The following is from the Art of Investing. This is a gift to my readers. There will be additions, deletions and changes without notice.
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We need to distinguish useful information from garbage.
Why you do not see too many
reviews on investment newsletters and subscriptions from the media? If it is a
bad review, most likely
they will not advertise in the
media. If it is a good review, they may have to face legal action if the
vendor’s subscription or newsletter does not perform.
I've been using investment newsletters / subscriptions for years. Many
are priced reasonably and some are even free. While a lot of them are garbage,
some are very good.
When you have a lot of money to
invest and you're not using a financial adviser and/or not subscribing to any
investment service, it could be a big financial mistake. You do not want to be
penny smart but pound foolish. Very few have the knowledge and time to make use
of the free financial data, guidance and articles from the web.
You need a computer, access to Internet and a spreadsheet in order to use most
subscription services effectively.
I'm not going to compare specific services / newsletters, but I will include
general pointers on how to select them. Yesterday’s garbage could be a gold
mine today if the subscription improves and/or the market conditions fit what
they recommend.
First, you need to find out your requirements and how much time you can afford
to use them. If you have $20,000 or less to invest, most likely your investment
both in money and time will not pay off. Just buy an ETF and practice market timing
described in this book. My pointers are:
·
Newsletters giving you specific stocks to buy do
not require much of your time. However, if they're successful, there will be
too many followers buying the same stocks to drive up the prices of the
recommended stocks at least temporarily. The owner of the subscription service and
his insiders will buy the recommended stocks before you. I had several of this
kind of newsletter, and so far I have not renewed any one of them due to the
poor performances.
·
If I found the Holy Grail in investing, do you
believe I’ll share it with you for $100 or so? I only will after I invested my
findings first. My subscribers would push up the prices for me and then I
unload them before them.
·
If the volumes of the recommended stocks are
small, they can be manipulated easily either by the newsletter owners and/or by
your peer subscribers. The first ones to sell the recommended stocks win and
the last ones to sell lose.
·
I prefer systems that can find a lot of stocks
by providing many searches (same as screens). However, it will take a lot of
time to learn and test their performances that would require a historical
database. Most likely, you need to further research on each stock screened. The
screens would select a limited number of stocks for further analysis, so it
will save you time.
From my experience, the best performance comes from the stocks that have been
screened by more than one search especially for shorter term (less than 6
months). My theory is that they've been identified to many folks and hence
their prices will be jacked up. It is more profitable to buy them ahead of the
herd and sell them before the herd. In any case, research the stock.
·
We all receive promotional mails that indicate
their incredible performances such as tripling the money. Just ignore them. If
it is that good, most likely they will keep them for themselves. Same for
seminars to boost some penny stocks. Most likely the recommended stocks would
rise initially to lure you and other suckers to move it. Watch out!
·
A ‘guru’ told me that he made a big fortune in
silver a month ago. Guess what? He also recommended selling it two months
earlier and lost a lot of money in doing so. He is always right but he will not
advertise the times he was wrong. We call it a double talk technique.
·
There are free trial offers (or deeply
discounted) for most subscription services. Take advantage of them. Some
services require you to spend a lot of time, so ensure you have the time. Keep
track of the performance yourself via paper trading. Do not trust their
‘official’ performances.
·
Subscribe the newsletter to fit your style of
investing. If you're a day trader, newsletters on long-term investing are not
good for you. Some subscriptions handle all kinds of investing styles and you
need to find the strategies and recommendations to fit your style.
·
Newsletters on penny stocks are risky for most
of us. They may show you a list of big winners but they do not show you their
losers.
I define penny stocks as less than $2 (officially $5) and a
market cap less than 100 M. However, I do buy stocks with prices around $2 in
stock price or a capital cap less than 100 M. Actually I bought ALU at $1 but
ALU’s market cap then was about 2 billion at the time. The stocks with prices
between $1 and $10 represent the most volatile stocks and few are real gems.
They are routinely ignored by most analysts.
·
There are many sectors like drugs, mines,
insurance and banks that we cannot evaluate effectively ourselves. It is better
to seek expert advices from specific newsletters. Check out their past
performances and take advantage of the free trial offers.
·
Remember there is no free lunch in life. The
higher potential return of a stock is, the riskier the stock is. To me, all
trades are educated guesses. The more educated the guesses are, the higher
chance they will perform in the long run.
·
Some newsletters / subscriptions save us time by
summarizing the financial data by providing a value rank and a growth rank.
When the market favors growth, you use the growth rank, and vice versa.
·
Be careful on the commercials particularly from
radio in selling to peoples' fears and their greed by overstating without
necessarily telling the whole story. It is not possible to make 50% in covered
calls consistently or making another gold rush from $400 to $1,800.
·
TV financial shows usually exaggerate in order
to sell their staffs. Analyze them before you act on the news.
·
As a retail investor, most of us cannot afford
to do extensive research. Many researches and market opinions are available in
the internet free. Start to search for such
information from your broker’s site and financial sites such as
SeekingAlpha.com, MarketWatch.com, CNNfn.com and Yahoo!Finance.com.
·
Do not trust the performances of the newsletter
providers. There are many ways to manipulate their performances.
·
Most compare their performances with S&P
500. It is legal for investment newsletters to inflate their performance with
dividends while comparing to an index without including dividends.
To illustrate, for the last 10 years, S&P 500 has
an average annual return of 1% on appreciation and 1.5% on dividends for a
total return of 2.5%. Hence, the performance of a newsletter should compare
itself to 2.5% not 1%.
·
The performance of last 10 years (I prefer last
5 years) is more important than that of 25 years. Their method of stock
evaluation / ranking hopefully has been improved since then. In addition, the
last 10 years is a better prediction of the newsletter than the last 25 years
as the weatherman finds out.
More than one time, I found a popular subscription did
not beat the S&P in the last 5 years but it did in the last 20 years. It
could be that too many folks are using the same strategy.
·
When the new major researcher takes over the
subscription, s/he may not have the same expertise as the previous researcher.
·
Ensure they change their strategies according to
the current market conditions. For example, 5 years ago ADRs (U.S. listed
stocks of foreign countries) perform far better than today.
·
Few if any use real money for their portfolios,
as they cannot cheat with real money. That’s why you never achieve the
compatible performance by following what the portfolio trades. Some cheat by
using the best prices of the day. Some omit their losers. Do not trust any
performance claims even from reputable monitor services unless the portfolios
can be verified with real money.
Some sample portfolios trade excessively and they may not
fit your investment strategy not to mention the broker commissions and taxes.
·
When a subscription service has several
strategies (say 10 for illustration), it will advertise the strategies with the
best returns for a specific time period.
·
Today (12/8/2014) before the open TNH was down
by about 6% and then by 12% at the end of the day. Cramer’s site downgraded it
at 9:45 am. Many of us can do the same at 9:45 after its big fall.
Contrary to not recommending investment services, here are
very low priced or even free subscription services. By opening a small account
with a broker, you can access their research. Check your current broker’s
website on evaluating stocks. AAII is a low-priced subscription.
IBD
II use
the composite grade of this popular service especially for day traders and
short-term swing traders. It is more a momentum grade, but they do have a value
grade. I evaluate their IBD50 stocks. Check out the recent performance of IBD50
as provided. It could be useful to have a second opinion of these stocks with
another service.
Screen Basic
under Screen Center. It lists the stocks with top IBD’s metrics.
Leading
sector under Screen Center. Basically it is the second and the third step of my
Top-Down Investing strategy (the first step is market timing).
Next to
the screened stock, click on the Stock-Checkup for a complete evaluation of the
stock according to IBD.
GuruFocus
It is
free to me as an author. I use the screener to find stocks in my book Best
Stocks. I found there are a lot of useful features I had not used. It will be a
perfect system if they provide a historical database for testing the screens.
The idea
is following the institution investors who drive the market. Besides this great
concept, it offers many tools for analyzing stocks. It has a score system that has been proven.
The following metrics are harder to find in other sites: F-Score, EV/EBIT,
Shiller PE, DCF… Many metrics are compared to its industry and its history.
They are displayed in an easy-to-read graphics.
Insider trade and institution
ownership are great features.
Fidelity
Fidelity is my primary broker.
If your broker does not have similar features, deposit the minimum cash so you
can access Fidelity’s extensive research. I am not paid by them.
They have a learning center
especially great for beginners. View Point under News & Insight has the
outlook of the markets. I attended some of their free seminars. Stock research
is very extensive. As they said, the price is right.
Afterthoughts
·
My friend told me he saw an ad that would show
him how to make $500 a day for working a few minutes before the market opens.
He is nice enough to share his ‘discovery’ with me. If it is as advertised, I
would be the first one to sign up. If it really works, it will not work very
soon. When a strategy is over-used, it will not work. Unfortunately, a fool is
born every minute as the same ad had been here for a while.
·
Currently I spend about $1,500 for all
subscription services. I believe $200-$600 should cover the basic. To start,
you can use your broker’s web site for tools. Some have a lot of research for
evaluating stocks and some even include searches. Try the biggest broker’s
research as they spend more on this area. Even if you do not trade with them,
use their research by opening an account with the minimum balance.
·
If the offer is too good to be true (like making
$500 every day with little effort and little investing money), probably it is
not. If they give you a free 50” TV for spending $299, most likely it is a trap
with bait. Again, remember there is no free lunch.
However, some baits are good like the free 30-day
trial offer for an investment service or the free dinners I attended seminars
on estate planning. It is part of the business cost. If I do not attend more
than two dinners, eventually I would end up paying two free dinners for someone
I do not even know. This book could be the best deal for your entire investment
life if you invest time to read it, digest it and use the ideas that are
applicable to you and the current market.
·
Do not trust their claims and the past
performance may not have anything to do with the current or future performance
unless they are from reliable sources.
To illustrate how to monitor their recent performance, if
they give you 20 stocks every week, save the prices and check their performance
in the same period you usually hold the stocks. It has busted many
well-advertised and very popular subscription services. I prefer to compare the
performance to S&P 500 index. It is better to compare it both in an up
market and a down market as some strategies amplify their performances by
selecting riskier stocks.
·
On 5/2013, I received an ad boasting how great
its portfolio performs from a well-known subscription on investing. The
cumulative return from 2001 to today is an impressive 308% beating the S&P
500’s 43%. However, if you analyze it further, most of the big gains are made
before 2009.
To prove it, I used their data and input their returns from
2009 to today. Their accumulative return is 37% while the S&P 500 is 66%. Current
data has better predicative power than the older data.
The
moral of the story:
1. Read
any claim with skepticism. Test it yourself.
2.
The recent performance has better predictive
power than the older data.
3. When
a strategy is over-used, it will become less effective.
4.
The market conditions change from time to time.
Some strategies work better than others in different conditions and different
phases of the market cycle.
5.
Most likely their return includes dividends
while the S&P 500 index does not.
How celebrities and/or newsletter owners make money for themselves
To illustrate, a TV or talk host
and his staffs know what stocks they want to promote in the next show. They may
have bought these stocks before the show; is it legal? The viewers or listeners
follow the recommendations to move the prices up. In two or three months later,
these insiders dump the stocks and the stock prices come down.
Investing subscriptions can ‘improve’ their performances:
1. Cheating
the results.
2. Only
show you their best portfolios.
Cheating the results
Do not trust the performance of
the newsletter providers. They cannot cheat if they use real money for the
portfolio. Here are some ways they can cheat:
·
They buy at the lowest prices of the day and
sell at the highest prices of the day.
To illustrate, a stock shot up by 25% in the
afternoon, and the newsletter could use the open price of the day as the buy
price.
·
Change the sell date 2 days earlier by using
last Friday instead of Monday. The gain and the sell price do not change, but
the annualized return changes favorably for gains and unfavorably for losses.
Trading with the closing prices has less chance to cheat. However, some stocks
can be traded off hours and the morning futures can indicate the direction of
the market for the day.
·
Survival bias.
In a nut shell,
the stocks will not be included if they lose all the value such as the many
penny stocks that go belly up. For example, Lehman Brothers was supposed to be
included in your search, but it was not traded since the historical database
took it out. Hence their portfolio looks better than it really is.
Penny stocks
have higher chances of being out-of-business. The spin-offs and mergers could
do the opposite to the effect of survival bias, but there are more bankrupted
stocks than the spin-offs and mergers combined.
To illustrate,
you have two stocks 10 cents each. One stock gains 100% and the other one loses
all the value. Your portfolio should have zero gain. However, if you use a
historical database that does not take care of survival bias (most do not), the
bankrupted stock is not in your database and your search shows you have 100%
gain instead of 0% gain.
·
Most compare their performances with S&P
500. It is legal for investment newsletters to inflate their performance with
dividends while comparing to an index that does not include dividends.
·
The performance of last 10 years is more important
than that of 25 years. The subscription uses the performance that is favorable
to them.
Only advertise those
strategies that perform well
When a subscription service has
several funds or strategies, it will advertise the best return of its top fund
or strategy for a specific time period.
Afterthoughts
·
I advocate investment subscriptions use real
cash for their portfolios to demonstrate their investing results.
Alternatively, they should use some sites that can audit their trades. Authors
like me do not have resources to enter all the trades, so my broker’s statement
is an easy choice. My losses could be better lessons than my gains.
·
The performance sometimes does not tell the
entire story. The cash position would deteriorate the performance in a rising
market – it could be the correct decision for those who do not want to take
risk.
·
Google the subscription service before you
subscribe it. There may be some reviews on it.
LTCM,
with two Nobel-prize winners, excellent supporting team and best technologies
then, ran their hedge funds into the ground. Many hedge funds are closed due to
frauds and/or poor performances.
The primary purpose is supposed to ‘hedge’ your investments
from market plunges / dips. Since 2008, the government prints so much money,
the market recovers and makes the hedges (shorts, derivatives, etc.)
unnecessary. In reality, most hedge funds do not hedge.
Hedge
funds get tons of press coverage as the Holy Grail of investing. The media
need the advertising from this $2.5 trillion industry. It is similar to mutual
funds but most tend to take more risk for better returns. Most require higher
minimum investments and more restrictions such as requiring longer periods before
withdrawal.
It could be the worst deal to their customers: 2% average up
front and 20% average on your profit. It is more acceptable to me if the 20% is
on profit over the S&P 500 or any relevant yardstick to the specific hedge
fund.
Well, if they make a lot of money
for you, it is not too much to object. However, most risk your money by betting
big recklessly. When they win, they get 20% of your profit and they use you for
advertising to lure other suckers. When they lose your money, they do not lose a penny. It encourages them to take
big risks. I do not know any hedge fund (HF) manager who pays you back your
losses.
An average mutual fund charges
about 1.5% management fees. An average hedge fund charges 2% that would cover
the expenses to run an office, market the products and research expenses. While
the average mutual fund tries to beat S&P500 index or an index specific to
the fund. The real compensation of an average hedge fund depends on the
20% of the profit.
You have better return by investing in a no-load index fund or a diversified
ETF than an average hedge fund. To calculate the average hedge fund
performance, you need to include the many hedge funds that are out of business.
After a hedge fund has failed,
most fund managers just open another hedge fund (if they do not go to jail due
to frauds) and give you all the excuse for losing your hard-earned money. Some
lose their reputation but you need to check them out.
In 2011, the hedge fund industry did not beat the S&P 500 index fund after
fees. I bet the hedge fund industry did not beat the market after 2011.
Some hedge fund managers learn
modern
portfolio theories from Ivy League universities and apply them in the hedge
funds. Often their theories are wrong due to wrong testing procedures or they
cannot be sustained in real life.
They usually invest in new companies and small companies
where they would have big profits swing. They need to learn the business of the
company they plan to buy the stocks, interview the owners, read between the
lines, and double check whether the owners are telling the truth by talking to
their competitors, vendors and customers. It explains the high cost of their
research. For us, we just look at the transaction of the insiders to have the
better research almost instantly with a low-cost subscription service. There is
no need to travel to visit the company unless you want to.
Some use their specialty in certain sectors and that's fine. If they use
derivatives, be careful and that's what resulted in our 2007 financial crisis.
Derivatives could reduce the risk of the portfolio if they are properly used.
If you still want to invest in them, ask for their methods and their historical
performance. Very few hedge funds are good. When you find a good hedge fund,
most likely it has been closed to new investors or its fees are outrageous.
The owner of a famous baseball franchise lost big money from a hedge fund that
concentrated in the oil sector. Almost
every ETF in this sector made good money that year. He still stayed with the
hedge fund and had similar miserable return the following year. I did not blame
his first mistake, but on his sticking with the same hedge fund after a losing
year. It could be the hedge fund gave him a hard time to take his money out.
One hedge fund has a performance of 25% every year for a long period. The SEC,
take notes and investigate whether they were using insiders' information. There
are very few hedge funds with consistent performance beating the market after
fees. If you find some, stay with them forever. One hedge fund was rated as the
top fund and the next year it was out of business due to poor performance.
In 1980, this industry started with really capable fund
managers and made good money for their clients. After that, every analyst
wanted to open a hedge fund and most did not even beat the market after their
expensive fees. Alternatively, just buy the ETF SPY and relax, instead of
waiting for the hedge fund to wipe out your savings. This industry is not properly regulated.
Do not believe in any articles / ads praising how great the hedge funds are
without knowing their credibility and their hidden agenda. The hedge fund
indexes usually ignore the survivor bias of the bankrupted hedge funds and the
early exits of many hedge funds.
Since the hedge funds very seldom
keep the stocks more than a year, their capital gains would be short-term and
hence would be taxed at higher rates than the long-term capital gains. In
addition, most funds have 1-3 year lock-up periods and only allow withdrawals
on the first day of each fiscal quarter.
Afterthoughts
·
From WSJ, from 1999-2008, the hedge fund
industry beats the S&P 500 by 13% a year. From WSJ, from 2009 thru July
2012, it lagged the market by almost 8%.
In 2011, the average hedge fund lost money when the S&P
500 was flat. In 2012, the average hedge fund earned about 6% when the S&P
500 was up 13%. It is ‘genius’ to buy an ETF representing the entire market
instead an average hedge fund.
A pig wearing lipstick is still a pig. If you run 5
hedge funds, you will advertise your best fund. Advertising industry will
benefit and eventually their investors in hedge funds will pay for this
expense.
·
Another hedge fund
fraud.
http://money.cnn.com/2013/07/25/investing/sac-capital-charges/index.html?iid=HP_LN
·
Gold even managed by great hedge fund manager is
down as of 7/2013.
·
A famous hedge fund manager (so is the one on
Sears) has big losses in JCP and shorting another company. It teaches us to
diversify and be conservative.
·
Hedge funds must have a hard time in 2013.
Hedging against a rising market is a fool’s game.
·
In 50 years, the $10,000 investment will grow to
$1,170,000 assuming a 10% return a year. However, about $700,000 will be the
cost of the typical mutual fund. It will be better to buy an ETF (far lower
fee) and avoid market plunges described in this book.
Links
Modern Portfolio Theory:
Most fund managers learn modern
portfolio theory from colleges. The theories are faulted. However, some gained
Nobel prizes using the faulted theories - a bad reflection on today's silly
Nobel Prize committee not to mention the silly award to President Obama for
doing nothing but reckless spending. They do not invest with real money. I and
many others have proved them wrong many times.
Walking randomly in the stock
market postulates the price of a stock is already built-in, so there is no need
to evaluate stocks. It is also known as the
efficient-market
hypothesis. Explain to me why as a group my stocks with high scores always
beat my stocks with low scores for years. If you cannot find a functional
scoring system, it does not mean all the scoring systems do not work. For the
same reason, there is no need to take college courses to evaluate stocks if the
prices are built-in.
When the professor writes
equations on the board, he is dreaming and his fantasy world will never resemble
reality. However, you need to waste time to ‘learn’ in order to get good
grades. Without good grades from a prestigious college, you cannot get a good
job.
The so-called
modern
portfolio theory is most likely based on wrong or insufficient testing
parameters / assumptions. Unfortunately they're still supported by the Ivory
Towers. All the students taking these courses should ask for refunds from these
universities. Most likely these professors are still driving an old Toyota and
have never made good money in the stock market besides in 'teaching', selling
'books' and/or running hedge funds to cheat you out of your money.
I’m still waiting for the counter
arguments to prove me wrong. Professors, please drop me a line to defend
yourself. So far, there is none.
Links
Efficient-market hypothesis:
As of 1/2012, Bill Miller is
stepping down after big recent losses.
Buffett's
last three year performance is so lousy that he should be ashamed and should
not show his handsome face in public (too harsh on him but we all enjoy making fun
of winners). Gross, the king of bonds, made serious mistakes, so was Whitney on
muni bonds (though she should be right on longer term; she learned the lesson
not fighting against the city hall).
It was same for a very famous shorter of Netflix with
convincing arguments. Their arguments were correct but the timing was not. The
fund manager of the decade in a famous financial service advocated bank stocks
in 2007. He was burned badly and you would too if you followed him.
There are many examples of heroes turning into disgrace in
the past. Recently my local newspaper Boston Globe had an article stating most
top fund managers did not beat the S&P 500 index last year. Even Professor
Irvin Fisher, the father of Wall Street, did not predict the 1929 crash and
lost a bundle including most of his own life savings.
Recently Barron's had a round table discussion on 2012 market with the top
experts. They also listed the recommended stocks from these experts a year ago
and their performances. Guess what? Their average did not even beat the S&P
500 index. Was I stupid enough to follow their 2012 recommendations?
