO).

That company, Intrexon (NYSE: XON), has been developing a set of tools that enable scientists to step inside the human gene and alter its basic structure. The company isn't concerned about coming up with a blockbuster drug. It wants to provide the tools for other biotech firms to make major breakthroughs. So what exactly is Intrexon looking to accomplish? The company is in the field of synthetic biology, which alters the core mechanisms of action taking place inside cell walls.

Thierry Martin
09-20-2013,
Throughout the summer, investors were treated to a steady drumbeat of sobering news.

Retail sales were flattening out. China and other emerging markets appeared set to consume less of our exports. The steady implementation of the budget sequester was leading to a drop in government spending on technology and services. And many companies showed a lot more interest in buybacks and dividends than capital spending, which is a sure a sign of CEO pessimism.

So how do you explain the surprisingly robust profit picture being delivered in the current earnings season?

With roughly 40% of the S&P 500 weighing in thus far (and another 25% to go next week), 68% of all reporting companies have delivered a positive earnings surprise, according to Standard & Poor's. That compares with just 18% of companies reporting negative surprises. Frankly, I wouldn't have been shocked if those numbers were reversed. The odds against yet another stellar earnings season seemed quite long.

Year-over-year comparisons tell the story. Among companies in the S&P 500 that have reported third-quarter results thus far, profits are up 8.4% from a year ago, more than triple the expectations of 2.5% for these companies. The profit gains are coming on 3.3% annual sales growth (from the third quarter of 2012), which tells you that companies are once again finding ways to boost profit margins.

The key driver of those margins: productivity gains, as companies are able to produce higher output with a fixed base of employees and assets. Rising productivity is a great sign for the economy; it was the key reason for the economic boom in the 1990s.

But this isn't the '90s, not by a long shot. Today's stiff headwinds are quite real. Out in the real world, many will tell you that the economy feels lousy. Retailers are bracing for a tepid holiday season after lackluster back-to-school sales. And even as corporations report solid profits, few have discussed plans for major investments in capital expenditures, which is the real driver of future economic growth.

Another contrast with the '90s: Back then, much of the job creation and dynamic economic activity was fueled by small businesses. These days, the action squarely resides with already large companies that are simply growing yet larger.

Amazon.com (Nasdaq: AMZN) is a great example. Its shares surged nearly 10% on Friday to another all-time high as its North American sales grew a whopping 31% from the third quarter of 2012. The fact that Amazon is "still in the very early stages of international development," according to Benchmark Capital, explains why this company is expected to keep growing at a meteoric pace.

But Amazon creates a huge conundrum for investors. Its stock valuation bears no relevance to current measures such as cash flow or profits. So investors are asked to focus on the company's impressive operational execution -- and to simply ignore traditional valuation measures.

And Amazon's numbers don't signal a revitalization in consumer confidence. Instead, the company is simply stealing market share from other retailers in a zero-sum game. In the fiscal fourth quarter that begins in November, Macy's (NYSE: M), Kohl's (NYSE: KSS) and Target (NYSE: TGT) are all expected to post modest revenue drops.

Thierry Martin
09-20-2013,
Don't get me wrong, I closely follow what Warren Buffett says and does with his money.

And yes, he's one of the most successful investors in history -- his returns over more than 60 years have made him the fourth-wealthiest person on the planet.
He is rarely wrong, but Buffett is not perfect, and a recent comment he made is, in fact, incorrect.
Let me explain...

The Wall Street Journal found that Buffett made $10 billion on the investments he made at the height of the financial crisis. With characteristic humility, Buffett said, "In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period."
Actually, an individual investor could have done significantly better than Buffett.

To earn $10 billion, Buffett invested $26 billion. His return on investment was about 38%, or 6.7% a year over the past five years. The Journal article says Buffett made his first crisis investment in April 2008 and added to his investments throughout the crisis. He made a number of deals late in 2008 and one as late as April 2009, after the stock market had bottomed.

Assuming an individual investor had $10,000 and invested one-third in S&P 500 at the close in April 2008, one-third in November 2008 and the remaining third in April 2009, an individual would have beaten Buffett. That simple strategy would have gained 74%, or 11.7% per year.

