Charting health of the market/eocnomy

Charts are free, charts are quick, charts are easy. So why don't we use them?

To look at the health of the economy/market, simply look the health/strength of certain companies that would give you a big MACROECON picture:

The guy who lends you money to buy houses and other junks:


The guy who delivers the goods from the sellers to the buyers (B2B or B2C):
The guy who builds houses (if you have money, you probably want to own a house- it's The American Dream right?):
The guy who takes you from one place to another (vacation/business travelers):
The guy who helps companies raise money:
Overlay the chart of these companies with their competitors' and you can find who's doing better in that particular industry/sector. ie: When you overlay WaMu with other banks, you can see that WaMu is one of the worst performing bank in the industry- sometime this can means that investors are overly pessimistic on the company's outlook- value investors might pick these companies. Momentum traders would pay closer attention to the strongest of the pack- as they might be the first one to rally when the market does.

Give me back my FREE MARKET economy

Caption: **OUCH** What's that headache I'm getting? Adam Smith just gave me the biggest slap in the history of Capitalism.

I feel your pain Bernanke, but I don't understand you. Whatever happen to Laissez-Faire, free market economy and capitalism? Must we always try to intervene with the nature of the free market? The excess (of debt in general, subprime or not) was created by a low rate environment. So to fix it, shouldn't we do the opposite (raise rate)?

So you decided to lower the Fed fund rate just because the market was spooked for one day? Why can't you let the market work itself out? Isn't that the basic principle of the "free market" economy?

And why this doesn't feel like its the first time we have excess of capitalism injected in the economy and have it taken away by the central bank? See: Panic of 1907, Crash of 1929...etc

I hope you are right and I'm wrong, Mr. Chairman. Because if you are wrong, there will be a whole lot more bloodshed...

Thoughts on the Presidential Candidates

Although the previous post did an excellent job at analyzing all the presidential candidates and the potential economics ruckus each of them can cause. Let's step back as to what CAN a President do in term of bolstering the economy:

Government spending (expansionary fiscal policy)- The Federal Government's budget has to be approved by the budget committee in Congress every year. Although the President can propose a lot of different types of spending, the final say lies on Congress. Most often or not, the President has to compromise his/her plans with the Congress's (ie: Bill Clinton only got his increase in minimum wage plan for signing NAFTA in return) . Another way to boost spending without the Congress approval is for the President to move/invade country with our Army- defense spending would sure to shoot up. The downside to all of this is, of course, increase in budget deficit- which would required the government take out MORE debt- causing only one sure thing- INFLATION.

I'm not saying the President has no influence on the economy, but more often or not, the real power to "manipulate" the economy lies on the Federal Reserve. Even then, the economic/business cycle would often take on its course, ignoring the action(s) taken by the Fed or the President. The presidential candidates, of course, will promise a lot of CRAPS to their voters in order to get them voted to the office. That is why the candidate with the most campaigning money would have the biggest advantage (advertising 101?). I certainly think that the Presidential election is an over hyped event. We didn't care about the economy, abortion, death penalty, healthcare for the last 4 years. And all of the sudden, WHAM, the Presidential election is happening. All these issues get brought up. While most of us just live our lives with whatever problems throw at us ignoring those problems every 4 years. Hey, its not like the new President really has the power to get things done his/her way.

Voting for your favorite candidate isn't going to change much like I mentioned previously (he/she has limited power). On top of that, the electoral system furthers limit YOUR ability to vote in your favorite candidate- if you are in New York or California and you are a Republican that always vote Republican, your vote almost doesn't count since NY and Cali always vote Democrat. The real election battleground is the "swing" states such as FL and Ohio, they are the one who really have the power to decide who's our next president is (since the majority of the country is split up pretty evenly). So my suggestion is, move to one of these swing states, register yourself as that State's resident and vote there. Only then, YOU can make a difference.

I know I'm a skeptic. Look who we voted for the last eight years? Can you still put faith in this election system after what happened?

Don't even get me started with the rigged/broken voting machines/papers.