At least, most did not publish their past performances in
the beginning of 2013 if they under performed. Most are not good pickers or
their strategies do not work this time. That’s why I preach to monitor your
current strategies and only use those strategies that work recently.
We learn:
·
Retire at your peak like Peter Lynch. You can
call him a coward but he has a good sleep and laughs all the way to the bank.
With his fame, it is easy to sell some books and live nicely and respectably.
·
Do not invest on your losing horse like Miller.
Doubling on the way down without good reason is a fool's game and it could be
the last straw that terminates his brilliant career. When he won all the time,
he did not expect that he would be wrong this time. Success could blind his
eyes and give him false security.
Bill Miller has beaten the market index 12 times in a
row. Peter Lynch was the premier fund manager. Many similar outstanding fund
managers have to retire earlier due to poor performance, deteriorating
performance, or smart enough to realize that s/he cannot beat the market
consistently in the long run.
Lessons are:
·
Using the previous performance of any fund manager
to invest in a fund could be dangerous to your financial health.
·
Prefer to follow funds that have above average
returns for the five years (ensure managed by the same fund manager).
·
For the last 15 years, you can beat the market
by investing in ETFs with market timing described in this book.
·
Need specialty advice on banks, bio drugs and
mines. Their financial statements do not tell the whole story. Avoid them
unless you feel this selected sector is moving up and/or you really understand
these sectors. Use ETFs and mutual funds for these sectors as they spread out
the risk and/or they have experts in selected sectors.
·
Is your loser stock a good deal now when it
loses half of its value? Usually not. Should someone be excited when the
dividend yield is doubled due to the loss of half of its stock value?
Definitely not. Do your own intelligent
research. A fool and his money are soon parted.
·
Do not believe you're always right all the time
and put all your eggs in a basket. Market is irrational sometimes as it is
created by irrational folks. The black swan could occur unexpectedly. The one
who made millions with all his/her money in one deal is just lucky or using
insider’s information. Diversify and play it safe. I never bet my entire farm
on any one of my predictions even though they have been right more often than
wrong.
·
Even the genius could not be right all the time.
It only takes one big loss to wipe out your entire savings if you bet it all. We
should treat investment as going to battle with an exit plan to reduce your
losses.
·
Gambling with other folks’ money is better than
with your own. The most you lose is your job and the bonuses, but not your
life-time saving.
·
Quit at the peak. We still remember the
beautiful face of Princess Diana forever, don’t we?
Jesse Livermore
considered as the greatest trader experienced making millions and bankruptcy
several times committed suicide. It is better to be a turtle, boring investor.
Afterthoughts
We do have some great stock
pickers and I am following them but checking their performance from time to
time.
Einhorn
is well known (though his portfolio is slipping).
Google ‘Einhorn’ to check his current picks.
Einhorn is a great investor, but
he has made many
mistakes too
such as betting on gold in 6/2013.
Arne Alsin is not well
known. Click
here
for his performance. I was told another smart stock picker is
Michael
Larson and he manages investment for Bill Gates.
Links
Michael Larson
2011 is a year when
stock
pickers (particularly the value pickers) did not perform. The performances
of AAII screens and the mutual funds I tested recently confirmed it. Most
investment advisers / newsletters did not beat the market index in 2011. Check
the performances of your investment newsletters such as Value Line and IBD.
However, do not give them up. They may not perform for a short while but they
will return back to the normal performance and hopefully sooner
.
Most likely it is the result of
the excessive printing of money.
The market was volatile with most of the gains in the first half of the year of
2011. Traders using technical analysis did better than the stock pickers based
on fundamentals as they reacted to the trends.
From my limited data of about 250
stocks for a period of about half a year, I tested out which fundamentals do
not work well in predictability in 2011. They were analysts' grade (Fidelity’s
summary grade of analysts for a specific stock), cash flow and the short
%. Normally, the stocks with analysts' grade A (or above 8 from
Fidelity’s Advisor Opinions), cash flow (grade A from Blue Chip Growth) and
shorter % (less than 5) would perform better than the average. Not this time.
You can obtain most of these mentioned metrics from many other sources and most
likely you reach the same conclusion for 2011.
I'm adjusting my search criteria
accordingly for swing trades. I'm not
buying a lot and waiting for the big dip that I expect it will come. However,
when I see bargains, I'll buy them and wait for these stocks to recover.
My suggestion
Your fundamental metrics need to
be checked whether they still perform in the current market. When they worked a
year ago, it does not mean they will always work today.
Links
Tim wrote several good articles at
Seeking Alpha and is liked and adored by many. I'm not attacking him, but we
have to ask: Should we follow investment advices from someone who can read,
think and write professionally without making a BUCK in the market?
When the professor writes
equations on investing theories, most likely he is in his own fantasy world
that has nothing to resemble the real world.
How many folks at the Ivory Tower made a bundle in
investing even some with Nobel Prizes? Not even the most beautiful minds
like Newton and Einstein! I conclude that the market is not always rational and
the investors need to be multi-disciplined in economy, psychology, statistics,
finance, PC tools, etc. Luck also plays a good part of the performance but not
in the long term to me.
Some very
smart folks even lost big money for themselves and their clients such as the Nobel
Prize-winning economists running LTCF to bankruptcy. Irving Fisher, considered
to be the father of Modern Portfolio Theory, had several big wins, drew a lot
of followers and then lost all his and his followers' money. Even the richest
investor Buffett did poorly in his company in trading stocks in the last three
years.
There is another author at
Seeking Alpha. He was graduated from one of the best colleges, writes very
professionally, publishes many articles, sounds very knowledgeable to me, has a
lot of good arguments in his articles… He was accused by several followers that
most of his predictions were wrong and he had used double talk technique so he
could not be wrong.
I have not tracked his performance and have no intention to.
He could be a manipulator so he may advise folks to buy the stocks he is
unloading, and vice versa. The moral of
the story is to follow good arguments when they appear to be logical but do not
follow any stock recommendation blindly. Do your own home work.
The following is real with the names withdrawn to protect
the innocent.
Dear Guru, I followed your advice two times and both made me money. However,
the last time you're totally wrong and I lost a lot. What should I do? John
First the guru did well with 66% correct. Investing is about educated guesses.
51% correct can make you a lot of money; try Black Jack. Even 50% can make you
a lot of money if you bet more on winners and less on losers based on the
reward/risk ratio.
Irvin Fisher made a fortune by several successful predictions. However, he bet
most based on his last major prediction and lost it all. If John bet evenly, he
would be far ahead of Mr. Fisher who bet it all in one hand. I have used Fisher
example a few times in this book as I do not want to mention yesterday’s heroes
that are still alive.
The moral of this true story is: Do not bet it all as nothing is 100% certain
in investing. Even with 99.99% sure, a black swan event could happen and could
wipe out your entire savings. Unfortunately this has been repeated many times
and many folks never learn.
When someone tells me he makes millions of dollar in a bet and this is his only
bet for a long while, it does not impress me except his good luck. Actually he
has violated the
diversification
rule in investment. His good bet could be due to using some information
illegally or by our Congress members legally at least at one time.
Friends ask me what to buy and when to buy. I try to avoid these answers like a
politician. If my guesses are right, they will not share their winnings with
me. If they are wrong, I will be blamed mercilessly. Silence is proven golden
here or the best advice is no advice. Folks do not know there is nothing 100%
certain in investing.
Links
Diversification:
I read a guru's book on selecting
stocks. His idea of buying growth stocks made him a lot of money but it may not
apply to the current market as of 2009. The current market favors value and not
growth. With a historical database, it is quite easy to verify. Compare the
performance of top 100 stocks sorted by a value grade to the performance of
stocks sorted by growth grade in the last 90 days.
2009 seemed to be the Early
Recovery phase of the market cycle (a phase defined by me). It favored the
beaten down stocks that had high value. I made good money on these stocks in
this phase of the market cycle and most likely the same strategy may not be
that effective in other phases of the market cycle. The point is: Apply the
strategy that favors the current market conditions.
For this period, I checked the
guru’s performance and he did not even beat the market. Apparently his strategy
did not work this time. When the market passed this Early Recovery phase of the
market cycle, most likely his strategy will work again.
Read any book including mine with
an open mind and challenge the author. Even if the author is right, the
strategy may not work on the current market conditions, and/or it may not fit
your personal objectives. Many books were written long time ago, so while the
concepts are fine, they may not be applicable today. Check out when the book
was last updated.
It would not cost a lot for a big
Wall Street firm to write an article to recommend a stock and publish it in a
web site or newspaper. It is the common pump-and-dump strategy or using it to
sell short to make millions for them. Do we have enough examples including
WorldCom and Enron? Separate gems from the garbage and do your own home work. I
was fooled more than one time.
A good pointer could make us thousands
of dollars, and a bad one or a misinterpreted one could do the opposite.
Do not
let this brief article fool you. It could save you a lot of time and money.
Matching the right strategy with the predicted market conditions is not easy.
However, when you have more rights than wrongs, you win big in the long run.
The following are what I’m
reading. It is a gold mine for some, but not applicable to others. Write down
your requirements. Some publications such as the Wall Street Journal and
Barron’s are expensive but most of them are available in your local library.
Actually I am over-loaded with
information. I select the best of those available to me. I try to read three or
four books in detail in a year and glance thru a lot of books in Barns and
Noble’s bookstore.
Seeking Alpha
Seeking Alpha (SA) is a
fascinating web site for investors. The price is right (it is free). You need
to understand that articles are written with authors’ agenda. Some may advocate
the stocks they already own, and some may ask you to sell the stocks that they
have sold short. In summary, authors may want you to trade the stocks to
benefit their portfolios. If you want to know more about your stock, search for
recent articles on that stock.
Some authors promote their
products such as a mutual fund they work for or promote themselves. Shamelessly
I use it to sell this book.
Recently, I
made good money on ALU, DECK and ANC based on the opinions from articles at SA.
I have evaluated these stocks long time ago and did not buy them until
recently. I did lose some money from the stocks recommended even with good
arguments. However, my gains outnumber my losses. Several times, timing made a
big difference. I sold a recommended stock too early to miss a bigger profit.
If you want
to have all the headlines and recent articles on your stocks, create a
portfolio in the home page. It is quite handy.
SA has a Pro
subscription service with good performance they claim. Most retail investors
cannot afford to pay for this service.
Be careful of
some obscure alpha-rich stocks particularly with .XX (pink sheets for example).
They are very risky and volatile.
SA and other
sites provide us food for thought and I have been benefiting from them. The
discussions in their forum clear my thoughts and biases. However, as usual you have to do your own
evaluations before trading any stock.
Barron’s
and Wall Street Journal (WSJ)
I enjoy
Barron’s and WSJ. WSJ does not describe individual companies in detail like
Barron’s but the general market. Both are not cheap, but both should be
available in your local library.
If you
already have a subscription service on selecting stocks, WSJ is a very good
companion journal. I cannot find a better paper than WSJ and that is why most
business colleges require their students to subscribe WSJ.
From my
experience, stocks recommended by Barron’s surge initially and then most cool
down.
Yahoo!Finance
The comments
from the user board at Yahoo!Finance are good and sometimes information cannot
be found in other places. Everyone can post comments. Some information is too
personal, too harsh, too promotional and simply not reliable. Many times there
are contradictory comments such as shorting and longing on the same stock.
Several times I learned there was a serious lawsuit pending or a major problem
on a company.
I use it to
update the stock prices (via the download function). I use the charts to identify
the market cycle that turns out very beneficial.
Your broker’s website
There is a lot of information than you expect and some brokers
offer free seminars. The one seminar from my broker Fidelity benefits me a lot
is their quarterly summary of the market (4 times a year).
Many good
sites such as MarketWatch, CNNFN and TheStreet are available free of charge.
Watch out for manipulators
Some articles are written to promote (sometimes demote) the stock
to the hidden agenda of the author. Goldman Sacks could be one of them. Most of
their recommendations work initially and then do not work. Test it out for
yourself: Write down their recommendations and check them out in six months. If
they’re consistently wrong, you can take advantage by doing the opposite of
their recommendations.
It is similar to a popular TV stock analyst. Again, if it is so
good, why don’t keep them for themselves? Usually they want you to buy it to
boost up their portfolio and then they sell. That’s no free lunch. You need to
research stocks yourself.
Today is really different.
Recently I read a classic book on
investing. Similar to most other classic books, most ideas are not applicable
to today’s market. The author died more than 50 years ago. By my rough
estimate, the ideas are 30% correct and 30% incorrect. The remaining fall into
the grey area that they are only correct in specific market conditions and/or
specific interpretations. Most correct ideas are now conventional wisdom and many
have been repeated in this book. Some of the incorrect ideas are described as
follows.
·
Most of these books described strategies in
investing and then selected examples to fit the strategies. Most of my examples
are from my personal experiences. My bad experiences could be more beneficial
to you by not repeating the same error.
·
Tax laws have been changed since then. Roth IRA
could be the best thing since slice bread if you’re eligible. Check the Tax
Avoidance chapter. This book has a link to the current tax law from Wikipedia
to keep you updated with the current and future tax laws. Your tax lawyer or
accountant is no substitution.
·
Today most brokers’ commission rates are so low
that it makes some trading strategies more effective than before. My commission
rate is $5 per trade (after some negotiation with the argument of frequency in
trading) and one account is even supposed to be commission-free for a year via
a special promotion. Your Dad may have paid over $300 for commission per trade.
·
Your Dad did not have Technical Analysis. I use
it effectively so far to detect market plunges. Many good technicians make
great money.
·
Tracking ‘mispriced stocks’ is less useful today
than 50 years ago. Today these stocks are screened every day by investment
subscriptions, fund managers and even retail investors. The extensively used
P/E is only one metric among many to determine the value of a stock. P/B and
ROE are not too effective as before.
The only reason I can think of why the stocks are
mispriced is via over-reaction by the media and manipulation. The media
exaggerate in order to sell their viewership and most information is outdated. Most
stocks are bargains during the market bottom. Lower prices than the historical
prices do not mean better potential for appreciation.
Most ‘experts’ from the financial TVs manipulate the
public in order for them to buy or sell specific stocks to their advantages. If
you cannot turn off these TV or radio programs, analyze what they preach.
Sometimes you act opposite to what they say and make a profit. To prove my
point, check out what they say and see whether the market will be correct in 6
months. Usually their predictions are correct only in the first few weeks and
it could be due to my herd theory.
Goldman Sacks is one manipulator to me. A famous
former fund manager from another company advised folks to buy a specific stock
while unloading it and he did not go to jail.
Today, the real ‘mispriced’ stocks could be those who are
losing the competitive edge of their major products, using high debts to boost
up the earnings, having major lawsuits pending, etc. These stocks most likely do not appreciate.
·
Retail investors have most of the financial
information of a company and the economy at the same instance as the Wall
Street experts. Actually we have more advantages. Our PCs are fast enough for
our needs in evaluating investments and our spreadsheets can do most of the
basic analyses. Indicated by any abnormal large volume of a stock from trading
by fund managers, day traders could take advantage of it. Hence, they pay more
to get in and get out of a stock.
·
From 1970 to 2000, the market returned for an
average of 10% including dividends. Market timing would likely deteriorate your
return. However, since 2000, we have two major market plunges with an average
loss of about 45%. Today, market timing is more important to your financial
health than before.
·
No one 20 years ago believed the bankruptcy of
major companies such as Lehman Brothers, the old GM, etc. and losing most
values of many companies such as Citi Group.
·
We have new regulations, which are supposed to
protect investors (from insiders’ trading for example). However the government
intervenes in the market by pumping up too much money to cause a
non-correlation of the economy and the market. It seldom happened. When they
stop this practice, the market will correlate with the economy.
The chance of another 1987 crash is minimized with new
regulations. We do not learn a lot from the 1929 crash as our market and its
regulations are quite different from then.
·
The economy may recover without employment
recovery. Most jobs today can be outsourced. Big companies hire the best
workers at the least costs in any country in the world. The world is getting
smaller via better communication and more efficient transportation.
Free trade and globalization make the world connected
better and the participants should benefit. Without employment recovery, it
would affect many sectors such as housing and retail. When one country is down
economically, many other countries will be affected. Watching the economy of
the USA alone is not enough today.
·
Sir
Newton and
Irving
Fisher lost a lot of their money in their investments, so their high IQs
have nothing to do with investing. Even the Nobel-prize winners ran their hedge
fund
LTCM
to bankruptcy. It also teaches us to diversify and the
black swan could wipe
out our entire savings if we bet all in one strategy or one stock.
We have to change our strategy to adapt to the current
market. The market 50 years ago most likely was not the same as the market
today. Fewer lessons from 50 years ago are valuable than the lessons learned in
the last 15 years.
·
We do have new challenges and new tools.
The big boys (mutual fund and pension managers) could
manipulate the market. It could be a nice conspiracy theory that the
blood-sucking big boys meet on the first full moon every month to determine the
market direction and/or which sectors to rotate to. However, with today’s
internet, the big boys could drive the market fast and violently and the retail
investors would likely follow.
As high as 50% of today’s trades are decided and
executed by computers. When they act at the same time and in the same
direction, the market would surge or plunge fiercely without warning.
High speed
trading could hurt us but also could benefit us. Sector rotation, ETFs, contra
ETFs, options and day trading should be examined and understood (even if you
don’t participate) by today’s investors.
Dow Theory with
emphasis on the Transport sector (including
UPS
today) loses some of its luster as a lot of products do not have to be shipped
by rails such as the digitized music, ebooks and movies.
These are the
tools and strategies that your Dad’s generation did not use; not to mention
those books written 50 years ago that did not have to deal with our challenges.
·
With today’s advances in publishing, books can
be published / updated with minimum effort and distributed throughout the
world. There is no need to print and store large numbers of books. Books can
include multi-media features and links on other articles. Readers enjoy the
lower cost and larger choices. Updating
today’s digital business books to keep up with the current market is easy,
low-cost (or even free) and efficiently done. This book is a living-proof.
Without today’s publishing system, this book could remain as a note book for
the author.
Conclusion
Technology and new regulations
change our tools in investing. Your Daddy did not have today’s powerful PCs,
spreadsheets, internet, etc. The tax laws and regulations are changing every
year. Read any book with an open mind and apply what works in today’s market.
Today’s market is influenced by the
interest rate, aging population, population growths in different countries,
globalization, China, wars, conflicts among countries, energy, technology, tax
laws and regulations.
Afterthoughts
It is beneficial to buy a digital
version of this book from the publisher such as Amazon.com. It is good for the
authors too without dealing with the readers in marketing and maintaining book
updates. The disadvantage is the charts may not be displayed adequately due to
the limited size of the e-reader. I correct this problem by giving you a link
to most screens.
It reminds me of some products
that need updates all the time at full prices. Turbo Tax and similar products
are the example. Unless the government does not have any tax law changes (not
likely), we pay for a new copy at the full price every year. It is similar to
programs in detecting viruses. It is a great business model for these
companies. Microsoft’s Office is bought again usually when one buys a new PC.
Links
Newton and his market loss:
Irving Fisher:
LTCM:
Black swan:
Why we, the retail investors, can beat the professional fund managers? It is
not likely if you consider all those research resources they have. However, in
reality, the average retail investor does not beat the market due to switching
between stocks and cash at the wrong time.
Most fund managers are smarter than I, better educated in investing than I,
have ten times more research tools than I and have ten times more computer
power than I. However, most of them do not beat me, the average casual retail
investor. In addition, I spend less time in stock research than an average fund
manager (most working at least 60 hours a week) - I have a life too and they
don’t. J
It
could be:
o
They cannot beat the market all the time. When
they do, money flows. It is very hard for them to perform with extraordinary
cash. When the market is depressing, everyone cashes out their funds. They need
to sell stocks even though they have better potential to appreciate.
The saying “When there is blood in the streets, most
likely it is the best time to buy” is correct. 2009 is a recent example. Fund
managers cannot take advantage of this opportunity as most clients had cashed
out.
o
Most cannot play market timing freely and they
have to satisfy all the rules set up for the fund. Every time they want to buy
a stock, they need to ensure no rules have been broken such as a restricted
percent of a stock to the fund. Most funds prohibit their managers to short,
buy contra ETFs and/or maintain high cash position. Basically, most are not
allowed to react to the market when it is going up or down.
o
When they trade, their high volumes are tracked
by day traders who can ride on their wagons. Hence they have to pay more to buy
and get less to sell.
o
By my rough estimate, they have about 1,000
stocks (about 600 for larger funds) to deal with. I as a retail investor have
about 3,000 stocks even skipping most stocks with prices below $2 or not listed
in the three major exchanges.
Their stocks have been fully evaluated by analysts and
newsletters / subscriptions such as Value Line and /or some firms specializing
in stock research for them. Hence, they do not gain any advantage by following
their peers.
The small and mid-cap stocks are risky but are more
rewarding statistically. Many fund managers cannot buy them due to the sizes of
their funds.
o
Their performance as a group is actually worse
due to closing down of non-performing funds.
o
Not nimble enough.
By the time when they have done all the research and
received the approval to buy a specific stock, I may have bought the stock
already. Usually it takes at least a week for a large fund to complete trading
a stock.
o
The high expenses.