Simply put, because those three months were the months when Buffett was most active during the financial crisis, all it took to beat Buffett required investors to buy when he bought.

Buffett's timing was, as usual, nearly perfect on his investments. But Buffett has a disadvantage compared with individual investors. He can only invest in the largest companies because he has to make large investments to have an impact on his returns. A large gain on a small investment will not increase Buffett's wealth much in dollar terms, but that same gain could have a significant impact on the wealth of an individual who is not a billionaire.

Individual investors would have easily been able to beat Buffett's returns over the past five years, and they should be able to beat his gains over the next five years.

In fact, following my Maximum Profit trading strategy during the financial crisis would have provided a total return of 157%, more than four times as large as Buffett's gain. And in the past decade, the Maximum Profit system would have outperformed Buffett's Berkshire Hathaway by 357%.

If you're not familiar why my Maximum Profit system, it's pretty simple.

Thierry Martin
09-20-2013,
Individual investors and private equity firms often target companies with great yields. But they are talking about two different numbers.

While the first crowd focuses on divided yields, the big-game hunters focus on free cash flow yield. In fact, if you draw a connection between the two, you can find the path to stocks that are capable of robust dividend growth -- and just may get acquired at a nice premium.

To understand why free cash flow yields are so important, you just need to look at the frenzied pursuit of Dell Inc. (Nasdaq: DELL) by Southeastern Asset Management, Silver Lake Partners, Carl Icahnand Michael Dell. All of these big-money players knew that Dell Inc. was quite undervalued in the context of its prodigious free cash flow.

Over the past four fiscal years, Dell has generated a cumulative $14.5 billion in free cash flow. That's just $2 billion less than all of Dell's enterprise value. Assuming that Dell is able to maintain that level of free cash flow, then the current proposed buyout will pay for itself in less than five years. After that, it's pure profit.

Many private equity firms can do even better by using their target's balance sheet to borrow money to pay for the deal. In this era of rock-bottom interest rates, low borrowing costs can create some pretty compelling deal economics. In just the technology sector, there are a host of other companies that have limited growth prospects but generate huge amounts of free cash flow.

Here's a quick peek at tech firms with free cash-flow yields (free cash flow dividend by market value) in excess of 10%.

Thierry Martin
09-20-2013,
Quote of the day

Dan Greenhaus, ?If the central bank stays accommodative and earnings keep doing what they?re doing, why not?? (Business Insider)

Chart of the day

Thierry Martin
09-20-2013,
The death of cash has been fueling a gold rush for payment processors. Industry leaders Visa (NYSE: V), MasterCard (NYSE: MA) and Heartland Payment Systems (NYSE: HPY) have all posted market-beating gains of at least 29% this year.

But while these well-known blue chips have been surging, one of their lesser-known industry peers has been struggling. After losing market share and reporting a disappointing quarter early in the year, shares are down 50% in the past 18 months.




VeriFone Systems (NYSE: PAY) is a global leader in the electronic payments industry, making point-of-sale (POS) machines that consumers use to swipe credit and debit cards. Its clients include some of the biggest and most successful retailers in the world, including Costco (Nasdaq: COST), Lowe's (Nasdaq: LOWE) and McDonald's (NYSE: MCD).

But despite that market-leading position, VeriFone has struggled in the past year and a half. And that's exactly why it's a great time to check out the payment systems leader and recent industry laggard: Shares and sentiment are low, but the seeds of a turnaround are beginning to sprout.

One of the biggest factors weighing on VeriFone's share price in the last year was management's tarnished credibility after a series of bad revenue forecasts and earnings misses. To remedy the problem VeriFone went straight to the top, recently appointing former Citi Cards CEO Paul Galant as its new CEO.

Galant will continue to oversee the company's major push into high-growth, high-margin mobile payment systems. In September, VeriFone introduced GlobalBay Merchant, a payments software suite for its small and midsize merchant clients that runs on Apple (Nasdaq: AAPL) tablets. At the time of the launch VeriFone had already contracted more than a dozen partners that serve more than 500,000 merchants. Looking forward, VeriFone expects more partners to sign on that can offer its systems to an additional 2 million to 4 million U.S. customers.