To end in a positive note, I've found the most useful tool for technicians and fundamentalists alike- AND ITS FREEEEEEEEE (can you complain?):

http://online.barrons.com/mktlab?mod=b_hpp_tools_screener

On a side note, I noticed that my blog posts have couple of grammatical errors. So to fix that problem, we are officially hiring an editor:

"Editor for a blog
Starting Salary: $0/hour, month, year
Interested candidates should post their resumes in the comment section"

$0 salary....ummm we used to call that...SLAVERY

2008 Candidates

Now is the time to discuss the MAJOR 2008 candidates for both the Democratic and Republican party and particularly from a business sense. I will also rate on how well their presence in the White House would mean for the economy and for Wall Street on a scale of 1-5 with 5 being the best thing that would've occurred since the invention of the internet.

REPUBLICANS

John McCain - 2.0
Very mixed, often flip flops on his economic policies considering how as a Senator in Arizona he is open to illegal immigrants and disfavors the Bush tax cuts. Now as a candidate, he is leaving the immigration issue to the states ("we must first secure our borders") and is on the side of the Bush cuts. Flip-floppers are not to be trusted.

Mitt Romney - 4.5
The best among the major GOP candidates as he was the founder of Bain Capital, an infamous PE-buyout firm. He is so Wall Street oriented, I'm not even sure if some of the existing CEOs on the Street can be even better, although Henry Paulson may beat him at that if he ever runs. In summary, if he was the U.S. president, the economy would be heavily tilted towards the upper middle and upper class, especially the 1%. Also, the temporary Bush tax cuts would be permanent so goodbye (or at the very least a major reduction) to the inheritance and perhaps dividend and capital gains tax.

Rudy Giuliani - 4.0
Second best Wall Street type presidential candidate. His liberal business policies speak for themselves while was the mayor of NYC.

Mike Huckabee - 3.0
Very mixed as I still do not have total understanding on where to stands on the economy except for the tax issue. He is the foremost candidate on presenting a "Fair Tax" and abolishing the IRS. Doing such will GREATLY BENEFIT THE RICH and of course be very adverse to the middle and working class.

DEMOCRATS

Hilliary Clinton - 3.5
Opposed heavy tax cuts and definitely opposed the Bush cuts. Of course this could be political ploys as she vies for the favor of her party as a NY Senator. In reality though, Hilliary is the 2nd most favored candidate (aside from Romney) on donations from Wall Street and in particular the private equity firms. I'm sure that any donation from PE firms would expect some return so look for Hiliary to be just as as ease with the economy as her husband Bill.

Barack Obama - 3.0
I'm most mixed on Obama not only because he opposed tax cuts as the Illinois Senator but also because he is open to extending the child tax credits and scale back of capital gains. Amongst Wall Street, he is a close 3rd behind Romney and Clinton and is actually looked upon more favorably by the private equity community especially from the venture capitalists. He is truly a mystery one and his ranking could jump to the high 4s so 2.8 is just my opinion at the time of this post.

John Edwards - N/A
Won't win, no chance, who cares .......


Now as for the best presidential candidate from the pool, Romney would be the best for the economy and big businesses. Small businesses would hurt especially if he extends and allows for more outsourcing of American services. Huckabee is the most dangerous candidate and I'm not even speaking from a business perspective as this ex-Baptist minister could split this country in half. His religious zealousness and fervent believer in a Christian nation will work to undermind the fabric of the U.S. culture and further blemish the tolerance of the other cultures/religions. If so, Civil War 2 would well develop and thus bye-bye to the U.S. economy/Wall Street. May this day never occur.

From a personal perspective, Barack Obama is the best. He is a moderate on the tax issues and favors the middle class more so than the upper. Obama pledges to increase technological R&D on clean energy and do away with unnecessary corporate tax cuts. At the same time, he wishes to push down the capital gain tax as to encourage investments and savings. Overall, his policies would do the most to bolster the middle and working class because lord knows that the federal deficit isn't getting smaller and that people's savings are growing any larger.

OBAMA 2008 !!!!!

Positive/Optimistic Market Commentary

I'm known for being gloom and doom for 2+ months now. My major portfolio position, which consists of 90% of my portfolio is SHORT (betting the stock will go DOWN) and I'm up 10%+ on that trade. Aside from temporarily oversold condition- which the market would bounce back up slightly on shorts covering. I really haven't read/see anything that's positive for the market. But I thought I found a piece of good news today. The headline read:

" Alcoa poised to open higher on 76% surge in quarterly profit"

Well, excellent. Alcoa, one of the biggest aluminum maker in the world reported a jump in profit! Alcoa is also a Dow 30 stock and its financial health is a good indication of the overall economic strength (if economy is expanding, we would use more metal to build shit - airplanes, buildings, cars...etc.). Reading deeper into the article, I've found the following:

"For the recent fourth quarter, Alcoa reported a profit of $632 million, or 75 cents a share, up from $359 million or 41 cents a share a year ago.