The fee is
about 1.5% for the average fund. The
expenses are 2% plus 20% on the profit for an average hedge fund. When the fund
and the broker belong to the same company, watch out how it can make its
brokerage arm more profitable by jacking up the commission. The hedge fund’s
usual 20% on the profit and no penalty of losing your money encourage its fund
managers to take bigger risks.
o
Not spend enough time to do own research.
Most do not
spend enough time on basic research and select the right strategies in current
market conditions. They spend a lot of time in following the fund’s and the
company’s objectives, rules and regulations.
o
Wrong objective.
The objective
of most funds is beating the common index after expenses. Most fund managers do
not want to take too much risk and their personal objective is job security.
One will not lose the job if his performance is similar to a target index.
o
The reason for some of their good performances
is due to taking too much unnecessary risk and the high leverage. Their
performances improve when the market is good, but degrade when the market is
down. When I see the market is coming down, I would park more cash and I only
use leverage when the market is going up.
o
They buy the same stocks as their peers are
buying. If they do not perform within a certain range of a benchmark, they get
canned. Hence, they stay away from risky stocks that usually have better profit
potentials. We pay them to research these risky stocks to separate the gems
from the garbage, not to follow the herd of their peers.
·
Retail investors have a lot of advantages over
fund managers. However, I advise not to be traders especially day traders for
beginners. Statistically most amateur traders lose money as they cannot compete
with experienced, disciplined traders. My books do not teach you to be a short-term
trader. Even if you study several good books by great traders, most likely you
will still lose money initially. No books can replace the actual trading
experience.
However, discipline, knowledge and due diligence will
make you money in the long term as a turtle investor.
We work hard, save money and
invest. Our investing in stocks serves two primary purposes:
1. Good
return on our money (as in any investment), and
2.
Provide jobs and taxes for the
government. However, in reality, the stock market is being
changed to a big casino.
Companies need our investing money to develop new products and hire employees.
When the company makes money, it supposedly pays taxes and in theory hires more
employees. We would not have Apple paying taxes and hiring thousands of
employees if we did not finance it initially via IPO. However, global companies
can hire anyone in any country at the least costs (labor cost, regulation
cost…).
This is the ideal purpose for investing. Investors choose
the companies that produce the proper products and / or services mix that would
be profitable and at the same time are good for society and the world. Apple is
a good example.
We ought to pick companies that promulgate the society.
Here are some evil industries:
·
Tobacco companies.
Do you invest in products that kill? Even if you do
not smoke, the second-hand smoke (and even the third-hand smoke for unborn
babies) still kills. We discourage smoking in U.S.A., while our tobacco
companies are making great profits in Russia and China. The recent legalizing of an illegal drug will
bring more deformed babies.
·
Defense (offense is
more appropriate) companies.
Why do we need a carrier generated by two nuclear
generators? We already have weapons to destroy the entire world by pressing a
button. Boeing is partially OK with a small division in offense.
After shooting in Newtown, most
stocks in gun manufacturing companies went down in prices (profits went up
initially due to fear of the ban). Their P/Es based on past earnings will be
exceedingly low. This is another example that P/E does not tell the outlook of
the industry.
Unfortunately they are legal products. Special interest
groups control our politicians like puppets.
However, the children in Newtown will not die for nothing and even
politicians cannot cover their eyes and conscience any more.
[Norman, my good friend, has a counter opinion:
Disagree with your premise on
military companies. The United States
has made a lot of money by upholding capitalism around the world. If we had no military, we could not protect
our property rights here and abroad.
Chamberlin proved that a weak country has no rights when the fascists
come knocking.]
·
Casinos, wine, fast
food, soda...
These are border line cases. They provide good services and
products, if you do not take it to the extreme. They only hurt you but not
others (except from drunk drivers).
Money is not everything in life once we
have the basics. We should invest wisely and responsibly in products that will
not harm us.
What's good if you made millions in a tobacco
company that kills you via the second-hand smoke? How about the young kids
killed every day by guns? It is sad but it happens every day.
Stop counting money with hands dripping in blood.
Afterthoughts
I had a tough
time in arguing with a doctor. He cared about the dividends from his tobacco
stock more than your health. I wonder whether money was his original motive to
choose this noble profession. CVS has done a good deed by not selling tobacco
products.
The legalized
drug kills!
First most of our initial investment
money is from our hard-earned money during our work life unless you're lucky
having money via inheritance or marriage.
The retired rich could live a decent life with the money
accumulated without investing in the risky market. However, we invest for
better return for ourselves, work our own way (vs. paying mutual fund managers
to do the same), and take some risk ourselves.
We do not think we're the parasites to
the society. Our investments have helped many businesses grow. In turn, these
businesses pay taxes and hire workers who again in turn pay taxes. We, the
investors, also pay taxes too on our profits from selling our winners, sales
taxes and estate taxes when we pass away. The society should benefit a lot from
our investment.
If we live to 70s or 80s, we will still
be physically able to work on our investments, but most laborers can't. Hence,
we will contribute to the society longer as a group.
It is unfair for the hard-working, rich folks less chance
going to heaven than the lazy, welfare recipients. The majority of the free loaders (also known
as the able welfare recipients and cheaters) are the parasites but not the hard
working investors. The gate keeper of heave, please take notes.
It is
politically correct to help the poor and punish the rich (via excessive taxes).
When we tax the rich excessively and unfairly, the rich will give up the
citizenship and move to countries where there are fewer punishments for hard
works and taking risk. It could be the last straw that breaks the camel’s back.
We are experiencing the greatest exodus for the rich in the last few years.
Many countries welcome our rich with incentives and open arms.
We treat the
middle class unfairly. I invest my hard-earned money, pay taxes on my profits.
When the rich are gone, we would be the group supporting the government and the
poor. We paid for our entitlements such as the social security, so we cannot
move to another country easier than the rich.
I do not
object to help the poor, but should the middle class be taken care of first? I
do object giving our taxes to the rich bankers for bringing down the economy
when some should go to jail. Margaret Thatcher once said, “Socialism is
destroyed by giving to the poor until we have nothing left to give”. When the
host dies, the parasites will die too.
Can anyone explain the following?
·
The poor get 100%
free health care (say in Mass.), while the middle class like me are very
careful to decide whether to see a doctor or not. I have to pay a lot even
after the insurance.
·
The poor can go to
nursing home free of charge and we only go when we have no choice as it is very
expensive.
·
Last time a lady in
front of me in a super market with a real Gucci bag bought the best cut of
steak with her food stamp card. She may be driving a BMW too. Welfare cheating
is too common and too easy.
One common
comment to me is: “Tony, you can spend all your money and be poor.” Is he stupid or am I stupid? Or, our society encourages folks to be poor,
lazy, dependent and stupid.
I do believe
in fair taxing and redistributing our wealth. The able welfare recipients
should be ‘forced’ to work, but should not take away the welfare benefits for
taking a job. Welfare frauds should be punished. Clinton’s work initial is good
but it also has more holes than the Swiss cheese.
I belong to the middle class, which is being squeezed by those
who do not pay Federal taxes and the top rich 5%. The top 5% are the geese that
lay the golden eggs and can fly away to places where taxes are lowered and we
can’t.
Afterthoughts
·
Norman’s counter
point.
Tony--You have come upon the current
structural change in the global society.
I don't agree with how you have addressed it, almost a racial slur on
the lower working class. In many
people's eyes, the capitalists are the parasites on society and they don't pay
taxes, but hide the money in Ireland and Switzerland. When this depression is over, there will be a
better distribution of wealth or the elite will suffer the same fate that Marie
Antoinette did. In my opinion, there
will have to be redistribution of wealth in order to maintain the demand for
goods and services. 99% of this country
is poor!
Tony: More than 40% of us do not pay
Federal income tax. Representation without taxation is worse than taxation
without representation. Guilty as charged? You decide.
·
Why I love investing.
I learn most disciplines in investing
via common sense. Even if you have a Ph.D. from a prestigious college or how
tall and handsome you’re, your accomplishment in investing is only measured by
the performance of your portfolio.
I spend about two days a week now (after
all those testing and readings in the last 10 years) in investing. That's why I
can spend so much time in forums, write books and enjoy life too (yes I do have
a life to your surprise). I can afford to make a mistake once a while and no
one dies because of my error. Everything I learn now can be useful for the rest
of my life. I work in any place I want and any time I want.
I'm my own
boss. There is no one to report to me and I have no one to report to. There is
no company politics. No one discriminates against my yellow face. I do not care
about others' feelings when I trade except my own when I lose.
I can play offense and defense without asking for
permission. I do not have to follow any regulation, any dress codes, any work
hours... My commute is from my bed to the couch.
I would like to share my
experiences in this book. For one who never writes more than three pages in my
entire career and in a foreign language (I bet my English is better than your
Chinese), it takes me to a new challenge. The main reason I wrote this book is
I cannot find one that would benefit the retail investor from actual experiences.
From my profitable investment, I
can afford to take an early retirement and concentrate my effort to find new
and profitable strategies in stocks investing (my hobby now). Today and for my
frugal living, I do not have to bet big to accumulate more money but to protect
them. There are many ‘great’ investors died almost bankrupted. We do not want
to follow their footsteps. Be conservative!
This is my payback to the society
besides my taxes as I do not expect make money from selling books.
I’ve written several books on investing. It is fun to comment in financial sites. It helps
me to kill time (especially when the market is too risky to invest) and learn
from others. In marketing my books, I made a lot of enemies. For me, it is not
worth it as my objective is helping my fellow retail investors and contributing
to the investing world not to upsetting anyone.
Today, Amazon.com promotes my books for free. In addition, they handle
all of fulfilments that I cannot afford to do it myself. If I have to handle
more than 100 orders a month, I do not have time to enjoy life. So, thanks to Amazon.com.
Advice to a friend starting a new business
When we retire or are being laid off, we have plenty of
time. It is bad not to do anything financially and mentally. However, the worst
could happen to us: We invest in some venture without due diligence and lose
our entire savings. There are so many real-life examples.
Everyone enjoys eating out. Some believe they can make money in opening a new
restaurant. Wrong. It is the human nature to be overly optimistic even on the
toughest business. Their friends and family members do not want to dampen that
enthusiasm. Most new ventures fail miserably.
Investing in stocks is another popular one. Many take a course in day trading.
If their system works that well, why do they want to show it to you? When you
want to invest in stocks, you should have many years of investing
experience and do not gamble with the money you cannot afford to lose. In
either case, start with paper trading before committing real money.
One retiree lost all his money in the stock market which has too much
volatility, and died because of worries. After several years, the market
revived but he did not.
One retired headmaster worked as a partner in a small brokerage firm.
Despite having fame and fortune initially, never-the-less he eventually lost
all his money. He executed an order without checking his client’s maximum bet
allowed. The bet was a total loss and this verbal order based on trust could
not be legally bound.
The retired and famous baseball player from Boston lost all his money by owning
a company that made video games. Even though he was an excellent baseball
player, he was not a business man and his failure was almost a sure thing. For
every successful story, there must be more failures that are not publicized. In
most cases, no ambition is the best ambition during our retirement years.
Investing in something we do not understand will likely cost us money, effort,
frustration, and even our health.
Contrary to popular belief, Social
Security will not run out of cash. However, it will be cut down in purchase
power even it is supposed to adjust to inflation. The inflation rate has been
manipulated by the government by using the CPI that does not account for food
and energy.
Our politicians will not allow Social
Security to bankrupt otherwise they'll not be re-elected. Some simple steps
with some comic relief are:
·
Move money to Social
Security from budgets in other areas. The Constitution does not require our
leader to balance the budget.
·
Printing more money
and/or beg China or anyone to loan us more.
·
From China’s latest espionage, the U.S.
citizens would not object to sell their country to China for a million dollar
to each citizen. China figures out the 1 million could turn into buying power
of $1,000 in a few years and they can tax 99.9% of the windfall payment J.
·
Tax more on citizens
like the extra tax for Social Security, Medicare, any taxes… and add a new tax
called VAT.
·
Tax the rich until
they move out of this country. Then we will have a new tax named exit tax.
·
Import more young and
hard-working foreigners. Ensure not to import their parents to collect welfare
Social Security Supplement which could defeat the original purpose.
·
Selective immigration
would allow more income and investment and the right skills that we do not have
enough.
·
Reduce the aged
population with fast food deals for seniors, early bird specials, more
legalized, addictive drugs specific for seniors, unlimited alcohol for seniors
(killing seniors in the car and other seniors on the street), guns for
recreation for seniors, free sex for folks over 70 every night at all senior
centers... J
As long as they die happy, everyone is happy.
·
Incentive to die
early.
If they suffer, let them die peacefully. How about
one extra percent exemption for each year below life expectancy? They may not
know there is no requirement to file income tax on the year they die. The last
two years usually requires the most expensive health care, not to mention the
physical suffering. J
·
Give seniors Viagra
free.
It will make prostitutes fully employed with new customers from
this age group. Excessive sexual exercise will end their lives earlier but
happily. Not a personal experience but
an observation. J
Afterthoughts
Most points are valid but some are just for your enjoyment.
I wrote this in a rainy day and needed something to cheer me up. Sorry if this
blog offends anyone.
Why do you being a 70-year old want to be richer? By
statistics, which never lie, you have about ten years to live plus or minus
five daysJ.
Investing is very emotional and it can damage your health. Inheritance is good
for the next generation, but it should not be your primary reason to make more
money. In addition, it would take out their objective in life and fun in
creating wealth. They should inherit enough to start something and nothing
more.
I agree that we ought to constantly keep our minds active. However, you're
competing with veteran professionals in the stock market. Do not turn your life
savings into a very expensive hobby. One way to beat them is to invest when
everyone is selling and vice versa. It is easier said than done as most of us
let emotions make our investing decisions.
If you could live to your eighth decade, you've beaten the odds and the social
security system which was designed that a population will not live that long.
Just have a big smile and a fulfilling day. Do not let the market control your
mood. Like my late mother said: Every
day you wake up alive and feel no pain, you've earned another day that is more
important than all the gold in the world J.
Afterthoughts
·
Bala said:
Great words from your late mom. Even at 70, learning never
stops and I learned something today. Thanks.
·
Norman:
Many of us in the 70 year old category are forced to
support our children and their children during this depression. My reason for
making money is to keep them eating and allow the children to go to school and
college.
[Tony: I have been living in my own cave for too long.]
Advice
to a friend in starting a new business: Advantage, niche and hard work.
The economy usually follows the
market in six months except the current market due to the excessive printing of
money. I am political neutral as most investors should be. I criticize more on
the current government disregarding which political party is in charge.
101 My Coconut Theory
Coconut Theory
In a tropical island, every one
sleeps under a coconut tree assigned to him. He wakes up only when a coconut falls
on his head once in a while. He does not have to think when he just wakes up
and eats. He eats the coconut and goes back to sleep. He is lazy due to the
nice weather (no need to find shelter) and the nice resource (the coconut
tree). He is happy and rich by his own standard. However, he is lazy, fat, and
stupid due to the lack of any need to work, exercise, and think out of his
‘perfect’ environment.
The worst that happens to the
natives is borrowing coconuts from other natives with the coconut tree as
collateral or cut down the coconut tree to make a canoe without plans on how to
replenish coconuts in the future.
This is a simple theory. It can
be used to explain how and why many countries are rich, poor, and continue to
be so. Let’s check how this theory stacks up with countries.
U.S.A.
The U.S. is the richest country due to its developed
and highly educated citizens, hard-working immigrants and the huge natural
resources per capita (i.e. having a lot of coconuts in my theory). The U.S. is declining as we spend more time enjoying our wealth
(borrowing coconuts so he can eat more; on credit – living beyond our means!)
rather than creating more wealth (i.e. eating up most of the coconuts and not
planting new coconut trees in my theory).
The wealth is
equivalent to the bountiful of coconut trees that were available originally and
the many that were planted by our ancestors. There were fewer natives to
consume the total number of coconuts, so there was a surplus of coconuts grown,
eventually to be given away (as welfare and entitlements). Are you incentive to
plant more coconut trees (work) when you have unlimited coconuts (generous
welfare)?
Because of
WW2, most coconut trees in the world were destroyed while ours were isolated
from the war. We were rich to ship our better coconuts to the rest of the
world.
God gave us
plenty of natural resources, good soil and climatic wealth (coconuts hidden
under the land) and hopefully we continue to be wealthy. Unfortunately, we’re
now consumers (of coconuts) instead of producers (planting new coconut trees).
Norway
Norway is the richest to its population
group (3 millions) while Brunei is richest in its own population group. Norway
has more money than God because of its long coastal line and its
intelligently governed oil wealth, so everything works better there. I hate to
compare any country to Norway as most likely we are comparing Apples to Melons.
From its long
coast line Norway has rich off-shore oil fields and abundant fish exports which
is second in the world-- only 6% of its export, after China but far, far #1 per
capita wise. Because of the world's oil addiction and food dependence secures
its income flow.
Peru has a long coast line, but it is not wealthy. My
theory does not apply fully here, as there are always exceptions. It could be
Norway’s educated citizens, close location to its trade partners and buying
assets around the world (planting more coconut trees). The dividend payments
allow Norway to prosper for decades. They have about 600 billion sovereign fund
to be shared by 3 million citizens. Simple math!
Iceland
Some smart guys suggested cutting down all the coconut
trees to make canoes so they can earn a rich life by fishing. The world blindly
loans them with coconuts. When the fishing fails, their land is lost with no
coconuts and no coconut trees left. Do not bet all the coconuts in one venture
and always have an exit strategy.
Singapore and SE Asia
Singapore is rich due to its important location for the sea
route for trade and commerce, as well as being the cultural intersection
between the east and the west and its industrious citizens (most are Chinese).
When the hard-working folks land on a land of coconuts (i.e. resources), they
naturally become rich.
Mekong River
is a good resource providing fishing, irrigation, transportation, and fertile
land in the delta for SE Asia. Hence, SE Asia should be rich, and at the same
time attracts hard-working immigrants from India and China to enhance their
wealth. However, the river is being polluted by industries and the future is
cloudy.
Japan
Japan has few
natural resources. Its only resource is the educated and hard-working citizens.
With a decreasing population and the policy not welcoming immigrants, Japan
will face problems.
Haiti
Haiti used to
have enough coconuts for its small population. French imported African slaves
to the sugar cane plantation and changed the allocation of natural resources
per capita. Coupled with frequent natural disasters and bad governance, Haiti
becomes the poorest country in the world. Corruption in poor countries is
natural.
UAE
When the west
helped UAE to explore its oil resources (the hidden coconuts under the sand)
about 50 years ago, UAE becomes the richest country on earth. She expands in different
areas and it could be over-expanded. When the oil dries up in 100 or so years
and/or the shale energy competes better, they could be in big trouble. [Update:
the problem appears as of 1/2015.]
Russia
Russia is a
country full of resources (coconuts). Its citizens become lazy having a good
time under the ‘coconut’ tree. Chinese are just the opposite. That’s why the
Russians hire the hard-working Chinese to tender farm in the border while they
enjoy life with plenty of Vodka J.
The primary
reason why USSR fell was the temporary low prices of their resources oil and
timber (coconuts). Trying to be #1 was another reason.
China
China has
roughly 20% of the world population, but it has far less than 20% of the world
resources (coconuts). For example, it has only 6% of the world land area. The
situation was worsened in the last 250 years during the Opium Wars, and then
semi colonization by the eight countries (helping the Brits, the opium
pushers). It bankrupted China by their colonial masters. It caused massive
migration to escape from the land without coconuts. It was followed by WW2, war
lord era and then the bad governance. Their bitter lessons ensure this
generation and the next generation to work hard and be smart. When they do not
have ‘coconut trees’ (the colonial masters cut most of them down), you have to
work hard or die.
China ranks
#2 in the economy. It is only important to its trading partners. Its own
citizens care about their living standard which is about the middle in the rank
of all countries.
Ancient
civilizations too
Greece, Iran,
India, China and Italy are among the oldest civilizations. Most do not do well
in today’s economy and many of their citizens have immigrated to other
countries. My theory suggests that they have exhausted their coconuts (farm
land and metals) throughout the long history. Hence, they have to migrate to
lands with more coconuts.
To
illustrate, there is a huge discrepancy in natural resources (oil, metal and
farm land) between China and the U.S., which has a relatively short history.
Corporations
too
Microsoft was
a tougher company with more innovations fifteen years ago than today. However,
they are enjoying easy profitability of upgrades of Windows and Office
(coconuts planted by their ancestors). For a long time, she only has one
successful new product, the Xbox. Her managers are counting their bonuses
instead of taking risk. The Coconut Theory works again.
Rich families too
It is very
rare to have rich families that last over three generations. The first
generation grows the wealth (planting coconuts), the second generation enjoys
the wealth, and the third or fourth generation usually becomes poor due to the
easy life.
Conclusion
So far, no
one tells me that this theory has been ‘discovered’ by others. Shamelessly I
claim it is mine. To me, it is just common sense.
Afterthoughts
·
I did not have a
coconut tree (i.e. financial aid or money from my dad), and that is why I
worked two jobs in my first summer while attending college here. The first one
was a bus boy job from 5 pm to 10 pm. The other one was cleaning slot machines
from 4 am to noon for 5 and usually 7 days a week. Lack of coconut makes you
desire to work hard or you die. With an average IQ, I can make it by working
hard in a land of coconuts.
