How We Made 20.5% In 3 Months With Carl Icahn

Legendary investor Carl Icahn recently added a "sizable position" of Apple to his $16 billion holding company -- Icahn Enterprises.

Since he announced his purchase on Sept. 11, 2013, Apple is up about 20%.

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

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

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

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

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

2013 saw equity market volatility ebb. (Bespoke)

Markets

The case for reflationary assets. (Market Anthropology)

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

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

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

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

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

The most successful investors on Earth all share a common trait: the ability to see and act on long-term trends.

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

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

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

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

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

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

Random Thoughts


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

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

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

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

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

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

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

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

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

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

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

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

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

Another year in the books and I?ve updated my Investing Fads and Themes by Year guide accordingly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Current Positions

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

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

Today?s Working Orders

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

Sell AAPL @ 518 stop GTC 1/2 remaining position

OCO = One Cancels the Other

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

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

This is the last piece until next week.

Stocks...

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

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

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

NASD 100?3453.25 is the weekly ORL#

SSO?94.84 is the weekly ORL#

VIX?15.71 is the weekly ORH#

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

Bonds?

FX?

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

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

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

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

Commodities?

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

General Comments orValuable Insight

We were stopped out of the TBT on the low.

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

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

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

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

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

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

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

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

Are you out of your mind?

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

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

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

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


The Reformed Broker

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

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

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

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

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

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

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

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

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

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

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

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

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

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

One thing about the stock market is that it is never boring.

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

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

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

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

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

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

This is a 1 year chart:

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

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

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

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

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

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

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

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

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

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

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

Not a hater, just putting it out there.

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

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

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

Quote of the day

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

Chart of the day

If you ask most people, they will say there are two types of people that put money in the stock market.

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

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

But it's one thing to tell you this. I want to prove it to you with one of the most widely-followed stocks of the past decade -- Apple (Nasdaq: AAPL).
You're no doubt familiar with Apple. You might have even owned some shares at some point. Maybe you still do.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




quoth the blogger:

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

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

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

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


The Reformed Broker

I'm often asked how I come up with a consistent stream of investment ideas. There is really no single answer to this question.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Getting in shape is no longer just a New Year's resolution.

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

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

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

Random Thoughts




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

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

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

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

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

Back home, internally, the market remains mixed.

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

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

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

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

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

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

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

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

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

Futures are flat pre-market.

Buying value is an investment philosophy that works. To benefit from a value strategy, investors have to decide on a definition for value.

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

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

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

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

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

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

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

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

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

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

Barchart technical indicators:

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

Stuff I?m Reading this Morning?

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

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

Alibaba is pushing back its IPO. (Reuters)

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

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

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

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

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

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

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

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

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

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

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

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

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

"'Average' is officially over?, said columnist, Tom Freidman, of the New York Times.



go to the Mad Hedge Fund Trader's website

Highly recommended, unconventional trading service:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

You learn something new every day.

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

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

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

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

Sonofabitch!

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

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

361 Capital Weekly Research Briefing
December 9, 2013
Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA

?Tis the season. Your smart home needs a ?smart hub.? Check out a review of Revolv a smart home automation solution over at TechCrunch.

Quote of the day

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

Chart of the day

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

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

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

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

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

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

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

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

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

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

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

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

I call them "Eisenhower trusts."

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

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

- Nathan Slaughter

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

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

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

Random Thoughts


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

The Ps closed at all-time highs.

The Nasdaq closed at multi-year highs.

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

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

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

Getting back to the mixed thing....

Regional Banks stalled out in their rally from pullbacks.

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

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

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

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

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

Futures are soft pre-market.

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

Best of luck with your trading today!

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

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

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

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

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

Stuff I?m Reading this Morning?

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

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

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

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

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

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

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

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

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

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


The Reformed Broker

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

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

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


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