Total revenue fell to $7.39 billion from $7.84 billion due to lower aluminum prices and the exclusion of its soft alloy extrusion segment that is now part of a joint venture.

Excluding a favorable restructuring adjustment and a tax benefit stemming from the business sales, earnings would have come in at 36 cents a share."

So both revenue and earnings FELL from last year. However, because Alcoa has beat analysts' earnings expectation of 33 cents a share, the stock traded higher pre-open.

However, the overall picture Alcoa painted is NOT a good one. Well, I guess I would have to stay gloom and doom for the time being.

** As for the picture, it is the first pic that came out of Google image search, keyword "positive"

Predictions for 2008 and onward

I'm not in the prediction business. But it is certainly fun.

Here are my predictions for 2008 and onward:

1. Economy will deteriorate further. We will actually hit recession couple with 4%+ inflation. The Feds will start raising rates. Smaller banks that don't have access to capital will go bankrupt or getting roll up into a bigger regional/national bank. The Banking sector will consolidate. Congress might lift the 10% saving deposit cap any bank can hold. Bank of America, JPM, Citigroup, along with 4-5 other bigger regional banks will be left of this mess.

2. Obama, or Clinton might win the election, but it doesn't matter. A colored man, or a woman- this nation isn't ready for either- they would be unlikely to win in the first place- even if they win, I'm sure assassination attempts will follow. The safe bet? Mike Huckabee, he sits well with all the "red" states. The nation continues to suffer from the hangover from recession/stagflation. Any rescue plans by the executive branch of the government will fail- because the Central Bank is the one that's controlling inflation and we can't really stop an economic cycle.

3. Jeb Bush will run for president 1-2 terms from now (that's 4-8 years). And he will win. And we will go into war with either Iran (oil), or Venezuela (oil). Oil will reach $200+. Stock market, which suffered for most of last 4 years (2008-2012) will pick up again as oil companies and defense contractors prosper- similar to what happened in 2004-2008.

4. North American Union (NAU) will be form. This will create a almost border-less nation (combination of Mexico, U.S. and Canada). All three nations will use one currency- the Amero. Which is similar to what already happened in Europe. (www.spp.gov)

5. Ohh btw, I didn't really make these predictions. George Orwell already did, he wrote a book titled 1984. If you read the book, you would know how close we are to the society that George Orwell predicted us to be.

http://en.wikipedia.org/wiki/Nineteen_Eighty-Four

Quote from the book:
"WAR IS PEACE
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH"

Sound familiar?

The biggest scam in the history of mankind....(joke)

Get a slice of the China Madness

http://finance.yahoo.com/q?s=caf
MORGAN STANLEY CHINA (CAF)
Prospectus:
http://www.morganstanleyindividual.com/Markets/IPOCenter/Prospectus/?DocID=p_CAFMS

This close-end fund allow you to invest in the China A share market. Unlike many other funds that invest in China, which most of them are buying H share (Chinese companies that are listed on Hong Kong Exchange). Currently, only Chinese citizens and qualified institutional investors are allowed in investing in China A share. Be extremely careful, that the Chinese stock market (A share in particular) is extremely over-valued by traditional metrics. The fund is also very thinly traded (avg vol: 400k). This makes CAF a extreme risky trading instrument IMHO.

I personally think FXI is a better way to invest in the Chinese market.
Prospectus for FXI: http://www.ishares.com/content/stream.jsp?url=/content/repository/material/prospectus/ftse_xinhua.pdf&mimeType=application/pdf

Here are the reasons why:
1. FXI is a index tracking ETF- low expense and not as thinly traded (avg vol: 6m)
2. The valuation is way more reasonable due to the fact the fund invest in ADRs/H share.