My children have too many coconuts
and they live in a more lavish life style than the old man. They ask me why I
work that hard during my retirement or why I still go to Burger King with a
coupon even they do not treat me like a king.
·
According to my friend
Norman, the problem with a small place filled with coconuts is someone would
likely to colonize you and steal your coconuts as happened to Norway during
WWII. Similar to China about 250 years ago. Once a while, need to cut down one
among many coconut trees to make spears to protect the rest of the coconuts.
Dow will double (to 25,000)
before the end of this decade (2020) if most of the following materialize. My
prediction is more realistic than the book Dow 40,000.
·
The two wars are finally ended and the U.S. will
not start another one. We cannot afford to be the world’s policeman fighting
for our idealism. Let others fight for their own freedom, their own humanity
and their own ideology. Being a big brother means nothing when we have 15%
unemployment / under employment. Does Vietnam threat the world today?
·
Again avoid any physical war at all cost.
Japan and several Asian countries are dragging us to a
war with China on the disputes of oil resources in some islets in China Sea.
Throughout history, Japan has been a fierce aggressor to its neighbors and its
navy is growing fast. Why should we protect Japan militarily with our money
while Japan passes us in living standard? When Japan and S. Korea fight, which
should we side? Learn from our lessons from Middle East wars.
·
Be friendly with China.
Avoid any trade war which has the risk of them pulling
out their debts of over a trillion dollar.
·
Buy more printers to print money.
It would lead to super high inflation (so $20,000 today could only buy
$10,000 goods in 2020). In this case, Dow doubles but not in real purchasing
power. It will harm the economy long term. Currently the banks hold the printed
money as reserves and earn interest/stock investment on it. They should be used
as seed money to start new businesses instead.
·
Cut down entitlements.
In addition, force those able, long-term welfare
recipients to work on jobs taken by illegal aliens now. Clinton’s work bill
does not work in many states with too many misinterpretations.
·
No more bailout.
No one including the state government is too big to fail. Cut the government
size to half. It will not be any reduction in service as most government
workers have tiny workloads. I hope we’ll not bail out Detroit. If we do, we
will have to bail out other cities such as Chicago and many cities in
California. It is easy to ask for money than to work for money. Laziness is a
human nature.
·
Help small businesses.
Give incentives to businesses to invest here such as
low tax rates, no complicated regulations / laws, low legal claims, etc. We
cannot compete if our wage, taxes and regulations to do business here are too
high or too restrictive. We need to bring our living standard to how much we
earn, and not to how much we can borrow.
·
Incentives to big corporations.
No more corporate welfare. At least tax the profit
made in the U.S. Give them incentives to hire here.
·
Reward folks taking risk by lowering taxes on
investment income. Taxing the richest excessively will drive them to leave the U.S.
We seldom have high taxes and business growth at the same time.
·
With the shale oil and gas, the U.S. could be
energy independent if there is minimal damage to our environment.
·
Reform our election system. The primary
objective of a president should not be reelection but serving us.
·
Emphasize on the economy.
Is being #1
more than employment? Is consumption (via borrowing) more important than
production (improving our deteriorating infrastructure)?
We need law to balance the budget to be implemented after
this recession. Most of the above will
not materialize as the politicians cannot buy votes with many measures and no
voter wants to bite the bullet. It seems we’re heading to more government
spending and loans. Dow will double only due to higher inflation.
I just explained to my grandchild that money does not fall
from the sky or grow on trees.
Every time we print money, it does the following:
1. An invisible tax is added to the rich as their purchasing power will be
decreased via inflation.
2. Your children and grandchildren will
pay for it due to our loans.
3. Selling a piece of our asset to
foreigners.
4. Our products are less globally competitive as
we have to add more taxes to pay for the loans. It is more competitive
initially as our currency has been depreciated, but this will not last
long.
5. Give more reasons for the rich to give up
citizenship and move to another country. Most become rich for being smart.
1. The
end of the USD being a reserve currency is closer.
The only winners are the lobbyists and politicians, who bought
votes with the money from your pocket.
It will help the stock market in
the short-term, but it is very damaging for the long-term economy. That's also
the primary reason why the recovery of our economy is taking forever. Printing
money to the maximum is not a solution but a problem. Today most countries are
printing money excessively.
Afterthoughts
·
We have inflation (such as most products in the
super market) and deflation (such as housing expenses) since 2008. Click
here
for detail.
·
As of 6/2012, we have 16 trillions of debt and
it is substantially less depending on whether you include the entitlements.
Besides the poor environment, unpromising economy, our children and
grandchildren inherit our huge debts. So far, it is about $55,000 debt for each
baby born today. However, many foreigners want their babies born here, so
everything is relative.
·
The U.S. is heading
to the same path as Japan by jacking up the money printing press. The
similarities are:
1. Both try to flood the market with free cash. It gives
the market a false boost.
2. The next generation(s) will have to pay for their
citizens' debts.
3. Both governments are running out of tools to stimulate
the economy. I guess you cannot have interest rate negative (that means I pay
you interest to lend you my money).
The differences are:
1. The US has a lot of resources (ores, oil, gas, timber,
land, farm land...) per capita and the shale energy could save us for the next
50 years.
2. The U.S. welcomes immigrants (we need to do it
selectively) to reduce some of the demographics problems such as social
security, welfare, work force...
3. Japan has entered
the third lost decade.
Relatively speaking (as Einstein said), the US is in far
better shape than Japan and EU. Investors should stay away from Japan except
the delicious sushi. EU and China and the commodity-rich countries (Russia,
Brazil, Australia...) will be in between.
We are not economically better than our parents. Our
children will be even worse with government loans.
As of 2013, we have the lowest
interest rates for a long while, which is normal in a recession. It is a great
time to buy a house (especially with the depressed house prices) and / or
borrow money.
Low interest rates have many impacts on our investment:
·
Usually they're better for the stock market as
corporations can borrow at cheaper rates and hence improve the bottom line. In
theory but not today, it should be great for the housing market and retailers.
·
Corporations can borrow money at favorable rates
to buy back their own stocks or acquire other companies to boost their own
stock prices.
However,
prolonged period of low interest rate will damage the economy. Japan is one
example.
·
Folks including retirees, who depend on fix
incomes, will suffer.
·
Dividend stocks will prosper from investment on
bonds moving to stocks until interest rate starts moving up.
·
Eventually long-term bonds will suffer big time
when interest rate moves up.
The government has to lower the rate to stimulate business, but at the same
time it cannot prolong the low rate too long.
Afterthoughts
·
As of 8/2012, the yield of 10-year Treasury Bill
is about 1.75%, the lowest in my recent memory.
It is better to keep cash now than CDs, so we do not miss any
opportunity to move back to equity.
·
Today, we’ve the lowest interest rate in memory
but we’re still in a recession; the Fed is running out of tools to improve the
economy.
105 Inflation and deflation
The historical annual average is
about 3% inflation.
CPI
is not a good gauge any more after energy and food have not been included.
Inflation is:
·
An invisible tax to the rich.
·
A strategy to lessen the loan burden. To
illustrate, your loan of $1 can buy a loaf of bread now, and you will pay back
the $1 plus negligible interest that can buy only half a loaf of bread due to
inflation. China is the loser and the USA is the winner in this deal as of 2013.
·
An invisible salary cut.
·
An invisible cut to your entitlements/welfare.
Social security is supposed to be adjusted to
CPI, which
can be manipulated by the government by not using food and energy to reduce
social security payment increases.
·
An invisible cut to your investment incomes
(dividends and appreciation).
Deflation is no angel:
However, deflation is far worse than inflation to the economy. When the company
produces a product and finds out they have to sell it for less due to
deflation, then their profit would be cut and they might need to lay off
employees.
To illustrate, a manufacturer of making
phones calculates all costs including the component costs to calculate the expected
sell price. If the cost is too high or the profit too low, he would skip the
project.
Deflation would destroy all financial
institutions. It makes all their collaterals on all loans less valuable and the
borrowers may give up their collaterals as they’re worth less.
Inflation and deflation at the same time
As
of 6/2013, we have both inflation and deflation at the same time for several
years now.
We have inflation in most of our basic necessities: food,
gasoline and heat (especially important for the NE) with the exception of rent
due to the depressed house prices. Electronic stuffs and PCs are deflated
considering how much we can buy today vs. last year. Cars have been slightly
deflated when figuring in the extra features.
Outlook
The government should ensure inflation and deflation within
an acceptable range (3% to me). It has printed a lot of money and lower
interest rate to stimulate the economy. At the same time inflation has been
accelerated in many sectors. When the economy does not improve, the government
has run out of tools to improve our depressed economy.
However, the shale energy beside time would cure all
problems. When the economy improves, the inflation and the interest rate would
most likely increase. Oil price depends on supply and demand. The poor economy
will decrease the supply and hence the oil price would be depressed.
Afterthoughts
·
The dollar has lost more than 90% since the FED
was created due to inflation. However, it only affects you if you save your
cash under the pillow. Our capitalism system punishes those who do not invest
and take risk. If you invest in long-term CDs, you’re doing barely OK. If you
buy any stock such as Edison’s new venture or a piece of real estate in your town
in 1913, most likely it beats inflation by a good margin and Uncle Sam would be
glad to share your fortune.
·
From my personal experiences.
The Big Mac
Value Meal cost about $1 in 1970 and now it costs $7, 7 times in 40 years.
An average
house in my hometown in 1980 cost $45,000, and now it costs $450,000, 10 times
in about 30 years.
Houses in most
cases are better deals. Besides paying the tax-deductible property tax and
interest, we can live in them.
The $10,000
under my pillow in 1980 has no gain today, but it gives me a headache every
time I sleep on it. J
·
A bag of 10.5 ounce
Lays potato ships is $4.29, and the next day it was downsized it to 9.5 ounces.
All items in the grocery store are just like that. The millionaires have no
complaint as their stocks (as of 6/2013) have been up since 2008.
·
For those who have jobs, you have a deflation
when your same income can buy you more of your basic supplies / services than
last year with the exception of food and gasoline as in 2013.
Investors' investments
are beating the inflation from last several years. The wealth gap is widened
between the middle class and the rich.
Five years ago, the gas price is less than $2 and now it is over $3
[Update: $2 as of 1/2015]. We still have high unemployment and high
under-employment. Most recent college graduates cannot find jobs or jobs in
their choice. It happens all over the world.
·
Inflation is controlled by the government
via the rate of money being printed and / or easing credit. When we have more
money chasing the same quantity of products / services, we have to pay more for
them or we call it inflation. In shorter term, it may be distorted by other
events such as the deteriorating housing prices. With excessive printing, I see
hyperinflation in the coming years.
·
Inflation is rising.
Labor
We have to divide it into two
categories: labor that can't be outsourced and labor that can be.
Labor outsourced to China (your iPhone for example) and India is
still relatively cheap.
Labor in the US like flipping burgers, fixing your
plumbing problems, or your telephone services will be increased in cost. If
they are not, they will be manipulated by the government via welfare (we pay
for them via our taxes) or the unions. A worker at Burger King cannot survive without
government subsidy or family largesse.
Commodities
All commodities including farm
land will increase in value due to:
a.
Supply and demand -
the net growth of population is rising but it is offset by the poor economy.
b.
Excessive printing of
money. You will be able to buy half a loaf of bread with the dollar that used
to buy you the full loaf.
·
My official definition of Fed in my joke book.
Fed is an agency to the government, or more like a (selected)
mistress to the president. The two are not officially related. But, they're on
the same bed most of the day.
I worked there. Unfortunately I did not climb the corporate
ladder all the way otherwise we do not have this economic mess. Same reason the
Celtics lose as they did not recruit me J.
A good economy has to be
supported by an educated workforce. We still have the best higher education
system in both quantity and quality. Our
pre-college
education is failing with a high percent of dropouts.
When you find out your store under
charged you by $1, do you go back to pay them back?
I do not go back all the way to give it back for two
reasons:
1.
The store has cheated
me before intentionally or unintentionally, so it breaks even.
2.
We also need to teach our children to conserve energy. J
Despite the above reasons, I’ll go back to set up an
example for my children. The primary problem with our education system is
education should start at home. No matter how much money you throw into the
system, it will not work if the students do not want to learn. With so many
single-parent and teenage-mother families, I do not see a bright future.
It happens all the time that you have a convict and a
doctor in the same class as indicated by this video.
It proves my point again that education should start at home.
Some of our discrimination and biases are passed to our
children unknowingly. That will hurt them eventually. Be careful what we talk /
act in front of our children.
Education by example is the most powerful and most
effective, but unfortunately it is the most neglected. It is about time for the
politicians resolve our root problems NOT by throwing our money (not their
money) recklessly at the problem. Everyone with a first grade education can
write a check and we do not pay our leaders to write checks.
We need to limit the generous welfare
for teenage mothers and preach family value to stop the vicious cycle.
Afterthoughts
This short article attracted a
lot of feedbacks.
·
My elementary class in Hong Kong of 45 students
produced one world-known chef, one movie director, one MIT Ph.D., one
pharmacist, one doctor… I am the under achiever. Our teachers were not from
Hong Kong University (the best there). The incentive to learn is simple: If you
do not study hard, you will be a nobody. No one will bail you out. Our average
class size is 45, so do not use class size as another excuse.
·
We need to select college trainings in the
fields that the society or the corporations need. It is a luxury to take a
major you’re interested in but is not demanded by the society. I did not have
that luxury. However, even though I could not speak English well, I managed to
start a professional job as a programmer while some college graduates with
perfect English Xeroxed manuals for me.
·
The problem of many high school students is the
loss of respect for their teachers. You cannot learn from someone you do not
respect. I feel bad for the teachers in many urban cities as your lives could
be at risk every day and many lose their initial enthusiasm to teach after they
face their cruel reality.
My friend Norman added:
My wife taught reform school in Richmond and was
threatened several times. Once the girls
in her food service class grabbed her and held a pair of scissors to her throat.
·
The U.S. college
education is a big export. It does not seem to be counted in our GDP and it
should be. In addition to the highly–qualified professors, we have the best
research (both on equipment, procedures and systems).
The landscape has been changed.
Though most professors are still born here for more than one generation, a lot
of students are foreigners and the children of the first generation of
immigrants. Our high school systems are not graduating qualified students in
the same scale as the last generation and foreign countries especially Asians
are catching up and some are even passing us.
·
Some Chinese students here
are tutored by their parents on science and mathematics every night and a lot
of students in China go to tutor schools after regular school. If we do not
have the dedication and support of our parents, we cannot catch up with them.
We cannot let your children play video games or watch TV all day long.
·
'Leave no one
behind', 'Race to the top', 'No homework '... are just ideals and bear no
fruits in the real world except for the big-mouth politicians.
After our best effort to educate
the problem kids, should we still leave them to disturb the rest of the class?
China’s one-child policy gives
rise to better education of the next generation. The child is raised by two
parents and four grandparents. It is all good as long the child is not spoiled.
·
One guy who was among
the top in the unified examination for high schools in Hong Kong drove a bus to
make a statement. We need these geniuses to create more jobs such as
discovering a new drug to save many lives, not driving a bus.
·
One child plays video
game for two hours extra and one studies two hours extra every day. Do you
believe they will achieve the same in life provided the last names of them are
not Kennedy?
·
Why Mass. is rich? It
is due to the large number of high tech companies including those involved in
bio tech formed by former researchers of higher-learning institutions such as
MIT and Harvard. It proves my point that we need about .5% of geniuses to
provide jobs for the mass.
·
Robots will be
harmful to the employment of the unskilled workers. In next five years, we can
see the more replacement by the robots.
Five years ago, robots could not
do much. Now, they can do something useful from vacuum cleaners to bionic
limbs. In ten years, they can do almost everything like a human being except
one task (i.e. reproduce but they can assemble robots).
Robots are still expensive for many
jobs today. To illustrate, Apple can assemble thousands of workers to
manufacture a new product in China. They cannot have that large number of
robots and program them in a short time.
·
Non-correlation of
education and the economy.
Brazil’s booming economy (due to high natural resources including
oil) can benefit more with better education and harder working citizens. The
education is lacking in Brazil. It gives rise to corruption and widens the
wealth gap.
Brazil is one of the major countries participating in today’s
globalization. When China slows down, Brazil will feel the pain too.
Philippines has the opposite problem. It has a lot of college
graduates working at factories. The economy does not support enough
professionals. The poor economy is due to lack of natural resources, long-term
corruption, poor governance, etc.
Hong Kongers hire nurses and teachers from Philippines to be
their household servants. It appears to be inequality, but actually it reduces
inequality by providing them the best jobs they can find.
Links
·
Stuffs
that college do not teach.
·
Click
here
for more Afterthoughts.
### Tips
###
·
You need to know both
value investing and the basic technical analysis to be successful in today’s
market.
·
Buy in fears and sell
in greed instead of the other way round.
·
An inflated sector
will return to the average value.
·
Be conservative and
diversified. The turtles are always the winners in the long run.
As of 2013, the government’s job plan has the basic problem:
spend, spend and spend without worrying about where the money comes from. It
does create some jobs but at a huge expense. The problems are:
·
Pass our loan burden to our children and
grandchildren.
·
Will have high inflation (not now due to the
deflated prices of houses). However, judging from the price of gold and most
items in the super market, we already have inflation. Inflation is an invisible
tax to the rich.
·
Will raise our debt ceiling and hence it will
harm the economy in the long run.
·
Do not spend wisely.
To illustrate, education starts at home, not at school. With high
drop out of poor
students (unfortunately more from minorities today) who will be the majority,
we do not have a future. Instead, we should limit the number of single parent
families. This is one example among many.
·
Creating more government jobs is not a good way
to boost employment. We should calculate the actual cost of each job created.
We can learn from Greece before it is too late. Now Greece has to cut half of
the government employees and half of their salaries when the country is heading
to bankruptcy.
·
The most you can save is ending the current two
wars.
Check how many billions of dollars we can save a month
without the two wars. We really need to fix our economy and unemployment first.
We cannot afford the two wars and any future war. Even with the mightiest army
on earth, we're really a paper tiger if we cannot fix our internal problems
such as employment. It is similar when Mao told his starving citizens that
they're #1 on earth; they could cover the eyes and minds with dumb nationalism
but not the stomach.
We have given too much to foreign countries. Helping the
desperate poor is fine, but not buying influence in foreign lands to corrupt
officials.
·
All of us ought to bite the bullet by increasing
taxes across the board and decreasing welfare / entitlements. They are not
popular to voters, but they will be the most simple and effective solution to a
complicated problem. However, we need to implement them gradually so it will
not prolong the recession.
Obama is a good communicator but
he should have acted far earlier to solve our economy problem that was created
by the previous president. It is obvious that Obama is buying votes for the
2012 election to satisfy everyone. It would be the same for any president. They
all play with the rules of the game. We need to change the rules and make their
objectives for longer term.
We elect our leaders, so we have to blame ourselves too. The major flaw in our
political system is the election every four years. Our leaders plan for four
years and not for the longer term. We've more poor citizens than the rich citizens,
but each has one vote. After they've been elected, they have to pay back to the
special interest groups who have funded their campaigns. That's why our
democratic system could lead to corruption, American style.
Politicians have to watch out for the benefits / welfare of the poor in order
to buy votes. The rich will migrate to other countries with fewer taxes. So are
the corporations moving jobs, investments and the headquarters to foreign
countries where business environments are more favorable.
Afterthoughts
·
Unemployment should be a temporary safety net.
When the unemployment benefits are extended, the incentive to look for jobs is
also decreased. Many have given up
looking for jobs after trying their best.
·
Why should you work if it means you would lose
all the generous benefits such as the free health care, food stamps, housing
subsidies…?
·
We really have more than the official 8%
unemployment if we count how many of our own friends/relatives are still
employed or under employed. 5% is the employment rate for the U.S. for ‘full
employment’ and 3% for Hong Kong. The discrepancy could be due to the more
generous welfare system in the U.S and the different cultures. Some poor countries do not even have unemployment
benefit: If they do not work, they starve.
·
Many are under-employed and they’re not counted
as unemployed. To illustrate, an ex-manager flips hamburgers at McDonald’s
making a fraction of his previous salary.
·
As of 5/2013, ObamaCare will decrease jobs in
small businesses. The owners do not want to hire full-time employees as they do
not know how ObamaCare will impact their businesses. Most likely it will
require them to conform to the new laws that require businesses that hire over
a specified number (say 50) of employees
to pay a good portion of the health insurance premium for full-time employees
(could be defined as working more than 30 hours per week). The solution is not to punish the employer
and reduce the cost of health care delivery.
·
IPOs for local companies usually mean jobs. When
we see a lot of IPOs in the U.S., we can predict the employment is recovering.
·
Globalization changes
all the traditional, conventional wisdom.
Most larger companies are global companies. Corporations
find the best workers anywhere in the world at the least cost. Typically the US, EU and Japan design the high-valued products
and their products are assembled in foreign lands where they can find cheaper,
better and more flexible labor.
·
The world is smaller right before our eyes. This
year the Miss America is of Indian decent and the winner of America Got Talent
is from Japan. Like it or not, it is the by-product of globalization.
108 Aging global population
My view on the global demographics is quite different from most.
I wrote this article after reading a professor’s article suggesting that India
will take over China due to a younger and larger population.
The aging of
the global population is due to the proliferation of baby boomers after WW2.
·
India will suffer
from the population explosion despite the abundance of younger citizens.