But Apple's iOS isn't the only operating system where VeriFone is targeting mobile users. In June, VeriFone announced a strategic partnership with Lenovo to offer an enterprise-class mobile payment system for its Windows 8 tablets. VeriFone began offering its mobile solutions on Android, the world's most popular mobile operating system, in 2012.

VeriFone is also moving aggressively to tap into high-growth taxi-payment solutions, recently releasing a new mobile app called Way2ride that lets users pay a cab fare with a smartphone. The program is up and running in New York City and will soon be launched in other major cities as well. VeriFone's global taxi business is also just one of two approved payment systems providers for new "green" taxis in upper Manhattan and New York City boroughs.



VeriFone
VeriFone is making a major push to control the mobile payment systems market.

VeriFone is tapping into high-growth emerging markets with its growing portfolio of market-leading payment solutions. Last quarter VeriFone said it had won a proposal for 450,000 terminals with Sberbank, Russia's largest bank. In Brazil, VeriFone just landed a contract with one of the country's largest payment processors. In India, VeriFone renewed a contract with the country's largest petro provider that owns and operates thousands of gas stations. In August, VeriFone announced its mobile commerce and payment system was selected by SNCF, the operator of the French National Railroad, which serves more than 100 million people a year.

VeriFone is also in position to cash in on the growing implementation of EMV (Europay International, MasterCard and Visa), a worldwide standard for the interaction between "smart cards" and approved payment devices. This requires both merchant hardware and software upgrades and has already triggered a wave of conversions from VeriFone's existing clients.

VeriFone has been aggressive on the buyout front, acquiring 15 companies in just the past three years, but VeriFone is now moving to strengthen its balance sheet, paying down $160 million in debt last quarter. That leaves cash and equivalents of $309 million and total debt of $810 million, down $102 million from last year.

There is also rampant speculation that VeriFone itself will be acquired. Although no specific names have emerged as early leaders, the company's market cap of $2.5 billion would be an easy target for Visa or MasterCard -- worth $129 billion and $86 billion, respectively -- to absorb.

Analysts are calling for earnings growth of 15% in 2014 and 14% annually in the next five years for VeriFone, which does not currently pay a dividend.
Risks to Consider: VeriFone is still struggling with sluggish revenue growth that it expects to last through 2013. Although the company is moving aggressively to fix its problems, tepid revenue growth could limit shares up side in the near term after a 27% rebound in the last 3 months.

Action to Take --> VeriFone struggled through a challenging 18 months, but its recent investments in new products and markets beginning to bear fruit. In light of the recent decline, shares are trading with a forward P/E (price-to-earnings) ratio of 21 times, directly in line with its 10-year average but a discount to the industry average of 23 times. That makes VeriFone a buy anywhere below $25.

- Michael Vodicka




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Thierry Martin
09-20-2013,
In early September, stocks in the long-beleaguered maritime shipping industry started to do something few observers expected them to do anytime soon -- they started to rise in a meaningful way.

The rally from names like DryShips (Nasdaq: DRYS) and Eagle Bulk Shipping (Nasdaq: EGLE) was driven by a meteoric rise in the Baltic Dry Index, which reflects the change in the daily charter rate for dry bulk vessels. The index nearly doubled in value between mid-August and this month, providing a glimmer of hope of decent profits for maritime shippers.

But as is often the case with huge moves from stocks and indices, doubts started to set in about the sustainability of the Baltic Dry Index's new price levels, and these stocks started to wane just as quickly as they'd heated up.

However, the rise from the Baltic Dry Index wasn't the result of a little volatility. A handful of other data indicate the supply/demand balance in the dry bulk shipping sector has finally found a happy medium, making DryShips, Eagle Bulk, FreeSeas (Nasdaq: FREE), Diana Shipping (NYSE: DSX) and a few other names in the group worth a closer long-term look.

