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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XVII Investment advice

We need to distinguish useful information from garbage.

85 Newsletters and subscriptions

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.

Making full use of a 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.

86 How newsletters ‘improve’ performance

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.

87 Hedge fund 101

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.

· Now hedge funds can advertise.

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.

http://finance.fortune.cnn.com/2013/07/10/sec-votes-to-let-hedge-funds-advertise/?iid=HP_River

· A hedge fund article from SA.

http://seekingalpha.com/article/584861-hedge-funds-are-they-just-smooth-operators?source=kizur

· 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.

http://www.cnbc.com/id/100855708

· 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.

http://money.cnn.com/2013/08/26/investing/bill-ackman-sells-jcpenney/index.html?iid=HP_River

· 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:

http://tonyp4idea.blogspot.com/2012/05/modern-portfolio-theories.html

LTCM:https://en.wikipedia.org/wiki/LongTerm_Capital_Management

Hedge Fund: http://en.wikipedia.org/wiki/Hedge_fund

88 Modern portfolio theory MPT

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

MPT: http://en.wikipedia.org/wiki/Modern_portfolio_theory

Efficient-market hypothesis:

http://en.wikipedia.org/wiki/Efficient-market_hypothesis

89 No investor heroes

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

Buffett. http://tonyp4idea.blogspot.com/2011/06/mr-buffett.html

Irvin Fisher. https://en.wikipedia.org/wiki/Irving_Fisher

Einhorn.http://en.wikipedia.org/wiki/David_Einhorn_%28hedge_fund_manager%29

http://www.cnbc.com/id/100855708

Arne Alsin. http://seekingalpha.com/author/arne-alsin

Michael Larson

http://en.wikipedia.org/wiki/Michael_Larson_%28businessman%29

90 2011, the year stock pickers died

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

Stock pickers: http://www.tonyp4idea.blogspot.com/2011/11/no-more-investing-hero.html

91 Advice from the Ivory Towers

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.

92 Letter to an investment guru

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:

http://tonyp4idea.blogspot.com/2011/09/diversification.html

93 Read a book with an open mind

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).

Fidelity’s ViewPoint is very useful.

https://www.fidelity.com/viewpoints/overview

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.

A good debate at SA

http://ebmyth.blogspot.com/2013/11/read-book-with-open-mind.html

94 This time is different

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:

http://www.cnn.com/2009/POLITICS/07/29/levenson.finance.regulation/

Irving Fisher:

http://en.wikipedia.org/wiki/Irving_Fisher

LTCM:

https://en.wikipedia.org/wiki/Long-Term_Capital_Management

Black swan:

http://en.wikipedia.org/wiki/Black_swan_theory

95 The advantages of a retail investor

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.

96 Invest responsibly

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!

97 Are investors parasites?

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

http://tonyp4idea.blogspot.com/2014/05/starting-music-business.html

One voice.

http://tonyp4idea.blogspot.com/2014/07/one-voice.html

98 Retirees, take notice

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.

Withdrawing 401Ks and IRAs.

(http://tonyp4idea.blogspot.com/2012/09/withdrawing-iras.html)

99 Is Social Security going to survive?

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.

Articles on Quirks. http://www.marketwatch.com/story/how-to-profit-from-social-securitys-quirks-2014-08-07

100 Advice for a 70 year old

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.

XVIII The economy

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.

102 When will DOW double?

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.

103 The evils of printing money

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.

http://tonyp4idea.blogspot.com/2012/11/inflation-and-deflation-at-same-time.html

· 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.

104 Low interest rate

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.

106 Education by example

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.

(http://www.youtube.com/watch?v=Xu1Q0E7oGQU)

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.

· More.

http://ebmyth.blogspot.com/2013/11/more-on-education.html

Links

· Click here for Asian education model.

http://tonyp4idea.blogspot.com/2012/10/asian-model-for-education.html

· Stuffs that college do not teach.

http://tonyp4idea.blogspot.com/2012/11/stuffs-school-does-not-teach.html

Another example.

http://www.huffingtonpost.com/2015/01/30/rescue-leftover-cuisine_n_6563516.html

· Click here for more Afterthoughts.

http://ebnation.blogspot.com/2012/11/afterthoughts-education-by-example.html

### 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.

107 The job plan that does not plan for jobs

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.

(http://nces.ed.gov/fastfacts/display.asp?id=16)

· 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.

http://en.wikipedia.org/wiki/South-North_Water_Diversion_Project

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.

Source: Ted Talk.
http://www.ted.com/talks/yasheng_huang.html

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

http://ebmyth.blogspot.com/2013/11/more-on-aging-population.html

Links

Water re-directed.

http://en.wikipedia.org/wiki/South-North_Water_Diversion_Project

Ted Talk.

http://www.ted.com/talks/yasheng_huang.html

109 Too delicious to fall

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.

110 Generous welfare

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.

· Could socialism lead to self-destruction?

http://www.tonyp4idea.blogspot.com/2011/10/democracy-leads-to-socialism.html

The rich are giving up citizenship fast.