They will eat up all the limited
food and consume most of its limited natural resources. They will run out of
water in 100 years which is also controlled by China as more water will be directed to the north of Tibet. There are too many problems in India that
cannot be resolved easily. There is no bright future for India this decade. I
wish I were wrong as a poor India would affect the rest of the world.
They classify themselves literate
if they can write their name in any language compared to 1,500 Chinese
characters for China. Chinese have nine years of compulsory education. These
statistics are just being manipulated.
The brain drain is alarming as the most privileged /
educated do not want to wait for India’s infrastructure, its economy and
its governance to be fixed.
I hope rich countries like the U.S. will not take too many
doctors / nurses from poor countries such as India as we’re doing now. This is
the worst disservice to a poor country. We deprive thousands from medical care
for each doctor we import. Why do we send our doctors to help the poor while we
take their doctors? It just does not make sense. There should be more foreign
aid allocated to medical training to poor countries.
Just compare the sub way system and the number of
high-rises in India to any Tier 3 city in China. The top Indian city just built
its sub way recently in 2011 while Hong Kong has developed into a modern
metropolitan with a modern and extensive sub way system many years ago. As of
2012, more than half of India’s population lives in less than $2.50 a day (the
UN definition of poverty is $2.50 / day).
India has to understand its
problems first before they can fix them. It has to fight inefficiency,
corruption (partly due to inefficiency) and protectionism (to improve quality
and encourage foreign investment).
Copying China’s model is a good
idea. China’s model is to create specific economic zones close to a port with
the essential infrastructure for that area. You need to build infrastructure
like highway, electricity… for that area first. It should target its products first
to the foreign market and then include the home market. So far, India fails to
do so.
The 2011 Indian Kolkata airport has limited road
access while the 1980 Hong Kong airport is supported by extensive suspension
bridges. Without the road access support, any airport would not be world-class
as demonstrated by all major airports in the world. Documentaries on both
projects are available from Netflix.
Some told me it could be old, wealthy families controls
India's economy and they do not want changes. I argue the opposite is true.
Expensive projects usually allow the corrupt rich and the local governments to
steal money.
·
China still has
plenty of cheap labor.
Cheap labor will be minor but
education will be important as they need to move up to the next level of
industrialization with higher-value products.
China is already there in many areas.
China has its own problems, and plenty of them, but
demographics is not the major one. Corruption, governance, pollution and gender
imbalance are many among many others.
Click this link
http://bit.ly/ybAnoW to compare India and China.
·
Russia and Brazil
still thrive on commodities and oil as long as global economy grows.
Russians fit my Coconut Theory.
They become lazier (and more intoxicated with Vodka J)
as the economy continually grows from its wealth of natural resources. As long
as the global economy is humming, there are demands for these resources, and
vice versa.
·
Africa and some S.
American countries.
The explosive population will
bring miseries to their worlds. There will be more wars for food and life
expectancies are already very low. The citizens will migrate legally and
illegally to richer countries like the U.S. for a better living.
If the farming technology to produce
more food with less farm land did not improve drastically over the last 50
years, the world's supply of food now would not meet the demand. As 2012
closes, there are higher food prices due to the floods and droughts all over
the world. It will continually be rougher for the poor countries who do not
afford to pay for it. The richer China is taking a lot of food from the poor
African countries even China is helping many African countries to extract their
natural resources. Education and public
health will be the key factors for this decade for Africans from the current
Ebola breakout.
·
The U.S.
In 2023, the U.S. may look like Japan
is today as most developed countries whose populations shrunk to below zero
growth. However, the U.S.'s black and Hispanics have a higher fertility rate
and the U.S. has more immigrants than all other countries combined. The U.S.
will have its different problems / advantages as below.
Most new immigrants are qualified
Indians and Chinese who come for a better life for themselves and their
children.
Today our minorities will become the majority
tomorrow. If you look at their high school dropout rate, social welfare
recipient percent, prisoner percent, etc., we do not have a bright future.
There will be more political leaders from these groups as we usually vote for
politicians that belong to the same race as ours. These are facts and it might
be offensive to you if you're a minority.
When we do not have jobs for
everyone, a large population is a big burden. We have recent college graduates
begging for any job for years, lines for unemployment and welfare offices are
getting longer. With our high unemployment, why we encourage illegal aliens to
come here for jobs and welfare is beyond my comprehension.
The brightest future for us is
agriculture and its demand from many countries grows by leaps and bounds. The
other is American culture, like movies and music since English is, and will be,
the most popular language. The recent discoveries in shale gas and oil are very
promising. Military weapons are a big seller that I do not think it is good for
the rest of the world.
Starting in 2012, the baby boomers
(those who were born after the WW2) start to retire. Hence, we will have about
20 years of increased entitlements such as Social Security considering the
average life expectancy of about 82 years.
Now we should have a boom in the health care delivery industry.
·
Japan.
Japan does not have a lot of
natural resources, and the educated citizen is their most important resource.
Japan will suffer the most due to her aging population. However, most of us
will still drive a car from a Japanese company, play video game on Wii or
PlayStation… Its competitors (now Korea and later China) will share these
markets. Japan will continue its lost decades to another decade. Depreciating
its currency further stimulates its export at least in the short term.
‘Improving’ the economy at the expense of the well-being of its citizens is a
fool’s game. Japan is running out of tools to fix its problem that has been
over two decades old.
Conclusion
Investors should look at the sectors that will be benefitted from
the aging population for the next 20 years. They are health care delivery,
medical equipment, drugs, elderly housing and all sectors that cater to this
growing age group.
Afterthoughts
Links
Water re-directed.
Ted Talk.
Unions
protect the working class from being exploited. Today unions reduce our
competitive edge by setting up higher compensation. Globalization weakens the
power of the union by moving some of our jobs to other countries such as China
and Mexico. We have to define two classes of jobs: jobs that can be outsourced
and jobs that cannot be. Some unions are more effective in the latter category
such as climbing up telephone poles. Few mayors in big cities are elected
without the approval of the local police union, and hence some are politically
powerful.
Hostess's
fall is a bad day for capitalism, at least our style of capitalism. There is
too much blame to go around:
·
First, the management (and
the hedge fund managers) did not update their products to meet the trend of the
market.
·
Unions are out-of-touch. If
your patient is dying, you do not want to shake him hard. You need to have plan
B when you're bluffing. All in with bad cards is just dumb.
They're the parasites and they will die too when their host
(hostess in our case) is dead. The dream of owning the company will remain to
be a dream that they never want to wake up from.
·
The workers are really dumb
to let their master manipulate them until they lose out big time. Do you think
you can protest and win in this kind of economy and the shaky state of the
company? Another common sense.
·
The politicians will not
bail them out especially it is long past the election. This time they cannot
buy votes by blaming China, as these jobs can't be outsourced (unless you want
to buy your Wonder bread shipped from China). Hence, even if it were before the
election, the government will not bail you out on the ground of ‘too delicious
to fall’.
It is a
lose-lose-lose (management-unions-workers) situation and only stupid folks will
get into this situation.
Last Saturday, a television commenter
suggested legalizing illegal aliens and moving them to Detroit as that has
worked well before in several other American cities.
I totally
disagree with that notion. Instead we should ask the able poor to work and take
less welfare benefits to encourage businesses to move in and provide jobs.
In addition,
the city has to concentrate on education to provide an educated work force. It
does not take a genius on how to lure back businesses. If I open a business at
the constant threat of being burned down or being robbed, I do not open a
business there.
We also have
to train the unemployed for jobs that are needed
by the society. Investing in education is productive, while giving out welfare
is not. It is a balancing act by the city administrators.
Unions and
generous welfare will work in the short-term for a specific group of the
society. In the long run, they will have opposite effects as demonstrated in
Detroit and many EU countries.
One cannot
survive by making the minimum wage in the USA. They will be subsidized with
welfare and you know we all have to pay for these benefits eventually. We need
to encourage folks to work by reducing the generous social welfare that should
go to the real needy and/or serve as a temporary safety net.
In Mass., the
system takes away free health care when the income is above a specific level.
It does not encourage the poor to work.
There are too
many frauds in our welfare system. We should take care of our citizens first
before we take in more immigrants who compete for the limited jobs available.
In addition,
when they are legalized, do you think they are stupid enough to work when receiving
welfare is a better deal? The newly legalized will help their immediate
families to immigrate and further burden our welfare system. At one time folks
came in to work for jobs that we do not want or we do not have the skills.
Today, some new immigrants ask for the closest welfare office on
the first day they arrive, or where is the closest hospital to give birth to a
USA citizen baby free of charge. Taiwan has a book titled “How to Retire Rich in the USA with No
Money and No Effort” from my memory. The objective is seeking an easy life
without work in the land of generous welfare; the rest of the world calls us
suckers!
Many Vietnamese refugees cheat on welfare. I do not blame them
considering the miseries they went thru. Most of them were government employees
(servants and soldiers) and Chinese merchants. Most are educated, hard-working
folks with tough experiences. In just one short generation, you do not find too
many of them collecting welfare and most become respectable citizens.
The
commentator went further to address corporate welfare – that is a tired and
worn argument. If corporate welfare is better administered with the objective
to benefit the entire society, it will help everyone by providing jobs. Why we
bail out banks while their CEOs enjoy generous bonuses? Bailing out everyone is
not beneficial to the society.
The able poor
have to work and be productive. Even many 65-year old women in China still take
care of the children to contribute their services to the society. Watching TV
all day and tuning up motor bikes will not.
Has the
welfare gap increased recently? Yes at least from 2008; it is due to the
recovery of the stock market.
Afterthoughts
·
The welfare department
and the immigration department do not sleep on the same bed. I wonder why the
welfare officer does not check whether the applicant is legal or not. We have
an illegal alien in Boston sued the employer successfully for not paying
minimum wages.
·
A 25 year old with 9 children received more than
100,000 per year without working. It is the best
get-rich
scheme and a best-kept secret. Social security contributes about $8,850 per
month for each recipient in the family.
Take out your
political eye glasses and decide whether it is true or not. I did not write
this article. It was distributed to me. I hope it is an exception.
·
I debated whether
this article should be included in a book on investing. Generous welfare
benefits dampen our capitalist economy which eventually weighs down the economy
and the stock market.
·
Another subject of
debate is whether education improves employment as many college graduates have
been unemployed or under-employed for years. A city with well-educated citizens
usually has lower crime rates, which is a prime consideration for businesses.
Judging from bailing out big
businesses that are too big to fall, the government seems to be pro-business.
It is good for political campaigns to lay off fewer employees, but it is not
good for the economy in the long run.
The government is not pro-business
with high taxes and regulations
·
Some suggest to
raising the minimum wage higher and even to the maximum wage. Sounds like
communism to me.
·
Sam sent me this article comparing work and welfare.
The authors found that in 11
states, “welfare pays more than the average pretax first-year wage for a
teacher [in those states]. In 39 states, it pays more than the starting wage
for a secretary. And, in the three most generous states a person on welfare can
take home more money than an entry-level computer programmer.”
·
The USA citizens can
be divided into 3 groups according to taxes they’re paying:
1.
About 40% not paying
Federal tax. When this group grows, we will bankrupt. Representation without
taxation is worse than taxation without representation.
2.
Middle class. We're
being squeezed by the other two groups.
3.
The rich 5%. They pay
most of the taxes. However, in the last two years, they're fleeing to other
places that have low tax treatments. The geese that lay the golden eggs are
flying away. Without them, we're squeezed even harder until we’re forced to
move to the first group and bankrupt the country.
ObamaCare will have an impact on
businesses. Large businesses will gain an edge over small businesses unless
there will be subsidy and that will add to our deficit. Small businesses will
suffer with several side effects:
·
They will work around from the requirements of
forced health care insurance by limiting the number of hours of an employee and
the number of employees.
·
Most of the new ventures are seeded from money
from their home equity loans. With falling home prices, they will have less new
businesses. The banks already have more restrictions in loaning money since 2007.
Most proposals on health care
delivery do not care about how to cut down costs, and how to make it fair and
practical. We need to know how to pay for it first, how much, and the
consequences to businesses and employment. My proposal and comments:
1. Basic
treatments for all.
Better coverage is paid by an individual. We should
encourage folks to work hard and there is no more free lunch. It is abnormal
for the poor to have free health care while the middle class do not enjoy the
same. The poor in Mass. receive free health care. I hesitate to go as I have to
pay even after the insurance.
2. Fair
regulation for nursing home.
Those with low incomes and/or those without a house
most likely can receive free nursing home care, free drugs and free doctor
visits in most states such as Mass. Those in borderline qualify for the free
nursing home care by giving their houses to their children, hiding their
incomes and/or just quit working. They are lazy and not stupid.
The government should spend an agreed percentage of the GDP on public
health care. We can use the average percent from developed countries or let the
voters decide. We cannot ignore other spending such as education or let the
budget unbalanced irresponsibly.
When we over spend on any entitlement, there needs to be a corresponding hike
in taxes. High taxes reduce the United
States’ global competitiveness and lead to further unemployment.
3. Prevention:
Voluntary and non-voluntary (via taxes) on smoking, fast food, soda, etc. It is
fair for the citizens to take care of their own health. You can select to live
recklessly in unhealthy life style, but the rest of us should not be burdened
with your bad habit. In his book The China Study, Dr. Campbell recommends a
whole food, plant-based diet that would reduce a lot of diseases.
When we ban smoking totally, many hospitals ought to free up many resources. In
addition, the second-hand smoke kills too. Why should we die for your bad
behavior? The children of parents with drug problems have higher chance of
birth defeat and problems than the average.
4. Limit
lawsuit award on malpractice.
Our health care cost is being jacked up partly due to the legal expenses.
Most do not realize these lawsuit awards will pass back to us. It is also the
reason why the doctor would hesitate to care for us when we fall and lie on the
street or why our clinical charges are so high.
5. State-of-the-art
treatments are less effective than prevention such as a low-dosage aspirin for
all over 50 years of age and the routine shots for babies / children. Aspirin
is the miracle drug that is hated by all drug companies due to the low profit
margin.
6. Outsourcing
the expensive treatments to foreign countries and drug development / clinical
tests.
Our
costs are outrageously high. Try some Caribbean countries, Thailand or
Shanghai. The money we save pays for a free vacation, not mentioning the free
massage every day for the entire trip in Thailand. Many Caribbean countries
offer same dentistry services at half the cost here.
This is a temporary solution until we solve our high cost problem.
7. Cut
down the expensive drug marketing (such as giving money / goodies to doctors).
Personally I know doctors receiving free golf trips to the most expensive golf
courses for the entire family. They also got unlimited lobsters in medical
conventions in Boston. Should doctors receive the 'lecture fees' giving phony
lectures or sales pitches in return of recommending the drugs or prescribing
them to their patients?
Guess who end up paying for all these goodies eventually?
8. Stop
the illegal aliens and foreigners from using our medical systems free.
Their employers or the patients should pay for their expenses. It is nice
to help the rest of the world, but we do not have money to do so now.
Emergency room is the most expensive delivery method and its usage has been
abused.
9. Before
we send soldiers abroad or explore space (both have some merits but the average
citizen does not benefit from these ventures), should we solve our home
problems such as health care first? Get our priority straight.
10. The
average last two years of one's life would be the most expensive health care
cost. Many do not want to live through pains and sufferings. Should we let them
pass away in peace if they want to?
11. Stem
cell research has proven to be promising.
We should not let our politicians dictate the policy
for religious reasons. The desperate will go to foreign countries to receive
the riskiest treatments anyway. Why let them know their risk and do the
treatments here in a better environment?
12. Stop
all the insurance and Medicare frauds. If you spend $10,000 on inspectors and
get back $1 million, it is a great investment. Whistle blowing is the most
efficient way to prosecute violators. Each successful prosecution warns
millions of potential violators.
13. Importing
foreign doctors and nurses is the worst we can do to a poor country.
These
foreigners are seeking a better economic life for themselves, but forget their
original purpose of seeking these noble professions. Why we send aids to these
poor countries and steal their medical resources?
Afterthoughts
Finally we have a national health
care system. Give it a chance to succeed. Have to give credit to Obama to start
ObamaCare in a recession.
Roughly we spend double the
average developed country on health care per capita but our health care system
is rated as average.
A joke on outsourcing our medical delivery to China:
The hurting patient pleaded
painfully to the outsourced doctor to get him someone who could speak English.
The doctor said, “If I not English, what language I talking?
Oil will not run out at least in
our generation especially with the new-found shale energy. However,
peak oil has come and passed.
The easy oil (closer to the surface and lighter) is getting scarcer. The heavy
oil, the oil from the ocean and the shale oil (depending on the region) are
more expensive to extract.
As of 1/2015, the fair price of
oil to me is $85 (down from $95 two years ago). It is due to the abundance of
shale oil and the slow demand in a poor global economy. When the production
cost is over $80 (today it is about $65), it will not be profitable for many
productions (the difference of $5 is for profit).
As of 1/2015, there are two
camps: 1. Believe the oil price will drop below $60 (from today’s $65) and 2.
Believe the oil price will return above $80 soon.
I believe it will be back above
$80 in a year. Many operations such as from oil sand to produce oil at the
current price will not be profitable even in my optimistic prediction.
For this year, I would stay away
from drillers and explorers and I am picking up those oil companies that have
good expected P/E, low debts and have the production facilities to produce oil
at around $80 per barrel. Even with all the safety measures, they’re still
risky buy for my predicted oil price at $85. However, the potential
appreciation could be huge.
I expect there will be higher
demand due to the higher living standard in China and India, and the larger
global population. It is also higher due to the depreciation of USD and
inflation. Hence, we need to adjust its fair price every six months or so.
OPEC would like to maintain the oil price at about $100 at today's USD for
longer-term profit. Every country within OPEC has its own agenda, political
issues and economic issues and they most likely would not consistently agree on
a specific price.
However, when oil is higher than $125 for a long time in today’s dollar, the
alternative energies will be more feasible economically and conservation
becomes more important. If oil price is a run-away to $150, we'll have another
recession and that would bring the price back to the normal range. Economy
adjusts the oil price to some extent and sometimes works better than OPEC.
Oil price has been fluctuating a lot in the last five years. It is purely due
to speculation. The ease of money should cause inflation and inflates the oil
price in particular. QE2 played a role, and so would be QEn if it will be
materialized. The current restrictions in speculating commodities reduce the
speculating on oil and could be the reason why oil price drops even with better
economic outlook.
I do not trade oil unless it is
priced to either extreme. When it was $35 per barrel, it was time to buy. When
it was $140, it was time to sell. Adjust the numbers to today’s dollar. It is
an example of “Buy Low and Sell High”. As of 1/2013, for the past 10 years, oil
has an annualized return of 2.6% while inflation is 2.4%. The average return is negative after taxes
and inflation. Unless you’ve a keen eye on oil, do not speculate on it. If you
do, try the ETF Oil.
The biggest threat on oil and its
producing countries is shale energy. From my prediction on 2/2013, oil price
would rise until the shale energy will solve its extraction and transportation
problems. At that time, oil prices would be under $100 in today’s dollar for
years to come [as of 1/2015, the oil price is about $65].
Retail
investors should stick on fundamentals: Buy low and sell high.
Afterthoughts
·
I recommended buying oil (OIL as an ETF) in
Fool's Mountain blog when oil was $35 per barrel. It was common sense and I do
not expect that low price again.
·
The real competitor to oil is shale gas and the
shale oil. The U.S. has found enough to supply the country for the next 50
years. We have to see how the events such as pipeline construction and
environment damages are being developed.
·
Some believe all the US interventions in the
Middle East, including the recent turmoil in N. Africa and the counter attacks,
are due to oil and its transportation to the U.S. At one time we only enforced
no-fly zone on countries that have oil. If so, shame on us. If it is the modern
Crusade, shame on us in misinterpreting religions’ preaching and the Congress
which is controlled by Israel.
If we have enough shale oil and shale gas, we do not
need to protect the oil route and we should have a peaceful world.
·
Oil prices are moved short term by traders, midterm
by expectation and longer term by supply and demand.
·
GLD is an ETF similar to OIL with a different
commodity. I wonder where they store the physical gold for GLD. Most likely
they use derivatives. If so, it reminds of the derivatives created by Lehman
Brothers.
·
The price of every commodity is defined by
supply and demand. When the global economy improves, prices of most industrial
commodities will increase.
·
The impact of China due to the improvement of
their economy cannot be ignored. It will drive up the demand of most commodities
– India to a smaller extent. Per capita wise, they still use far less
commodities than the U.S. citizens after deducting the resources to build
trinkets for export. However, their population is about 4 times larger than the
U.S.
·
To summarize as of 6/2013, commodities prices are affected by 2 major factors:
1. The USD. If we use a basket of commodities to measure
the value of USD. A decrease in value of the USD will increase the commodities
prices. The USD has been in a temporary peak.
2. Supply and demand. With poor global economies and the
slowing down of China's internal growth (infrastructure and building...), the
demand of industrial and construction commodities are decreasing and so are the
prices. However, the US housing market is starting to boom (it could be a
mirage and/or due to the shrinking inventory).
There are many other minor factors such as speculation...
Oil is a fair price range and is affected by the above 2
factors.
·
Unimaginable not too long ago, the U.S. will be
the largest energy producer by 2017, according to IEA, but a net exporter by
2030 and energy independent by 2035.
Links
Click
here
for a similar article.