The Perfect Storm
To put things in perspective, the Baltic Dry Index advanced from a low of 996 in mid-August to a peak of 2,146 in early October, meaning the going rate to hire a bulk-transport boat more than doubled in a little over a month. It's also the strongest price since around this time in 2011. And those rates were being quoted because that's what shippers were getting -- not just what they were hoping to get.

Thierry Martin
09-20-2013,
Weekend headlines focused on new highs in the major market indexes. New highs in the fourth quarter are bullish, and any pullback should be treated as a buying opportunity.

Tech Stocks At 13-Year Highs
SPDR S&P 500 (NYSE: SPY) gained 2.43% last week and reached a new all-time high. PowerShares QQQ (Nasdaq: QQQ) gained 3.69% and closed at its highest price since November 2000. The monthly chart is shown below.

Traders often focus on daily or weekly charts. Monthly charts also offer valuable insights, and the chart of QQQ shows an uptrend and an upside breakout.

Thierry Martin
09-20-2013,
I probably don't have to tell you this, but the odds are stacked against you when it comes to "beating the market."

By nearly 6 to 1 in fact...

Investment analysts, advisors and fund managers -- the so-called experts -- spend their entire working lives and billions of dollars on research vowing to "beat the market" in any given year -- yet the vast majority of them fail...

Just look at mutual fund industry's record. In the past three years, just 14% of actively-managed mutual fund managers matched or exceeded the market's performance according to Standard & Poor's.

So how are the small minority beating the market?

After years of research, we've found that more often than not, companies with just three basic characteristics are the ones that consistently beat the S&P 500...

They often pay much higher dividend yields than the S&P 500 too. In fact, eight out of 10 stocks chosen for our "Top 10 Stocks For 2014" report paid a higher dividend yield than the S&P 500. A few even carried yields over 4.3% -- more than twice the S&P 500's yield.

Don't believe it's as simple as three traits to find market-beating stocks? Consider our track record.

Over the years, our annual report of StreetAuthority's Top 10 Stocks for the coming year has beaten the market 7 out of the past 10 years... We've also racked up some phenomenal homeruns from some of the picks.

In 2008 -- a year marked by one of the worst sell-offs in history -- we saw a gain of 45.8% on our recommendation of Panera Bread (Nasdaq: PNRA). The S&P 500 lost 37%.

In 2009 we earned 72.1% on shares of CPFL Energia (NYSE: CPL), a Brazilian utility that soared as the S&P gained 27%.

In 2010 as the S&P clawed back with a modest 15%, we selected not one, but two stocks that gained more than 100% on the year -- Skyworks Solutions (Nasdaq: SWKS), up 101.8%, and Silver Wheaton (NYSE: SLW), up 159.9%.

Last year we offered up two more stocks -- Brookfield Infrastructure Partners (NYSE: BIP) and Magellan Midstream Partners (NYSE: MMP) -- that returned more than 50% and 30%, respectively, for the year, despite the S&P being up just over 15%.

Here's a sample of the Top 10 Stocks that had homeruns over the years...

Symbol Year Return
IGT 2006 +52.1%
CME 2007 +35.4%
BRK-B 2007 +29.2%
PNRA 2008 +45.8%
CPL 2009 +72.1%
DEM 2009 +58.1%
SLW 2010 +159.9%
SWKS 2010 +101.8%
BIP 2012 +53.7%
MMP 2012 +31.5%

In 2013 so far, stocks from our report have gained 34.6%... 30.2%... and 37.1%. The S&P 500 is up just half that year-to-date.

So how is this possible? How can you find stocks that can beat the market so often?

It's simple. The Top 10 Stocks research team and I focus heavily on companies that have one or more of the following traits:

1. Companies that own irreplaceable assets:
What do things like pipelines, hydroelectric dams and utility services all have in common? They are all irreplaceable assets. Another company can't simply come along and build a competing business. And these assets aren't about to be replaced by some new technology. But when you find the sort of stocks that give you access to irreplaceable assets, they often end up being some of the most lucrative investments to own for the long term.