· 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.

http://tonyp4idea.blogspot.com/2012/11/making-over-100000-without-working.html

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.

http://blogs.wsj.com/economics/2013/08/19/work-or-welfare-what-pays-more/?mod=trending_now_3

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.

111 Effective health care delivery

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?

http://ebmyth.blogspot.com/2013/11/more-on-health-care-delivery.html

112 The fair price of oil

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.

http://seekingalpha.com/article/975661-how-oil-really-gets-priced

Peak Oil:

http://en.wikipedia.org/wiki/Peak_oil

Energy boom?

http://finance.yahoo.com/blogs/the-exchange/play-america-energy-boom-160057023.html

Bottom for commodities?

http://seekingalpha.com/article/1530202-the-coming-rebound-in-commodities-coal-and-coal-stocks?v=1372760509&source=tracking_notify

A list of commodity ETFs:

http://etfdb.com/type/commodity/all/

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.

113 Commodities: bottom or mirage?

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.

http://seekingalpha.com/article/1530202-the-coming-rebound-in-commodities-coal-and-coal-stocks

2. A credit analysis of coal mining companies.

http://seekingalpha.com/article/1509622-a-credit-analysis-for-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.

(http://ebmyth.blogspot.com/2013/07/screens-on-commodity-chapter.html)

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.

http://www.tonyp4idea.blogspot.com/2011/03/rare-earth.html

This article was published in Seeking Alpha.

http://seekingalpha.com/article/1817642-commodities-bottom-or-mirage

Links

Finviz:

http://www.finviz.com/

Scoring stocks:

http://www.amazon.com/Scoring-stocks-adaptive-scoring-Investing/dp/1484159330/

Blue Chip Growth:

http://navelliergrowth.investorplace.com/bluechip/password/index.php?plocation=%2Fbluechip%2F

China and coal:

http://www.forbes.com/sites/pikeresearch/2013/06/24/chinas-coal-conundrum/

From Wikipedia.

http://en.wikipedia.org/wiki/Coal_in_China

No peak for China.

http://www.forbes.com/sites/pikeresearch/2013/06/24/chinas-coal-conundrum/

Clean coal technology.

Carbon capture and higher efficient turbine.

http://tech.fortune.cnn.com/2013/01/08/a-bright-spot-in-chinas-coal-binge/

Coal and the US policy.

http://money.cnn.com/2013/07/03/news/economy/obama-coal/index.html?iid=HP_LN

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.

http://seekingalpha.com/article/1533542-peabody-energy-commo132

dity-contrarian-investing-101

114 Housing recovery?

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.

Afterthoughts

· 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.

Music. https://www.youtube.com/watch?v=2yvaPDaE95g&list=PLB2CFDC94ED219184

Why China is rising.

http://tonyp4idea.blogspot.com/2014/08/why-china-is-rising.html

Uncle Deng.

http://tonyp4idea.blogspot.com/2014/08/uncle-deng.html

Tiananman.

http://tonyp4idea.blogspot.com/2014/08/tinenman-square.html

Pictures.

http://www.bing.com/images/search?q=chinese+photographs&qpvt=chinese+photographs&FORM=IGRE

Amazing circus and ballet

https://www.youtube.com/watch?v=aQmYBJwZGZE

115 Free trade with 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.

116 How to solve trade imbalance

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).

117 The myths on China

"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.

http://seekingalpha.com/article/2644635-debunk-the-myths-on-china

118 The China Sea is gathering storm

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 2014

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.

http://ebmyth.blogspot.com/2014/01/nanjing-massacre.html

· 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

119 EU’s mess

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.

Source: Yahoo!Finance (http://ebmyth.blogspot.com/2013/11/screen-vgk-350-day-sma.html)

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

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.

http://ebmyth.blogspot.com/2014/01/thoughts-on-queens-diamond-jubilee.html

Normandy

http://tonyp4idea.blogspot.com/2014/06/normandy.html

120 Politics and the stock market

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.

121 Modify our election system

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.

(http://en.wikipedia.org/wiki/Personal_Responsibility_and_Work_Opportunity_Act)

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.

122 The Republican Convention – a satire or reality?

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!

Afterthoughts: More

http://ebmyth.blogspot.com/2013/11/more-on-republican-convention.html

123 How to solve our economic problems

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

http://ebmyth.blogspot.com/2013/11/more-on-how-to-solve-our-econonmic.html

### 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.

124 Implementation

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.

125 The states of the United States

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

· Will the new immigrants strengthen our society?

http://www.americanprogress.org/issues/immigration/news/2012/12/10/47406/progressive-immigration-policies-will-strengthen-the-american-economy/

· 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…

· From ZeroHedge: (http://www.zerohedge.com/)

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

Immigration and Racism. http://tonyp4idea.blogspot.com/2014/08/immigration-and-racisim.html

Legalized drugs. http://tonyp4idea.blogspot.com/2014/08/drug-kills.html

The Constitution.

http://tonyp4idea.blogspot.com/2014/08/change-constitution.html

Links:

Military budgets:

http://247wallst.com/2013/06/27/countries-spending-the-most-on-the-military/?link=mktw

Sunday, February 1, 2015

101 My Coconut Theory

105 Inflation and deflation

108 Aging global population