Direction indicator of
gold price.http://seekingalpha.com/article/2374965-8-indicators-that-tell-us-where-gold-might-go-next
There are many articles on both camps predicting the oil
price in SeekingAlpha.com. Here is
one.
Most authors reveal a statement
first and then illustrate with examples to substantiate that statement. Hence,
such writers are always right. I am doing something just the opposite in this
article. In analyzing what coal stocks to buy (the example) and you help me to
verify the bottom for coal stocks (the statement).
This process has its risks, as I
try to emphasize that investing is a prediction, which will not be 100%
certainty. However, the better educated
the guesses are, the better chances the predictions will be materialized. Even
if that prediction is wrong, there is nothing wrong with the logic here.
Actually the recommended stocks
should be bought in the future as it may not be the bottom today (7/4/13).
Confusing? Read on.
Several articles convince me that
commodity especially coal should be close to the bottom. Here are the links to
these articles. That’s the reason why you want to read economic news to take
advantage of any new opportunity.
1. The
coming
rebound
of coal and coal stocks.
2. A
credit
analysis
of coal mining companies.
Is the bottom near for commodities?
For the last three years, the
bottoms of coals stocks have been predicted several times. Nevertheless the
coal stocks went up temporarily and then continued its bearish trend. Many coal
companies could go bankrupt. I bet most of them will not and offer one of the
best appreciation potential, but I do not go that far to proclaim it is one of
the best deals in our generation.
Many experts believe natural gas
would replace coal to generate electricity. The impact of natural gas will be
even clearer by 2016. That may be true in the USA, but not in
China
and many countries. Even with all the nuclear generators on-line in ten years
(2023), China will still depend on coal to generate more than 60% of its
electricity.
The following tables may not look good on small screens. You
can enter the link below to display it on a larger screen of your PC.
The stocks
I include 15 stocks and one ETF
for analysis. After the initial analysis, I classify them into the following
groups.
|
Coal
|
Gold miner ETF
|
General Mining
|
Steel
|
Petroleum
w Nat Gas
|
No.
|
11
|
1
|
1
|
1
|
2
|
Stock
|
ACI,ANR,ARLP,
BTU,CLD,CNX,
JRCC,NRP,
WLB,WLT, YZC
|
GDX
|
RIO
|
SID
|
CHK,DVN
|
Value
These stocks have very high
potential for appreciation. However, they are risky. Nothing risked, nothing
gained. Most have high debts (the average debt/equity is 133% in this group)
and their survival depends on many factors such as the prices of the
commodities. The following table concentrates on their values.
Stock
|
Price (7/4/13)
|
Forward
Yield
|
Cash
Flow
|
P/B
|
Debt/
Equity
|
P-
Score
|
ACI
|
3.69
|
-35%
|
Worst
|
.3
|
184%
|
-4
|
ANR
|
5.33
|
-75%
|
Worst
|
.2
|
70%
|
-6
|
ARLP
|
71.06
|
10%
|
Average
|
3.6
|
109%
|
8
|
BTU
|
14.86
|
3%
|
Worst
|
.8
|
126%
|
-2
|
CHK
|
20.92
|
5%
|
Worst
|
1.1
|
106%
|
1
|
CLD
|
16.19
|
5%
|
Worst
|
1.0
|
83%
|
-2
|
CNX
|
27.12
|
10%
|
Worst
|
1.6
|
81%
|
-1
|
DVN
|
53.05
|
5%
|
Worst
|
1.1
|
82%
|
-2
|
JRCC
|
1.82
|
-80%
|
Worst
|
.3
|
255%
|
-5
|
NRP
|
20.48
|
10%
|
Average
|
3.4
|
172%
|
3
|
RIO
|
40.69
|
10%
|
Average
|
1.6
|
57%
|
0
|
SID
|
2.61
|
15%
|
Worst
|
5.6
|
329%
|
2
|
WLB
|
11.4
|
5%
|
Best
|
|
|
-1
|
WLT
|
10.79
|
-35%
|
Worst
|
.5
|
276%
|
-2
|
YZC
|
7.03
|
15%
|
Best
|
.5
|
90%
|
4
|
BTU has coal mines in Australia,
which is closer to its primary customer, China. RIO has mines of different ores
all over the world. ARLP and NRP are partnerships.
If you do not want to deal with
extra effort in filing the tax returns, buy partnerships in a non-taxable
account. I have not checked out the requirements for filing tax returns for
ARLP and NRP.
GDX, an ETF for gold miners, is
not included in the above table. It has a huge non-correlation between GLD, the
ETF for gold, so I believe there is good value in gold miners. GDXJ (not
included in this article) is a similar one for junior miners, which is too
risky for me.
Most data are obtained from
finviz.com. Forward yield is my estimate and it is defined as forward E/P. Cash
Flow is based on the free site
Blue
Chip Growth. Cash Flow and Debt / Equity measure whether the company will
survive. The table does not include all the metrics. P-Score is based on my
book
Scoring
Stocks and 3 is the passing grade.
I have two scoring systems. One
is described in my book Scoring Stocks and the other one uses information from
several subscription services. In general, the two systems are quite
compatible. When the commodities are in the market bottom, the scores for these
stocks would not be good. Actually most of them do not pass (the passing grade
is 3).
YZC scores the highest and it has
the high dividend yield.
ACI and ANR though risky have the
most upside potential and both prices are less than 30% of their book values.
Risk levels
The following table summarizes
how safe are the stocks.
|
Safer
|
Middle
|
Risky
|
No.
|
3
|
6
|
7
|
Stocks
|
ARLP,NRP, YZC
|
CHK, BTU, GDX, RIO, SID, WLB
|
ACI, ANR, CLD, CNX, DVN, JRCC, WLT
|
My contradiction
I contradict myself in the
following statements.
1. I
do not trust the financial sheet of emerging countries including China.
However, when many miners are foreign companies, I do not have a good option.
2. Mining
is a sector I try to avoid.
It is extremely difficult to estimate how much ores
(sometimes a miner owns several different ores of different grades in same or
different mines) the company has; complicated by the complexities to extract
and transport them. When those costs are greater its production price, the
company will not be profitable. Understanding the market for ore futures is
another discipline.
One potential problem of mining
companies from many emerging countries is
nationalization.
Timing
Besides ARLP, NRP and YZC as of
7/4/2013, I would select the following to purchase after another analysis in
Nov. 1, 2013: CHK, BTU, GDX, RIO, SID and WLB. I would skip the worst scored
stocks, which are too risky for me but they may have the highest appreciation.
ACI and ANR are very tempting though.
Why November? Most of these
stocks have been down for the year and there is more pressure to sell them for
window dressing for fund managers in Nov. (even earlier) and for tax write-offs
for retail investors in Dec.
Technical analysis will not
detect the bottom, but the trend. When the trend is up, the risk is less but
the opportunity to buy at the bottom is gone. Today, the trends of most of
these stocks are down. I will explore whether there is a correlation of the
bottom with the percentage from the last peak.
Timing is a suggestion and you buy the stocks at your own
risk and risk tolerance.
My plunge into
commodities
I could not resist and bought two stocks from the above
list. As of 8/9/13, the performances are quite good.
Stocks
|
Buy Date
|
Return
|
Annualized return
|
BTU
|
06/24/13
|
18%
|
140%
|
GDX
|
07/15/13
|
14%
|
150%
|
FCX
|
07/31/13
|
21%
|
850%
|
DBC
|
08/08/13
|
2%
|
Too early
|
NGD
|
09/12/13
|
14%
|
Too early
|
FCX is too good a price to pass
and the insiders bought many shares. Annualized returns usually have no meaning
when the holding period is less than 30 days. The annualized return is
calculated by the formula: Return * 365 / (days between the buy date and
today’s date). For example, the
annualized return for FCX = 21% * 365 (8-9-13 minus 7-31-13). The 850% return
is not sustainable.
The return of DBC, an ETF for
commodities, is tracked today 8/12/13.
The above are actual and verifiable trades from my largest account. NGD,
a gold miner, is added most recently and the return is calculated on 9/18/2013.
[Update: as of 9/6/13, the
returns are: 20% for BTU, 21% for GDX,
8% for FCX and 5% for DBC.]
Conclusion
The coal stocks have the highest
potential for appreciation, but they are also the riskiest. By spreading out
the risk with having more than one coal stock and stay with the first group or
by purchasing an ETF on coal stocks such as KOL. The ETF included here is for
gold miners.
Catching the bottom of a sector
is risky but could be very profitable. I believe it will take at least two
years for the market to recognize the potential upside values of coal stocks.
Several of these stocks may not survive. That also depends on the impact from
the shale energy and the recovery of the economy.
Repeatedly,
we the retail investors never learn the following lessons:
1. Buy in fears and sell in greed instead of the other way round.
2. All inflated sector (and deflated sector in this case) will
return to the average value with only one or two exceptions. Gold in 2011 is
not really an exception but the USD had been depreciated.
These two lessons are the cornerstones on how bubbles are formed
/ burst and how we can profit from the bottoms of these sectors.
Afterthoughts
·
Mike said:
Thermal coal is dead for countries
like the U.S. If you want thermal coal, buy foreign, like Yanzhou Coal Mining (YZC). China is not going to give up coal anytime soon. Plus, graph
says the stock is at support http://yhoo.it/168vHaa;c= . And 7%
dividend looks attractive. Metallurgical coal, which is used in steel making,
will be what keeps coal alive in the U.S. (ANR) is a metallurgical coal miner.
·
Market Vectors Coal
ETF (KOL).
·
Bill said:
1. I like KOL as a diversified play. Having said that, I don't think
it will perform as strongly as some of the undervalued U.S. mining companies
like ANR, ACI, WLT, BTU, and CNX.
2. Coal stocks rallied
strongly from their 2009 lows to their 2011 highs while Obama was in office.
This is easy to forget. Ultimately, the political dialogue certainly has an
impact, but I think the underlying economic fundamentals are by far the most
important factor affecting the stock prices.
Domestically, I think the historically warm 2011/2012 winter in
the U.S., which was a short-term event, dramatically impacted the perception
surrounding both coal and natural gas. It "amplified" fears and
hopes. As inventories for both natural gas and coal normalize, which they have
largely done, I think we will get a better view of both industries.
·
I wrote an
article on
Rare Earth that was quite ahead of its time then. Most information is still
valid.
This
article
was published in Seeking Alpha.
Links
Finviz:
Scoring stocks:
Blue Chip Growth:
China and coal:
From Wikipedia.
No peak for China.
Clean coal technology.
Carbon capture and higher efficient turbine.
Coal and the US policy.
Updated information on specific companies:
To illustrate, bring up SeekingAlpha.com and enter BTU.
There should be several recent articles on BTU.
Here is one of the many articles on BTU.
There are two
sectors (housing and finance) that caused the financial crisis in 2007 (or 2008
for some). We should reenter the housing market via technical analysis (TA) and
via fundamental analysis.
Technical Analysis
There are two
ways to find the reenter points after 2007.
1. Use the same chart in described in TA chapter as follows. Bring
up Yahoo! And then Finance from the browser. Enter XLB, an ETF for housing
construction. Select Chart, then SMA (single moving average), and enter 350
days for reenter points (different from our usual 30, 60, 90 or 120 days).
There are 2 or 3 exit points and followed by brief reenter
points. They are noises and they do not change the final performance. The chart
is displayed on Using TA for Sectors.
2. From the Market Timing chapter, reenter the market 2 years after
the initial plunge for offending sectors (they are Finance and Construction for
2007). Assuming 10/12/07 the market starting plunging, the reenter date is
10/12/09.
The following
table summarizes the returns based on reenter points to 01/13/2014.
|
Reenter
Date
|
Return
|
Annualized
Return
|
Beat SPY
|
Chart
|
08/10/2009
|
95%
|
21%
|
15%
|
2 Year
|
10/12/2009
|
89%
|
21%
|
30%
|
The Chart
method makes more money but the annualized return is the same. However, the
‘2-Year’ strategy beats SPY 100% better than the Chart strategy.
Fundamental
analysis
Here are my
personal thoughts as of 2009. I prefer to stick with the technical analysis and
fundamental analysis is used to further analyze the housing market such as the
cities that may have better recoveries. By the time you read this article, the
information may be obsolete. Use it as a reference for future guidance.
·
Location, location,
location.
NYC does not lose a lot in housing
values. Las Vegas, many cities in Florida and sunny area does. Cities that are
going to bankrupt such as Detroit and a few cities in California are great
bargain but too risky.
A
well-maintained house in a good neighborhood at 2002 price is a good bargain
when you compare to build the same house with both increased material cost and
eventually labor cost. You may get a newer and modern house, but the location
is usually better and is less pricy.
·
Inventory still high.
We do not have a lot of building
since 2008. The inventory is very low now but some banks are still holding a
lot of foreclosed properties and properties that should be foreclosed. Some
properties are in very bad shape and they should be demolished.
·
Who drives the
housing market.
If we have a W-shaped recession and/or a lost decade
similar to Japan's, the housing recovery will take longer than two years. The
builders will be profitable if they can manage their resources and projects on
smaller houses for today’s smaller and / or less affluent families and more
elderly housing for the aging population.
One of the major forces that trigger the housing boom is
the college graduates. When they have children, it is time to buy a house. It
does not look good today as most are under-employed or unemployed with large
college loans. The U.S. economy may recover without job recovering. Many jobs
have been outsourced and most lost jobs will not return. The rosiest sector is
energy. We may have 2.5 million new jobs in this sector in 3 years. The house
prices in these selected cities skyrocket.
Are today’s houses affordable? You
can afford a house costing 2 ½ of your yearly income. I would use 3 times today
especially with the low interest rates and today’s rent alternative. As of
5/2013, the basic housing is on the cheap side for potential buyers especially
for those who are still employed and it will remain so as long as the interest
rate remains low.
Interest
rate.
The housing
market depends on interest rate more than most other industries. Low interest
rates would make housing more affordable. That’s what happened in June, 2013
when the interest rate moved up from the bottom and the housing recovery came
to a halt.
I bet the
interest rate would be less a factor when the economy is fully recovered.
·
Foreigner purchase is
the key.
On the bright side, there are
foreigners (a lot from China and some with money from questionable sources)
want to buy them in cash. Finally we encourage rich immigrants who invest in
the US. It also helps a lot of corrupt officials to escape prosecution by
buying residency in the US. Some initial purchases have lost more than 25% of
their investment, but some later ones have experienced more than 100%
return. Timing is everything!
Compared to Hong Kong and most big
cities in China, the US houses are bargains. Many cost about half a million to
buy a 500 square feet apartment in a desirable area compared to some
3000-square feet mansions (relative to 500 square feet) in Southern states.
The quality in life is far better
here in terms of air quality, water quality, food quality, education (ease to
go to colleges) and opportunities.
Most Chinese and many Asians do not buy
a house with street number 4 (pronounced ‘dead’ in Chinese) and bad Feng Shui
that many sellers in Vancouver and Toronto have found out. Cities with better
culture and well-known colleges such as Boston attract rich foreigners sending
their children there. When I was in NYC, I (and 1.3 billion Chinese) would tell
you Pam Am Building had bad Feng Shui as the road was running through the
building. There are some locations where businesses fell one after. I can
explain most are due to very bad Feng Shui. I am not superstitious, but good
Feng Shui provides a relaxing living place.
·
Is the recent
(1/2013) rise in housing stocks justified? There are two camps of opposing
arguments. Only time can tell which one is right.
For the low housing inventory and the
slowly improving economy, it could be time to buy on construction stocks and
REITs (especially the hospital REITs but not the REITs on mortgages). The
recent recovery could be temporary due to lower inventory and the interest rate
is climbing.
·
If you believe the
housing will be recovered soon and you do not want to buy specific construction
stocks, try the ETF XHB.
·
The housing market is
irrational. ‘Buy Low and Sell High’ applies here. From an economist as of
5/2013: Comparing to rents and incomes, the overall housing market is still
under-valued by about 7% from the bottom of 15%. It was over-valued by about
40% in 2006.
·
Before the takeover
of Hong Kong by China, Vancouver properties doubled in values very fast. It is
happening in some cities in the US by Chinese buyers this time. However, we do
not see this effect here as Vancouver is small compared to the entire USA. It
is a double-edged sword. The sellers are happy and the potential local buyers
are not as they have to compete with foreigners who pay more and in cash.
·
The average house has
been increased excessively since 2000. As many times in this book, excessive
valuation will bring down to the average value. Compare to Hong Kong and most
big cities in China, our houses are still underpriced.
Depending on which yardstick you're using, you get different
conclusions. The better one should be:
The average house price should not be more than three times the average
annual income.
·
I remember Uncle Ben
told us not to worry and four months later the housing market crashed. Cheat me
twice, shame on me.
·
When the economy
returns, there will be more jobs and more folks buying homes. It is good for
the housing sector. It even beats out the disadvantage of the higher interest
rate, which is no longer needed to be lowered to stimulate the economy.
On China.
Free trade
has its benefits (especially for consumers) and some minor disadvantages (fewer
jobs to our workers for example). You do not want to grow sugar cane in Alaska.
Chicken feet are delicacy in China, but they are not fit here to eat even
for our cattle.
With free
trade, we trade our excess products and products we
have knowledge to produce (such as our high tech products and movies) for
products we do not or cannot produce here economically. The companies benefit
more when the production margin is high after the development such as movies
and music recordings.
When one
country produces the best product at the least price, she is a winner and so
are the consumers of all the countries who import this product.
Apple’s
supply and manufacturing chain are good examples of the free trade in taking
advantage of the best contributions from many countries. Apple’s products are
global products: U.S.A. designs and markets, China assembles them and provides
rare earth elements, Taiwan invests and manages manufacturing, and many
countries provide specialized components. The results are excellent products
that consumers all over the world enjoy at reasonable prices.
However, we have to ensure all partners play fairly. If
China dumps products to force our shops to close and then raise prices later,
then we have to step in. However, so far it does not happen often. They do dump
some products to secure jobs. It has been a trade practice that Microsoft had
done before with its Office software when it came late to the market. Do you
remember that Microsoft gave out free software at one time by securing market
share and bankrupted their competitors?
Dumping rare
earth elements actually benefits the rest of the world. It does not benefit
China as the environmental damages are far worse than the benefits. All
developed countries ask China to continue dumping their rare earth elements,
which actually are ready to mine in many parts of the world. Why some products
dumped by China are OK and most are not? Trade policy has to be set clearly.
As the USA
subsidizes our industries with free research grants and farm loans, it is quite
hard to accuse China for doing the same. All countries subsidize industries in
one way or another. What excuses are we looking for when we cannot compete with
China?
When China or any country offers the cheapest and the best
product to us, our consumers win. In addition, when China makes money on the
low-end products, they will have money to buy our more expensive high-tech
products, jets, movies and farm products to name a few.
China loans
us money to buy its products and hence keep its workers working. The debt
obligation is less when we devalue our own currency; we pay back our loan with
depreciated dollars. By doing this the USA is actually the currency
manipulator! Will China continue to loan us money at this rate? I do not think
so at least not to be paid back in depreciating USD.
We need to limit our spending - wars by our government and
big houses by our consumers. We cannot borrow forever. China and the oil-rich
countries loan us money with their hidden agenda. The logic is so simple that
even I, who has never taken any economic class, can understand.
This article is
from the Chinese perspective.
As I stated many times, the U.S.'s wage of $20 per hour
cannot compete with the $2 per hour (no matter it is from China, India or
Vietnam).
You cannot live with the $2 per hour wage in the U.S. It is
easier and better to live on welfare with food stamp, housing subsidies, free
health care (in some states) and many other freebies, when your income is low
or $0. Our generous welfare encourages our citizens to be lazy and some cheat
on the declaration of their incomes. The disability claims excluding veterans
from the wars increase substantially in the last decade even our work
environment is far safer. It also
encourages our citizens not to save.
The solutions are (some are satires with a J):
·
Abandon industries that use low-wage labor and /
or outsource manufacturing jobs like what Apple is doing.
There is no quality problem with Apple’s products that
are outsourced to China, so it really depends on the company who outsources and
how the product quality checks are conducted. Apple is making good money,
paying taxes, hiring top earners and at the same time providing great and
affordable products to the world. As of 2012, Apple is the most valuable
company in the U.S at least for a brief period.
·
Take out the embargo of military products to
China at least on the products that China can obtain from other sources such as
Russia and some European countries. Currently, it does not serve the purpose of
preventing China from becoming a military power and we’re losing the sales.
Why should we be afraid of China when our military
might is far, far away from any country on earth? We can sell China missiles
with no fear. Just program the missiles to return to the sender when the GPS
detects it is heading to our direction. My genius idea just saves us billions
of dollars J.
·
Beg China and other countries to loan us more
money with states as collateral (by now no one is stupid enough to use the USD
and loan us without collaterals) starting with all non-Democratic states first
(according to Obama) and Washington, D.C. will be the last to sell. Just a joke
J.
As in a capitalist system, if you cannot service you loans, you have to give up
your collaterals.
·
Selling Alaska back to Russia (with Sarah J)
for oil is a no brainer. It is just like killing two birds with one stone.
Selling Hawaii is just genius like selling something we do not own. Most
properties in Hawaii are owned by Japanese and Chinese to less extent already.
