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February 25, 2010

What Can't Be Hidden

A Seriously Struggling & Flawed U.S. Economic Model
There are a lot of negative things going on economically in the U.S. One of them being the fact that one in four homeowners are underwater and home values and retirement account values are two of the most important determining factors of consumers purchasing behavior. We are in an economy where over 70% of GDP is consumer spending. The retirement accounts are up for now but valuations are about fairly priced at best on US stocks because right now they are discounting an economic recover probably more along the lines of 2001 than 1931 after our Great Depression or 1990s Japan. These people think the 2000s weren't a continuation of the bubble!!? Hello! Greenspan and the housing bubble. The 1990s and 2000s can be corrected by a 2 year recession we have just had?!! I might even argue that the bubble actually started in the 1980s and even earlier with the consumer leveraging up on credit cards and a long standing government induced housing price bubble. The housing based economy is set up on a phony premise of everlasting cheap gasoline and fuel prices, endless supply of credit and perpetually rising home prices.

International Turmoil
There is a real threat of sovereign debt defaults like what we saw with Iceland just recently. Greece, Spain, Dubai and Japan are at risk of default and possibly eventually other major countries. The stock market hasn't realized or priced in additional defaults. That could start a domino effect. I was reading about the Asian currency crisis in the late 1990s. It all began in the small country of Thailand (then seemingly insignificant) and spread to South Korea, Japan, Brazil and Russia. Are Iceland and Dubai like a Thailand was then?

The strange thing so far I'm reading is there was lack of banking supervision prior because they were actually exploited by government giving public loans disguised as private and major asset bubbles were busting around this same time as well. A lot of these Asian countries had less than 30% of GDP comprised of exports which in my view gives some clout to the Austrian economists on what is possible in none Latin American economies and even ones as big as the U.S. There have been a lot of currency crisis in Latin America because of the cyclical nature of their economies among other reasons. In my view what happened in Asia in the 90s and in Iceland just recently shows that currency crisis are possible in a large country like the United States. It's hard to envision a scenario for the US for rates on our bonds not to go up and assuming the economy must continually be jump started and defense spending stays the same there could be serious trouble for the dollar and a following of the rest of the Western nations.

What good is deficit spending and artificial GDP growth like in China where there are empty cities if you still have to pay the piper for decades of juiced excess like here in the U.S.?

When it comes to the possibility of a continuing rise in stock valuations and a lasting improvement "absent stimulus" in the U.S. economy and even China's the burden of proof is on you bulls.

Some Links to Think About
"While deficit hawks have long warned that policymakers need to curb deficits and debt, the new wrinkle is that the U.S. budget deficit picture has worsened so much largely because tax revenues have fallen off so sharply that the government is likely to reach a crisis point much sooner than under past forecasts."

http://finance.yahoo.com/news/Bipartisan-budget-group-says-apf-3303488614.html

"The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt."

http://www.ncpa.org/pub/ba662

What Happened To The Green Shoots?











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Delusions of Grandeur

Is it actually possible that the green shoots were merely the result of short-term stimulus and inventory shifts by companies? Is it possible that the trajectory of GDP could go sideways or fall for years or even a decade or two after a serious unprecedented structural shift in the economy?

Bernanke said today many times that the current budget deficit is unsustainable. He also said that deficits of over 3% of GDP are unsustainable over time. These two facts would be troubling but lawmakers and the FED believe they are temporary because solid economic growth will shortly return.

All scenarios revolve around the premise of a solid recovery returning. It has to because we are facing a falling tax base and baby boomers retiring. I'm afraid a stagnant economy like Japan in the 1990s will not even be considered by lawmakers when it comes to spending programs and balancing the budget. But I guess why would it? The U.S. has produced one of the greatest economic track records ever in history. Even more rare and impressive about it is the history of economics on the whole when it comes to other countries is often a very dismal one.

Whether or not things get under control shorting treasury bonds and the dollar should be a good long-term macro play. Of course it is difficult here with the potential for at any time a panic rush to dollars but if there continues to be a flock that creates a mini bubble shorting the dollar seems like a no brainer because at the least it will fall from debasing.

Some articles and videos I have come across recently

Deathbed of Keynesian Economics Will Be in U.K.

Jim Rogers: The Dollar is Doomed

February 19, 2010

Net Tangible Asset Value Stock Plays,Oil & Retail

I crunched oil and natural gas stock Delta Petroleum's DPTR net tangible asset value to be around $515,000 vs a $368,000 market cap.

I'm pretty bullish on commodities and oil with Bernanke being re-confirmed. He's going to drop dollar bills from helicopters or even outer space if he has to to get the economy going(or just to hold its ground). Commodities have done very well the past 10 years because of inflation whether one wants to believe CPI or not. Gold has outperformed the major US indices since 2000.

Retail stock Borders BGP is just over net tangible asset value but has been beaten down a lot lately. I'd especially like to see some commitment by institutions with upgrades because it very well could continue to drop.





full disclosure: no position in BGP or DPTR at time of writing

January 12, 2010

Former Net-Net Stock MSON Soaring

I just noticed former ncav MSON in a technical scan that I initially noticed at the beginning of 2009 is in play on new distribution news. Right now it is a little over net current asset value and I don't know their story here other than there was huge volume recently on this news. As the stock showed in April it can run straight up a ton fast.