January Barometer

"Since 1950, there have been 20 down Januarys for the S&P 500, all of which preceded a new or extended bear market, or a flat market, except for one year, according to the Almanac. But in eight of those years, the broader market ended flat or with slight gains."

http://money.cnn.com/2005/01/26/markets/january/index.htm

http://www.google.com/search?hl=en&q=january+barometer&btnG=Search

The January Barometer is one of the more "reliable" indicator. Of course, there is no sure thing in the market (nothing has 100% guarantee). Your job as an investor/trader is to extract the most return for the risk taken. Risk is defined by the chance that sh*t can fall apart (unpredictable events ei: 9-11). No one can predict the future accurately, but you can always react to the driving forces of the market - greed and fear. Warren Buffett and other "investment gurus" are very good at "gaming" the market knowing the driving forces behind it.

"View Mr. Market as having a disorder and being in a manic depressive state and take advantage of this state of disorder." (See SEA's April 1998 newsletter for full quote.)
- Warren Buffett

Most of these gurus are can be label "contrarian" to a certain extend. It is by going against conventional wisdoms that these gurus were able to be successful in investing. Does that mean shorting everytime the market goes up and buying everytime the market comes down? No.

As to how to be a contrarian or add contrarian flavor in when building a style of investing/trading...that's for us to figure out.

Randomness continues: Closing out 2007

Recently, I took a 24 hour road trip from FL all the way back in NY in a little Japanese coupe/hatchback - Toyota Celica. How on earth can this trip has anything possibly do with investing? Sit tight...
First, let me reflect on my friend's Toyota Celica. It was a used car with a good amount of mileage on it. I must say, the Celica isn't as roomy and practical as a Honda Accord, it doesn't accelerate as fast as a Ford Mustang, and it certainly can't handle corners as quickly as a BMW 3 series. But it doesn't matter. The car was very well-built. On the highway doing some-what-over-the-limit speed, the car was as steady and reliable...well as a Toyota should be. Everytime I open up the throttle, the little Japanese hatchback just bugging for more. No squeaks, no rattles. This little bugger can't outhandle a BMW, but when you grab on to its steering wheel it takes you right where you wanted. This car sure as hell isn't perfect, but for $7k, it is amazing value and after spending 1200 miles with it, I simply adore it.

This car, a 2000-2001 Toyota, also marked the end of an era. It was the last time where Toyota has built something that is cheap, fun and reliable. Toyota has since turned into a generic corporation with numbers/goals to reach every quarters to satisfy the on-going ambition of being the world's largest car maker. No longer does Toyota build "cars". They now build what I call "econbox" or Box with wheels. Every cars in the current Toyota line-up are as boring as your daytime television program. Not to mention Toyota also started cutting corners on the quality of the cars they build. I sat in the new Camry and I just wasn't impress by its interior. And I wasn't the only one. If you browse around for Camry reviews, there are a lot of complains about the new Camry interior fit and finish. And then there is the new Scion brand. Scion isn't about building quality and fun cars, its just another marketing scheme by Toyota. I can go on about how Toyota is no longer the humble Japanese car maker from the 80s that try to enter the U.S. market with quality built cars. But to tie to my point: I would not invest in Toyota at the moment. Sure, it has gained a sure foothold of the U.S. market since the 80s. Sure, it is stealing market shares from the Big 3(2.5). But Toyota is no longer a corporation with personality. No longer does this car maker need to make desirable cars because they already in-still its brands in the consumers' mind. No longer does it need to build a fun car- only need to market another generic car in a diff. brand. And don't even get me started with the Prius. Toyota was the underdog, the new kid on the block, now it's all grown. No longer does it need to be recognized, no longer does it need to be humble. Toyota has forgotten where it came from.

My investing/trading philosophy is very much the same as my philosophy on cars. I like to buy and trade what I understand, what I know. I like companies and cars that provide "value". I like underdogs that struggle to be recognized. And if I didn't make the point already: you are who you are. Your trading/investing style should reflect who you are. For example: I am impatient- hence, I don't look to hold a stock/position for more than a couple months. My style of trading doesn't fit anyone but me (or someone with similar personalities).

Note: In closing out 2007, unless there is some disaster waiting to happen next couple of days, I'm proud to announce that our return has trounced the S&P500. We have met our goal on beating the index with a good amount of cash waiting to be deploy. And we are fortunate to dodge the Credit crunch bullets. 2008, here we come...

Have a Happy Holiday/New Year.