If we sold NYC to China, we would make a huge, huge
capital gain. It is even more sweet if you recall we bought (cheated is a
better word) a good piece of NYC from some native Indians for trinkets. The
Indians / Eskimos were Chinese crossing the frozen strait due to losing their
direction after too many hot drinks. I have my genes to prove my theory. So, it
is same as selling to the original owner for a huge gain without paying any
taxes.
In reality, we just sell Manhattan to a casino
operator. Wall Street is the biggest legal casino. The only difference is all
the hotels are outside the casino. Sell Silicon Valley to China and the rest of
California to Mexico (similar to selling Florida to Cuba if they can pay for it).
The only place you cannot get rid of is Washington
D.C. No buyer can live with the lazy government servants and politicians
fighting each other every day to see who is on top.
It is the similar to the bankers foreclosing your
house when you cannot service your mortgage. I hope it will remain as a joke
forever.
·
Close all trades with all foreign countries but
we have to enjoy the $50 toaster that is produced by the U.S. workers! The U.S.
is one of the few nations that can close out all foreign trades and survive.
However, the movie and music industries will suffer and decline. Boeing will
have to park their shiny planes in the desert to collect sand. We will have so
much grain in storage that eventually we will have more rats than people.
·
Without the rare earths from China, our Apple
products will cost double and our missiles will cost us far more. However, it
would be good for the world as folks will use their Apple products longer and
fewer missiles will be produced.
The
chicken feet would be better thrown into ocean instead of shipping them to
China for cash.
|
SMA-50
|
SMA-200
|
SMA-
350
|
SMA50/
SMA200
|
RSI
(14)
|
Market
|
|
|
|
|
|
Peak
|
|
5%
|
9%
|
101%
|
65%
|
Bottom
|
|
-32%
|
-31%
|
78%
|
25%
|
Correction
|
|
|
|
|
|
Peak
|
4%
|
6%
|
11%
|
102%
|
65%
|
Bottom
|
-5%
|
-6%
|
-7%
|
97%
|
26%
|
Stock
|
|
|
|
|
|
Peak
|
|
|
|
|
70%
|
Bottom
|
|
|
|
|
30%
|
### Joke
###
Measure the success in one's life
Contrary to popular belief, your
success in life is not measured by how many friends or how many stocks you
have. It is measured by:
When we die, we're
smart with all toys;
dumb with all toys not upgraded (Disclosure: I've stocks on
Apple);
stupid with all money not converted to toys;
genius with all toys being shared with the poor (Gates and
Buffett).
"China as a sleeping lion whose roar would one day shake the
world." - Napoleon.
Yes, China is
roaring in this decade and the roar is getting louder and louder.
The most successful
story in the last two decades
When the USA
played the China card against Russia, it took away the embargo. Deng Xiaoping started
an economic zone to build infrastructure (electricity, road, etc.) in an
undeveloped city in South China and the rest is history. It is my Coconut Theory that when hard working folks have a chance to sell
their 'coconuts', they will prosper. Lifting millions from starving to death is
no small task. However, since China has dominated the world, except the last
three centuries, it is no surprise to me.
The Myths on China
Sam Walton was a
patriot. He preferred to make less money by not selling Chinese goods. He
estimated wrongly the profits from the Chinese products. When he died, the
company turned into stores for Chinese products making his heirs the richest
family and many of his investors millionaires.
Investors should
not follow these myths that have been spread by TV networks and even
professors.
- A TV network advocates
"Made in USA" in a series.
- A professor from a
prestigious university believed India will replace China as their
population is younger.
- A professor from one of
our top universities believed colonization is good using Hong Kong as an
example.
- China is evil and they
are communists.
- They're stealing our
jobs, technologies and movies.
- All Chinese products are
inferior products.
All the above are
wrong or not totally correct and I will dispute them one by one.
Globalization
China is one
country in the chain of the global economy which promotes free trade. Buy the
best product from the country that produces the best product at the least cost.
Globalization debunks the myths.
- China
is moving up the product-value ladder. Some manufactured products, such as
garments, will be moved to countries such as Vietnam and Burma with wages lower
than China. This TV series makes you feel good and hence makes it easy for
them to sell their advertising. In reality, manufacturing in many products
will not come back to the USA due to our high wages, regulations and
taxes. In a sentence, we're hurt by our own success. We need to give up
these industries that we cannot possibly compete in and concentrate our
efforts on high-value industries and industries we can compete in.
- Product
quality is controlled by outsourcers. Do you find product quality problems
in Apple's products?
- China
is not stealing our jobs, but globalization does. Most companies can
outsource all functions of the company to other countries where they can
find the best workers at the least costs.
- China
is polluting the world. Aside from the pollution from factories producing
products for export, energy consumption per capita is far less than ours.
China is #1 or #2 in most green energy technologies. Unfortunately, China
is blessed with coal, but not blessed with the less-polluting gas and oil.
- China
is stealing our movies and intellectual properties. It is the same for
most developing countries. China will enforce intellectual properties
before it can move up to the next phase to a developed country. Our
companies have to protect our secrets as the best defense is a good
offense. Even the US had been in that stage briefly. Charles Dickens was
so angry that he did not want to visit the US. Did we pay royalty to
Hitler for using German atomic technology and other similar technologies?
We can shut
ourselves out from all foreign trades, but it will harm us more than help us.
We have to enjoy a $50 toaster to start. All the chicken feet, a delicacy for
the Chinese, will be dumped into the ocean. Our high-tech companies, farmers,
movie industry will suffer.
Communism and China
China is only
communist in the second "C" of CCP, China Communist Party. Chinese
are more capitalist than us. If you do not work, you do not eat. This simple
rule motivates its citizens to work hard. The safety net is improving, but it
is a long way from our social security system; our system may be too generous
as it has encouraged too many free loaders and cheaters (also in the
corporation level too). It explains why they have a high savings rate. Most
companies in China do not have unions, inconveniences of labor laws and
sometimes even help from corrupt officials. After a taste of capitalism, China
will never return to communism, which encourages folks to be lazy.
Human rights and
Tibet
When you compare
present day China to the China 30 years, 20 years or even 10 years ago, human
rights have grown by leaps and bounds. To me, food and shelter come first
before human freedom. Human freedom should be allowed gradually and it requires
educated citizens that China has, except in the rural areas. Allowing freedom
too fast would cause chaos (my thought and is debatable).
Before the
'liberation' of Tibet, only
monks could get an education. One-child policy does not apply to Tibetans and
other minorities. Their culture is maintained throughout from the experiences
in my two visits in the last 10 years.
Hong Kong
Present and past,
Hong Kong's wealth depends on its proximity to China, contrary to the colonialism theory a
professor had stated. I had bet on the iShares MSCI Hong Kong ETF (NYSEARCA:EWH) (an ETF for Hong Kong) at the start of the Umbrella Protest. My order had not been executed
due to my low price. The reason that the stock market did not drop further
could be the plan allowing citizens in China and Hong Kong to buy stocks from
the opposite exchanges. It will materialize soon after they finalize the tax
and regulation details. Hence, the Chinese have more investment choices instead
of investing in ghost cities.
India
Indians compare
themselves with the Chinese, but the Chinese usually compare themselves with
the USA. India will not catch up with China in this decade. It is more corrupt
than China, more protective than China, and has more social inequality than China.
The Tier I cities in India cannot compete with the Tier II cities in China when
you compare the infrastructure, high rises, subway, airport, etc.
The growing
population of India eats up all the limited resources of the country. As a
Chinese saying goes, you get rich by making fewer babies and building more
roads.
China's advantages
- Huge
internal market. The scale of economies is quite obvious.
- An
educated and hard-working work force.
- Relatively
low wages for qualified engineers and researchers. The wage of one US
engineer is about the same as four Chinese engineers from my rough
estimate. It is giving some technology companies problems, such as Cisco.
- Government
incentives and subsidies.
- Most
big projects and major purchases to foreign countries have a clause of
technology transfer. If we do not oblige, they buy them from your
competitor. The trick is to use the money for research (not bonuses to the
management) and hold out the top technology.
- Bitter
tough lessons in the past 300 years starting from the Opium
Wars to WW2.
- One-party
political system is not a bad thing. By the time China connects most, if
not all, the Tier I cities with high speed trains, we're still arguing
about who is on top for the first one.
The success of China
is good to the world
After the last
earthquake struck China, Chinese and the overseas Chinese helped to rebuild the
disaster region without asking other nations for help. If China is as poor as
before, you may have 20% of the world population begging for money.
When you need a
drug to cure a terminal disease, do you care whether it is from the USA or from
China?
It has rescued
many US companies such as GM from bankruptcy. So is Volvo. China will buy many bankrupted
US companies if we allow them. Some bankrupted US companies do not have much
salvage values, but we argue not to sell on national security reason. Most do
not make sense.
Vietnam is copying
China's model and it is at least 15 years behind. It attracts many industries
such as textile that cannot afford the rising wages in China. The latest riot
against foreign factories (mostly from Taiwan) is more political and not
against the Chinese. The Chinese have been more integrated with the Vietnamese
than most other SE Asian countries.
Resource-rich
countries such as Brazil and Australia benefit from the demand in China. They
will return to the normal trade levels when the global economy improves.
Macau and Hong
Kong have been benefiting from Chinese tourists. With the suppression of
corruption, the gambling industry in Macau will suffer. Due to the recent
Umbrella Protest, Hong Kong will suffer from fewer Chinese tourists.
China has become
number one in tourist spending in France. It is similar to many other
countries. Most companies producing luxury products benefit. The myth of an
average Chinese citizen making less than $5,000 is debunked by these tourists.
Firstly, the median salary is not $5,000 and secondly the size of the middle
class is huge.
Most countries
benefit with the rise of China today, except
Japan, which
has a islet dispute with China. Philippines, backed up by the USA, has similar
problems with China. Hope they will resolve the problem by sharing resources.
Quick analysis as of
11/4/2014
Being born in Hong
Kong, I am naturally biased. I try to present this article with facts. China
has a lot of problems that
most developing countries have.
I recommend buying
ETFs for these countries: iShares China Large-Cap ETF (NYSEARCA:FXI) for China, EWH for Hong Kong, iShares MSCI Brazil
Capped ETF (NYSEARCA:EWZ) for Brazil and
Market Vectors Vietnam ETF (NYSEARCA:VNM) for Vietnam. I do not recommend buying small companies
except HAO as there are too many frauds in these countries. All should be
long-term investments. Be cautious on gambling stocks, particularly from Macau,
as they could be peaking now.
|
P/E
|
SMA-200
|
RSI(14)
|
| FXI |
8
|
7%
|
56%
|
| EWH |
12
|
4%
|
55%
|
| EWZ |
16
|
-7%
|
45%
|
| VNM |
11
|
0%
|
44%
|
P/E is from Yahoo!Finance and the rest from
finviz.com.
Afterthoughts
Shortly after this article was published,
Barron’s has an article titled The New China. The following data are obtained
from this article dated on Nov. 17. 2014.
|
Vietnam
|
Cambodia
|
Laos
|
Thailand
|
Myanmar
|
GDP Growth
|
5%
|
7%
|
8%
|
3%
|
8%
|
Export Growth
|
12%
|
13%
|
17%
|
0%
|
16%
|
Population
|
93 M
|
16 M
|
7 M
|
68 M
|
56 M
|
Monthly MFG Wage
|
$250
|
$130
|
$140
|
$370
|
$110
|
|
|
|
|
|
|
ETF
|
VNM
|
|
|
THD
|
|
Thailand is the most developed with a
thriving tourist industry. However, political unrest would take it several
steps back. This article is dedicated to our beloved Boston mayor Thomas Menino
1942-2014. This
article
was published in Seeking Alpha on 11-2014, a site for investors.
If there were a war between China and
Japan (the #2 and #3 economy), the US (#1 economy) will most likely support
Japan and all the forecasts in this book as of 9/2013 will be off and we will
return to a global recession.
There have been disputes on the
ownership of some islets between China, Taiwan, Japan, Korea, Philippine and
Vietnam for the presumed oil or gas in the near-by ocean. The disputes have
been mild for over 40 years (I remember the protest when I was a college
student) and no side wants to do anything until recently. All these
countries would not want to agitate China and China would not want to harm the
trading relationship. Now, the U.S. wants to side with countries against China.
With the backing of the U.S.'s Seventh Fleet and the U.S.'s promises, all these
countries suddenly cry out loudly for the last few years.
If China starts the dispute initially, China grossly miscalculates and grossly
underestimates the military might of the U.S. navy. If Japan resumes the
dispute, they are risking losing trade (#1 export to China) and the tourists
from China.
It is the U.S.'s intention to
remain as #1 and the big brother in this part of the globe. It is not a wise
decision unless we still live in the past glory when you're either my puppet or
my enemy. Most likely, it is decided by the politicians who want to divert our
attentions as they cannot resolve our problems such as employment. The
government still wants to be the global leader (to another recession?) by
giving and spending billions here and there.
If the U.S. wants to promote
selling weapons to Asian countries (the U.S. is #1 in exporting weapons), we
are playing a risky game and the potential profit most likely will not justify
the consequences.
China might withdraw the loans and we would be back to the
worst depression in our history. It is quite dumb for China to loan us money to
build the Asian missile wall against N. Korea and most probably against China.
When Japan and Korea fight against each other over the disputed islet, which
position would we want to side with? If your answer is both, should we send
missiles from one of our battleships to another one of our own?
We cannot afford another war. We've spent $1.365 trillion in
the two current wars so far. We cannot visualize how much is one billion, not
to mention one trillion. The current tallest building in the world (in Dubai)
costs about $1.5 billion. We can build about nine hundred (900, not a typo)
tallest buildings in the world and not even fathom of how many jobs would be
created.
Wars cause human suffering. China is not a tiger, but it is far from a paper
tiger. Japan's navy is stronger than most folks in the U.S. can ever imagine.
Japan has been the aggressor to China for centuries and has been war criminals
against Korea, China and most other Asian countries in WW2. They have not
compensated all the damages to Asian countries that they destroyed during WW2.
Their leaders still pay respect to the war criminals in their ‘shrines’ and
rewrite history books not admitting Nanjing Massacre had happened.
As usual, we always pick up the brick, aim and hit our own big toe. It was
Vietnam, then the two wars in Middle East and now potential wars in China Sea.
We have not yet learned lessons from the French, the Brits and the Russians who
had been to Vietnam, Afghan and they all lost big.
No politicians would tell us that all our troubles are due to the high expense
of the wars we participated in. We have had about 20 years of secular bear
market due to the Vietnam War, followed by about 20 years of secular bull
market due to the lack of war, and now 12 years of secular bear market (as
of 2012) due to the Middle East wars. At the mean time, many of us do not have
jobs or are under employed. Though our market is up (due to excessive printing
money), but economically we are in very bad shape.
The
disputes
will not be good for all countries involved. The U.S. does not have sufficient
resources to start another war. Hope it will not happen. Let the sleeping dogs
lie and silence is golden. The one who started to surface the dispute has
grossly miscalculated.
Japan is not the Japan 25 years
ago. As of 2014, I do not want to invest in Japan.
The policy has failed and the new
policy is basically the same as the old one. Their problems are:
1. Agitate
their major partner China on the disputed islets, which should belong to Taiwan
by proximity and it should be returned after WW2. They're losing trade from
China while China can buy the equipment and technology from many other sources.
2. The
virtually zero interest rate does not work before and it will not work in the
future.
3. The
higher tax and higher inflation in Japan will lower the living standard in
Japan.
4. The
recent surge in export is just a mirage and cannot be sustained in the long
run.
5. The
recent Tsunami will hurt Japan for another decade. I do not want to visit the
affected area or eat any food products produced from this area.
6. The
impact of Japan's aging population is the worst among nations and is worsened
by not welcoming immigrants. The smart and hard-working citizens are their
major resource.
7. The
baggage from the war crimes in WW2 to its Asian neighbors is still a burden.
Japanese never compensate the comfort women who are disappearing fast due to
aging. Japanese leaders pay respect to the war criminals in the ‘shrines’ every
year, similar to paying homage to Hitler.
Afterthoughts
·
The point of this blog is not on the dispute
itself but on: Why does the dispute re-surfaces after 50 or so years? I suspect
it is the U.S.'s hidden agenda. My guesses are: Helped Obama reelected, the
U.S. returning to S.E. Asia, selling weapons in the region (the U.S. is already
#1 in weapon export), containing China...
·
If you look at the map, I can tell one disputed
islet is closer to Vietnam / Philippines and another one is closer to Taiwan.
·
I wish all the countries involved share the
natural resources and the world will be a better place.
·
In Asia, Japan, India and China are all building
carriers. It is not a good hint for peace.
·
My Sentimental Journey: Nanjing
Massacre.
·
Does war benefit the economy? Yes, to some
extent. No, for the long term to me.
Norman: War got us out of the Great Depression in
1941. The inflation is a future problem,
ducking the missiles is the current concern.
War is a powerful business model and the countries over produce.
·
China and Japan (a country with very few natural
resources) will fight for natural resources. Most resources are stable but the
global population is increasing. The rule of Supply and Demand will push the
prices of most commodities (including farm products and water) higher.
·
When the USA sides with Japan, our secular bull
market will be at least one year late.
·
As of 5/2014, Vietnam riots destroyed several
Chinese corporations over the
disputed islets.
Investing in S.E. Asia is risky now. Vietnam will suffer from foreign
investment and tourism for 3 or more years.
http://en.wikipedia.org/wiki/Senkaku_Islands
We follow the similar procedure in finding the reentry points and
use VGK, an ETF for European countries.
There are two sectors that bring down the US’s financial crisis
in 2007 (or 2008 for some). We should reenter the European market via technical
analysis (TA) and via fundamental analysis.
Technical Analysis
There are two ways to find the reenter points after 2007.
1.
Use the same chart in
described in TA chapter as follows. Bring up Yahoo! And then Finance from the
browser. Enter VGK, an ETF for Europe. Select Chart, then SMA (single moving
average), and enter 350 days for reenter points (different from our usual 30,
60, 90 or 120 days).
Loosely we have two
major reenter/exit sets: 08/31/09 to 08/01/11 and 08/20/2012 to 01/13/14.
Without considering compounding, we calculate the averages of these two sets of
data.
2.
From the Market
Timing chapter, reenter the market 2 years after the initial plunge for
offending sectors. They are not the offending sector but the sovereign debt is
partly the culprit. Hence we use 18 months instead of 1 year for the general
market or 2 years for the offending sector.
Assuming 01/14/2008 the market starting plunging, the reenter
date is 07/14/2009.
The 350-day Single Moving Average could be a
good guide to trade VGK, an ETF for European countries. Buy when it is above
the moving average line and sell when it is below.
The following table summarizes the returns based on reenter
points to 01/13/2014.
|
Reenter
Date
|
Return
|
Annualized
Return
|
Beat SPY
|
Chart
|
08/10/09
|
-9%
|
-5%
|
-185%
|
|
08/20/12
|
29%
|
21%
|
0%
|
|
|
|
|
|
Average
|
|
10%
|
8%
|
-93%
|
|
|
|
|
|
18 months
|
07/14/09
|
59%
|
13%
|
-42%
|
If you have a time machine, you may not want to invest in VGK at
all as SPY beats both strategies by a wide margin. However, the annualized
return is 8% and 13%, not too far away from XHB’s 21% and 21% respectively. It
seems Europe had more ups and downs during the recovery and the recovery is
slower than the US market.
Fundamental analysis
Here are my personal thoughts as of 2009. I prefer to stick with
the technical analysis and fundamental analysis is used to further analyze the
housing market such as the cities that may have better recoveries. By the time
you read this article, the information may be obsolete. Use it as a reference
for future guidance.
As
of 1/1/2012, my predication about EU’s mess that we talked about more than two
years ago (my blog mentioned it long before most media). Even today (9/2013),
there are not a lot of changes and EU is still on its early stage to recovery.
Here are my random remarks.
·
EU will be dissolved or will at least kick out
the cheaters, free loaders and parasites such as Greece. In any case, Euro will
depreciate a lot compared to gold [Update as of 2013: It has]. Germany wants to
keep Greece in the union despite of all the problems and little to gain.
Germany have to compromise to the opposition from her own citizens in not
giving up their own money.
·
After that, a default is not a bad option.
·
There will be conflicts in the citizens in
Greece between those who have (still a lot collecting over $40,000 USD pension)
and those (especially the young generation) who have to suffer due to passing
the debts / miseries to them.
·
Greece will recover faster if it has its own
currency and it can default its debts. At that time, it would be profitable to
invest in Greece.
Their
government will be halved and the salaries / pension obligations will also be
halved. To conclude, it will run the country about ¼ of the original cost. Tax
revenues will come back with tourists looking for bargains. When the other
industries such as shipping (when global trade improves) and processing olive
return, the investment will have a good chance to gain 100% in a year. Timing
is everything.
·
The days living off from the treasures /
commodities they stole from their colonies have been long, long gone. Most
European countries need to live within their means.
·
The lesson of having a good life without working
hard (short work week and long vacation) is learned again and again. First it
is Ireland, Iceland, then Greece, then Spain/Italy and now the USA.
·
When they learn so many bitter lessons, they
will not repeat them for a long while. The USA should learn the same lessons as
we seem to be heading to the same direction unless the shale energy rescues us.
·
EU will be a problem for years to come. When the
country has that high debt with regard to GDP, they will not be competitive
especially the drain of their best citizens to other countries.