I think it might consolidate right around $3.00 around this black resistance at 3.00. This news might give it the potential for a richer valuation of course and more follow through. It's pretty thin and usually doesn't trade that many shares a day.


click for larger image
















full disclosure:no position

January 11, 2010

Investimonials.com Financial Reviews

My site is up for review on Investimonials now. Investimonials is a new site for honest user reviews on anything financial from books, brokers to blogs. There's not a lot of transparency in the finance niche and I think this site might have some promise for providing it to newbies.

If you want to take a minute review my blog here

I haven't been posting in this blog as much lately because I am posting my trading stuff on DynamiteStocks.com now. I'm still going to blog about fundamentals and macro stuff on Stock Pursuit like I have been recently. It just won't be every week and that often but rather when I feel like blogging on something like I did on the Buffett Burlington purchase. Google webmaster was showing that post got linked to from the Huffington Post and a Buffett focused blog.

Also, if the market has a serious correction(probably won't happen to soon) I'll throw up some of my net-net ideas here.

Upcoming Post
I'm thinking about a macro play on commodities. More specifically, a play on exporting commodities from the United States. I'm going to do a blog post here on that shortly and will lay out my thesis and brainstorm some of the ways to play it.

November 27, 2009

Stock Market Crash Round Two?

At the bottom of this post I compare the chart of the 1929 crash and rebound to the 2008 crash and this rebound.

So, the US equities markets have rallied tremendously off the March lows as fear quickly turned to greed. I mean what else really justifies such an optimistic view of US economic and corporate performance going forward. Housing has been in a recession? depression since 2005. What has enabled the consumer to spend for the last 20 odd years? That's right rising home prices. But hey government is committed to softening the fallout. So we get flat growth probably instead of total chaos in housing and the economy.

For atleast 2 years people have been calling for a bottom in housing and real estate in the US. It hasn't come. Is it really any surprise when even today big banks are still dumping residential for fractions on the dollar? Acres of land in Charlotte that once sold for over $2 million dumped for $300,000? This bubble hasn't fully popped I don't think.

I live in Charlotte North Carolina and housing is as bad as ever if not even worse I think. This state like many other states are in bad financial condition. North Carolina is desperate for tax revenues. So desperate not that many months ago they were going to pass a bill to tax online transactions. The kind of affiliate revenue Amazon offers to webmasters who use Amazon links on their sites. I used to use Amazon affiliate links. Not anymore because Amazon ceased doing business in all of North Carolina even before they could get the tax in place.

I made a brief thesis that the market seemed out of whack with even best case recovery over the future.

This is not just another little recession. The economy is not going to blast to new heights any time soon. Forward valuations look more like a regular old recession is about to end I feel. The consumer is different now. The consumer is saving more now and deleveraging the last 15-20 years of insanity. This could take some time I believe.

The question I have been asking myself is just how long can the government spending and low rates continue to have a positive effect on the economy without bankrupting us in the long-term if it is not to late already. Could the FED and government stimulus actually work? They certainly had an effect in the past. But just how bad is the recession/depression? It's not easily overcome right?

Could I be wrong? Yeah. Is this a hard view to still hang on to after the market run? Yes and no. No, because I'm usually a skeptic and pretty cynical even for my age. These viewpoints be it fortunate or unfortunate turn out to be right a lot especially in the world of investments and economics.

On the other token questioning the soundness of this recovery? and historical stock market recovery has definitely made me hesitant to make some trades even though I had to dismiss the fundamentals to be long biased since around April or May. The technical picture was pretty sound especially after the attempts to correct failed and the market kept breaking to new highs. I'll be a perma-bull as soon as housing shows a clear bottom.

The question I have here now that the Dubai bubble is fully bursting is how safe is China and Asia's real estate sector? On valuation alone Chinese equities don't seem like a bubble to me atleast comparable to 2007. However, banks are a big, big part of the Shanghai Composite. This could be devastating if their banks are leveraged. Of course real-estate in China would have to collapse. I don't follow China that closely to know if there are bubble conditions in real-estate there. Maybe someone reading this could point me to a fairly reputable source if they know more on this. I think it would be hard, for me atleast to make a call on housing or real estate in China because it's harder for me to gauge a bubble vs equities and considering they actually do have a seemingly healthy economy and rapid population growth.

Indices are encountering some trend line resistance. If the next wave or healthy consolidation is to come it will possibly be very soon.















These might be two of the scariest charts right now. There is a very similar spike/pipe bottom that happened in the 1929 bottom and uncanny resemblance in the bounces. Even on the rebound percentages from bottom. That's 1929 on top and 2008-09 on bottom.

And notice the failed signal we had in June and July were the market rally looked like it was going to end but just continued upward.


























Whether or not such a rapid decline will come so fast I think at the very least a short pull-back is in the works. This support trend line will have to be tested again. I wouldn't be surprised to see some window dressing by institutions as they try and lock in these yearly gains.















Not a good technical picture on the Russell 2000 small-cap index. This gap down from the Dubai news spooked the market or atleast gave good enough reason to sell. Such a gap at these levels does not look good for the time being.














I've been watching this bull-trap play out in financials since it happened. The possibility of it playing out fully and the financials breaking down is looking very high here now with this gap down and shooting star day.














full disclosure: no positions

November 22, 2009

Net-Net Update

I was looking at Boss Holdings BSHI.ob a couple different times over the past year and a half or so. The stock continued to trade very thin and decline. I just found out that back in late August they announced they were going to go private and cash out holders of less than 100 shares at $7.65. I think this may already be finished. I don't know.

All my posts on BSHI

full disclosure:no position