·
Decoupling is the solution. The U.S. and China
will not be stupid or big enough to rescue a sinking ship.
Afterthoughts
·
Putin is a master
chess player and an opportunist.
He has all the cards: Chinese on his side, the poor US
economy due to the wars (we did not learn it from Russia on Afghan.), EU's
dependence on gas from Russia, no official government in Ukraine, large Russian
population in Ukraine, the damaging USA’s prestige with spying and other
scandals, no big impact on the trade embargo (it would hurt us more than the
Russians)....
We have no business over there and we are not rich enough to be
the world policeman.
·
Update on Greece as of 6/2013.
Greece should be bottom
out in a year. Investing in Greek stocks at that time would double your
investment for the following reasons.
1. Greece is small, so it may not be a big deal to recover as
Iceland did. It is better than Iceland with its nice climate and many
attractions for tourists.
2. Besides attractions for tourists, Greece has beautiful beaches.
They need to cut down protests before the tourists would return.
3. The government could be mean and small with about 1/4 of the
previous expenses to run it.
4.
The olive industry
and the shipping industry will return big time after the global recession.
However, there are no cures for laziness and stupidity; another
living proof on my Coconut Theory. The major hurdle is that there is a brain
drain of able citizens and the retirees suck up the resources of the country.
·
Roots of the problem.
1.
Euro is initially a good idea especially for
tourists. However, it forces the rich countries to pay for the free loaders.
2.
Laziness is a human nature. When you work 30
hours (even less if you consider the long vacation) a week, you cannot compete
with folks who work 50 hours a week.
3.
The loots from the days being colonial masters
were long gone except the displays in museums.
Socialism
encourages folks to be parasites until the host dies.
·
My Sentimental Journey: Queen’s Diamond Jubilee.
Republicans
are usually pro-business, but the democratic presidency has better track record
for better market performance.
The Dow index was up 56% (from 7,949 to 12,418) in the less than 3 years since
the day when Obama took office. As of 8/2012, it is 13,100, so the market has
been fully recovered from 2007-2008, but not the economy. If you still collect
unemployment or your house has been foreclosed, you're still in deep trouble.
The S&P500 performance under Republicans vs. Democrats since 1926:
Annualized return under Democratic
presidencies: 13.74%
Annualized return under
Republican presidencies: 6.25%
The President's appointees for the economy are the ones to watch as they set up
the policies. As of 2012, the interest rate is not a factor as it cannot go
much lower. The cut in military expenses and the ending of the two wars will be
good for the economy.
The problem of the two major political parties is that they do not agree with
each other, so they have to make too many compromises and waste a lot of time
and effort.
Afterthoughts
·
Since we have more people depend on the welfare
/ entitlements and the government jobs, they will vote accordingly and that will
not cut down deficits in the foreseeable future especially the baby boomers are
starting to collect the entitlements.
·
Do not blame the news
media. They broadcast what you want to hear.
Do not blame the politicians. They do what you want them to
do.
Do not blame me. I deliver what you want to get.
So blame you yourself.
·
However, 40% (45%
soon in our deteriorating economy) do not pay Federal income taxes and they
take back more via welfare benefits and entitlements from the society.
The rich (1%) can blame the poor (40%), and the poor can
blame the rich for the ‘welfare’ for the rich. They are both right and both
wrong.
If we divide the society into 3 groups: the rich, the
middle class and the poor, the middle class (I and most of you belong to this
59%) is really squeezed by both sides
The middle class do not
vote actively compared to the poor who depend solely on the policy to allocate
welfare / entitlements.
·
Capitalism encourages
folks to work hard, communism encourages folks to be lazy, and socialism
encourages folks to steal.
·
It is obvious that
the 2012 was partly won by the Hispanic votes with the promise of legalizing
the illegal aliens. We’re the only country on earth that welcomes illegals.
Have our politicians calculated the costs for welfare benefits and the impact
on jobs if we legalize the illegals?
·
A good president does not have to be expert in
every field except being a good communicator.
He should delegate his power and know whom
he hires for a specific job. Unfortunately his personal objective is to get
re-elected during his first term. In the second term if reelected, build his
legacy to sell his books/speeches and reserve a space in history. Actually he
has about 18 months to do so in the second term.
From my definition, Obama is not a great
president. Reagan had good acting skills. Bush was not. Carter was too
gentlemanly and not firm. Nixon was tougher but his hand was caught in the
cookie jar. Clinton invented or gave new meanings to some terms in our
dictionary (such as interns, inhale, sex…) and got away.
Basically I cannot find too many great
presidents in recent history. We may have to blame our election system. If I
want to be one of them, I would choose Clinton for all the funs he is having. J
·
Whenever I make any political remark or any
remark against the government, I have a chance of offending half of the
population if we are evenly distributed into the two political parties. A good
discussion even against any politician is better than no discussion. We are not
a member in Bush’s cabinet who has to agree everything with the chief in order
to survive.
###
Tip ###
As
of 3/2014, TSLA, AMAZ, NFLX and AAPL are all over-priced by
most fundamental metrics. However, they are the darlings of institution
investors. My advice is not to do anything (not to buy and not to short them)
as we cannot fight the city hall and the momentum.
Our voting system works but it has problems that need to be
addressed as follows:
1. Reduce campaign money.
When politicians spend a substantial amount of time in
fundraising, they have not concentrated their efforts on the important issues
such as the economy. Gun control was not even mentioned in the last election
despite we have constant shootouts. We need to set a limit in the amount of the
campaign money they can raise and they can spend. Hence, the presidency is not
won by how rich you are and / or your party is, but how you can resolve our
problems.
2. Over-promising for votes.
The last election was so close and the outcome could have been
altered by the inclusion of Hispanic votes. The changing of the legal residency
status could create many legal welfare recipients to further burden our
bankrupting country. If the welfare is so generous, why should they work when
they are legalized?
3. Special interest groups.
The politicians optimize their policy to favor the special
interest groups who finance the campaigns. These groups are the entitlement
recipients. They ought to be paid according to how much they have contributed.
The social security system was designed for life expectancy less than 70.
I would include the big businesses in the special interest
groups. Via their connections, they had been bailed out many times.
4. We need to set up a ballot to indicate what percentage of our tax
money will go to a specific budget, such as offense, education, etc. Spending
too much on one budget would hurt other budgets. I would like to spend less
than 2% on offense. Why we need a carrier driven by dual nuclear reactors and
still ask for more defense expenditures?
5. Representation without taxation is worse than taxation without
representation.
The votes of those who do not pay any Federal taxes, the mentally
challenged or those with low IQs, the uneducated, and the criminals should be
counted as at most half votes. When we are a good citizen (paying Federal tax,
sane, educated and not a criminal), our votes should be better for the country.
The votes of all veterans should be counted at least one and a half as they
sacrifice their lives for the country. A
kind of controversial at first glance!
We have about 50% illiterates in Detroit. The politicians have to
satisfy these voters in order to get their votes. It is not hard to predict the
collapse of the city. Taxing the rich and giving more to the poor seems to be
good deeds similar to Robin Hood. However, businesses cannot function over
there and they have options to move to other cities. It is another example that
uncontrolled socialism could lead to self-destruction.
6. I suggest the second term of the presidency should be 6 years
instead of 4. This is the term that the presidents usually do well for the
country to build his or her legacy without caring about votes for him or her.
Today, most second-term presidents have only 1 ½ years to do so.
The following are related to governance but should be discussed
during the election.
7. Need to balance the budget - we should make it a constitutional
law. We cannot pass our debts to the next generation forever. Most states require
balancing their budget, why not the Federal government?
8. Need a long debate in the Congress before we can start another
war. Most major wars from Vietnam War to the current two Middle East wars cause
most of our financial problems. We are not wealthy enough to be the world’s
policeman, and fighting for ideology and freedom for other countries. Being #1
or a big brother is not important when our economy is bankrupting and most our
graduates cannot find jobs.
9.
Need to encourage the
able poor to work and be educated to break the cycle of poverty. There are too
many holes and misinterpretations in Clinton’s law to force welfare
recipients to work.
10. Need
to control government expenses by a smaller and more efficient government and
cut frauds such as Medicaid and disability entitlements SSDL. Increasing government employees and assigning them small
workloads is reckless consumption.
To illustrate, building
a road to improve transportation is productive, but defending other countries
is consumption (unless the benefits justify).
Afterthoughts
·
Shutting down the government due to the debt
ceiling.
Run the
government like what businesses do. Calculate the rate of return in the
following two options.
1. Benefit in shutting down the government.
or
2. Benefit in not shutting down the government.
Select the option that gives us better benefit.
The majority of government employees have tiny workloads
(most got their jobs in DC due to what party they belong to). Furlough (layoff
could be better just like most businesses do) half of them and it would
maintain the same service if they work in the private sector. A win-win
decision.
Closing all the free museums (say in DC) will cost a lot of
pains to tourists and future tourism. Actually it costs more than 10 times of
the saved wages in shutting down. Only the stupidest managers make this kind of
easy decision.
However, our government makes decisions based on politics:
Want to show who is the boss and put the blame on the other party. They are all
wasting our time, money and energy. We need to have smaller and efficient
government.
When the problem is resolved (by approving funding or
moving the debt ceiling even higher), both sides will declare victory
shamelessly on how smart they ‘fixed’ the problem to insult your intelligence.
·
Usually we vote for the candidates we associate
with without considering the ideas and the qualifications of the candidates.
That is evidenced from the reactions of the O.J. Simpson’s verdict from the
students of a black college and the students of a white college. This is bad
for the country.
Why do we need to know Mitt (or
any candidate from any political party) is officially nominated or he will
accept the nomination? Who has turned it
down in our history? If this is the main purpose of the convention, it is a
TOTAL waste of money and time that can be used to deal with our real problems
such as how to cut down spending. Isn’t it ironic or demonstrating how the big
government wastes our money or how big business buys influence?
If you really do not know whom
will be nominated (I'm shamelessly insulting your intelligence and assuming you
have been living in a cave for the last year), just watch the news on TV and
save millions.
The convention must be sponsored by airlines, hotels, restaurants and Florida
or big businesses / special groups wanting influences. The hidden sponsors are
the prostitutes and the drug companies who provide Viagra and condones. They are
the winners of this convention, not the handsome Mitt and his lovely wife. All
the conventioneers using other folks’ money to wine and dine are the free
loaders and parasites. Sorry to offend all the politicians and their running
dogs.
I like to attend any convention if someone is stupid or rich enough to pay for
this unearned but lavish vacation – I’ll vote whatever you want me to. Sign me
up for any convention, Republican or Democratic, now or future. I hope it will
be in Hawaii or somewhere without any hurricane and with great and expensive
food. You will pay for it eventually one way or another.
I must have some mental problems
if I talk to an empty chair with a ghost rocking on it. When you guys laugh at
the chair, you might have a more serious mental problem than I. Even with no
one sitting on it, the chair still rocks. It symbolizes the do-nothing
government could be the best government as it rocks! My point is we need a
small, frugal and effective government. The best government is invisible but it
provides all the basic services at the least cost!
The United States is still rich
and powerful, so the economy should be easier to fix. However, we all have to
bite the bullet. Bailing out everyone only buys votes for the politicians and
will not help the economy in the longer term. The economy affects everyone and
it should not be a political game. Here are some of my thoughts.
·
When GE does not pay any tax to the U.S. but to
some foreign countries, we've a problem. So are many U.S. companies which
should be headquartered in the U.S. instead of in some foreign countries. We've
not done enough to lure them back and give them incentive to stay. At least we
need to force them to pay taxes on the profits they made in the U.S.
It is similar to the cruise ship companies. They pay
minimal taxes even most are the ‘real’ headquartered in the USA and most of
their customers are USA citizens.
·
The rich should pay their fair share of taxes.
If we force them to pay more than their share, they will move elsewhere. This
is the straw that breaks the camel's back or killing the goose that lays the
golden eggs. The top 10% rich folks paid 70% of all Federal tax collected in
2010, up from 55% in 1986.
More than 40% of the total population did not pay any Federal taxes and
they received most welfare benefits and entitlements. Our socialist system
would bankrupt when it does not have any to give.
·
Relax the environmental enforcement on drilling
and start the construction of the pipe lines such as the one from Canada. We
may have more than enough trapped natural gas for the next 50 years. God bless
America!
·
The complicated regulations and the high legal
expenses force some drug companies to move the research elsewhere. If nothing
is being done, I predict China and India will be the countries to produce more
new drugs in the next decade and we will lose the competitive edge.
·
We need to limit the unemployment obligations
and the burden of ObamaCare to small businesses. There is no incentive for them
to hire in this uncertain time.
·
We have to give companies and the rich
incentives to take risk to start business and new ventures here, or they will invest
elsewhere. Investment creates jobs.
·
There are many ways to balance the budget:
We need to cut the entitlements. We have to bite the bullet. I receive Social
Security and Medicare myself, but I am willing to bite the bullet.
We need to encourage the able poor to work instead of receiving welfare. Why
should they work if work means cutting the housing subsidies, food stamp and
free health care (in many states including Mass.)?
We cannot tax the rich to the max. I belong to the middle class and I
cannot give up my citizenship, my social security and Medicare that I
contributed during my work life. However, the rich can and come back to live
here as a foreign citizen. It has happened to many high-tax countries and we
never learn.
There are many U.S. jobs that are being done by illegal aliens. Check out
who pick your lettuce, or empties your waste basket in your office. The poor
should take up these jobs instead of fixing up their motor bikes, or watching TV
all day long. When we legalize the illegals, will these new residents collect
welfare instead of working?
Hiring more employees for government jobs is the most
inefficient way to boost employment, as our government is too big already. We
can cut down half of them without degrading the services as most are working
half of the time already.
We
cannot afford the two wars; one war costs us $2 billion a week. Many well-known
projects overseas cost about $2 billion each. Why we need a carrier powered by
two nuclear generators is beyond my comprehension when we have more weapons to
destroy the entire world by pressing a button.
All the measures should be
executed gradually to avoid the so-called fiscal cliff and related problems in
different terms. I'm in IT and now in investing. I do not know much about
social science and economy, but they're just common sense.
Afterthoughts
###
Myths on dividend stocks ###
·
Dividend yield determines the value of a stock.
Not true. Apple did not pay good dividend for a long while. Many financial
stocks with great dividend yield bankrupted in 2008.
·
P/B is one of the 3 pillars (besides dividend
yield and P/E). Not true as the book value does not contain intangibles that
could worth a lot especially for established companies.
This recession is the longest in
my memory. Usually we have recessions that last for two to four years and then
we recover. Some recent college graduates have been out-of-work for over four
years and many work on jobs that they do not have to go to college for.
It could be due to the failed
stimulations, printing too much money and the bailouts that did not fix the
root problem. If we did not do the above, there is a better chance for a faster
recovery than a deeper recession. Hopefully 2014 will be the year we finally
recover, but only time can tell.
We need to let big businesses
fall. No one is too big to fall. Let nature take care of itself. If you cheat
and / or do not perform, you need to be out of business. It is Business 101 and
the fundamental of our capitalist system. Why it is so hard to understand? Why
do we need to bail out companies that should fail? Why the greedy CEOs do not
go to jail? Why they were rewarded with bonuses from our bailout money to bring
down the companies?
Our problems are easier to fix than they appear to be. I can think of many easy
solutions, so the politicians who are hundreds of times smarter than I (or at
least make hundreds of times my salary) must have many solutions already.
Identifying problems and finding solutions are the easy part. However, the
implementation is hard, as the agenda of all politicians is simple: Get
reelected. They have to satisfy the special interest groups who finance their
campaigns and the voters who do not want to bite the bullet. When we have more
voters benefitting from welfare and entitlements than the tax payers, we’re going
to be a welfare state for a while. In addition, big businesses control our
government via special interest groups; I call it corruption, American style.
Contrary to
popular belief, we DO make and build stuffs especially per capita wise. We're
still the largest economy on earth and are number one in most disciplines in
science and technology. We have a stable government with an enviable
constitution, workable regulations, highly-educated citizens and the strongest
defense (or offense to me).
Our
government and the private citizens (Gates and Buffett for example) donate
funds and assistance to poor countries more than the other five richest
countries combined. We provide food to the world. We export our culture via our
movies and music. We accept foreign students to enrich our culture, fund our
colleges, and provide us with skilled workers when they graduate.
We have a lot
of innovations such as Facebook. Most of our products have high profit margins
such as airplanes, heavy equipment, high-tech products including Apple's
consumer products and medical equipment. Nobody can deny that.
Our success leads to higher
living standard. Naturally the higher labor cost and more regulations to
protect us and our environment follow. Too many regulations would restrict
businesses in taking risks (such as developing new drugs and nuclear reactor
technologies) and add costs to product developments.
We have to leave the low-end products to low-wage countries
such as China and India. It is called free trade and globalization, which would
benefit all participants if they play the game fairly. China's 1.35 billion
citizens would not be able to buy our expensive products if they do not have
the cash from selling their products to the world.
We have to protect those products that we have an edge. It
is not an easy job just by comparing the quality of our high school education
to the rest of the world. Japan and S. Korea have passed us in auto and
consumer electronic industries. China is at the gate with bigger impact in the
future. China is catching up with us. In addition, it has a large internal
market, plenty of qualified engineers / scientists, low-wage workers and
incentives / guidance from the government. The most important is their desire
and spirit to succeed after three centuries of humiliation.
God still blesses us with the new discoveries of shale
energy that could extend our prosperity to another 50 years. It gives us more
time to fix our problems, but time is running out. The benefits of the shale
energy and their impacts to the environment will be clearer by 2015. It could
turn out to be a pure fantasy or even a sham. We are still a net natural gas
importer (most from Canada) and our gas industry is currently sitting on heavy
losses.
Compared to China, we have far, far more
farm land and natural resources especially per capita wise.
Our welfare
system is too generous due to our previous economic booms. If the able welfare
recipients lose the free medical care for taking a job, do they work? They're
lazy but not stupid. With the long dependence on this welfare system, they
cannot break the viscous cycle of poverty. Multi generation of teenage mothers
is one among many examples.
The new immigration bill could be a disaster. If it is
passed, how many new legal residents will collect welfare (they can't today as
they're illegal) and how many illegals are encouraged to cross the defenseless
border. I hope the new immigrants will contribute more than burden our society.
Only time can tell. However, protecting
the border is easy by severely punishing the employers. When there are no jobs,
they will not come. The USA is still the best country for immigrates. We should
allow them to migrate selectively bringing in wealth, willingness to work
and/or skills. We should limit the free loaders as we already have too many.
There are
many frauds and fats that the government can trim. The government employees are
assigned to tiny work load and they are overly compensated. Should we assign
them to chase after the frauds in Medicare, food stamp and cheatings in disability
entitlements that are so common? If you are one of those surfing the internet
all day long and your work day is 10 to 4 with two hour lunch break, you know
what I mean.
The two wars are bankrupting this country and we need to prevent starting
future wars and end the current wars. As of 2014, our military
budget is larger than the total of the next top five
countries combined.
From this article, you know the government can fix a lot of
our problems. Printing money is not the solution, but the problem by itself. We
cannot pass our debts to the next generations.
We need to
encourage productivity and discourage consumption. Buying a car is consumption
and building a bridge is improving productivity. Welfare to the able poor is
consumption and teaching them work skills is improving productivity.
What worries
me most is: We’re declining while many developing countries (China in
particular) is surging up.
The future
will be decided by our high school system which is falling apart. Our society
is too permissive from gun controls to legalizing drugs, which may bring infant
defects. Our lawyers sue every one for profit no matter how ridiculous the
cases are.
Afterthoughts
·
Immigration reform will likely depress the
average wage over the next 10 years, according to the Congressional Budget
Office and also will likely increase our burden in our welfare and entitlement
systems.
·
Paul said:
This WAS a country where government did not buy votes. When my
grandparents came to the U.S., there were no Federal social programs, no Social
Security, no Medicare, no welfare and no income taxes. Millions poured into
this country looking for opportunity -- not a safety net…
The only recovery you'll see this summer is after a night of
heavy drinking...
Nothing has changed
since 2008, nobody was arrested, no laws put in place, nobody held accountable.
We all know that companies like JP Morgan and Goldman Sachs bundled toxic sub-prime
mortgages into securities and paid off the ratings agencies to rate them AAA
then bet against them using CDS with companies like AIG. So what does the
government do? Reward their criminal and fraudulent behavior by completely
bailing them out and then giving them oodles of cheap credit.
Have to hand it to
them...credit.....credit does not exist. There is only debt, masquerading as
credit, which we have been taught because it sounds better. It is a debt crisis
and the other side of debt is not credit, but a counter-party/underlying asset.
The whole world awash in debt with no solutions offered, most money is created
through debt but what they don't tell you is that the interest is never
created.
·
The government needs
to encourage folks and/or train them to work. Raising minimum wage is making
the problem worse. The government should encourage businesses to stay in the
USA and not to tax the very rich excessively.
·
My recent blogs.
My update. http://tonyp4idea.blogspot.com/2014/08/good-deeds-and-bad-deeds.html
Product Innovation. http://tonyp4idea.blogspot.com/2014/08/product-innovation.html
Legalized
drugs. http://tonyp4idea.blogspot.com/2014/08/drug-kills.html
http://tonyp4idea.blogspot.com/2014/08/change-constitution.html
Links:
Military budgets:
