Buy the unloved

Finally i heard someone talk who i agree with.  He had a basic strategy to buy what has limited downside risk but large upside risk.  He rattled off several countries hit hard by oil or china.  But of course he makes sense because he started his own asset management firm.  David R. Was his name.

Who is the economy?

When people talk about consumers and how they spend their money, they talk as if wealth is spread evenly.  Right now you can hear opinions on gasoline savings and how that is boosting the economy somehow.  not only is the economy staying the same ovrrall, but Its a tiny boost.  I feel like people sometimes forget who the economy is.  There are over 200 million people driving around in the US, so if each person saves 50 or 100 dollars per month, it adds up to a large amount.  I understand that.  Something like 30 Billion dollars that used to go to gas stations is now going somewhere else.  That is a big shift.  As important 30 billion is, it’s a drop in the bucket.  The US federal government’s tax income is over 2 trillion, and the size of the economy is up around 17 trillion.  So 20 or 30 billion dollars is a tiny slice of the pie.  The wealthiest 20% of our population has about 85% of the total wealth.  Im pretty sure the top 20% don’t care about gas prices.  If I am ever asked how something is affecting the economy, I would relate it to what the top 20% are doing.  Rich people are the economy.  The buying and selling pressure in any market is dependent on what rich people do. 

Me saving $80 a month on gas will shift my money to other industries but the overall impact is the same.  If the overall economy looses steam, we go into recession.  And vise versa.

Oil will rise, recession is coming

All of a sudden there is talk about how a recession is coming. Most used to talk about how its just a correction but now its rolled over to a bear market which might be followed by a recession. Its the whole market predicting the economy thing.  Most are assuming oil will only go up from here. 

From a letter i received from t rowe price, it sounds like i wont be offered any oil stock to buy soon.  Maybe thats ok since i might be buying something else instead.  I need to check my asset list on my 401k again.  I want to update that once a month.

Trend follower

A guy from a fund said his people trade 70 different assets, of all types.  I agree with what he said but he sounded like he is long USD and short oil.  Thats basically the same trade and that trade has pretty much run its course.  He is very diversified and is up about 5% so far this year.  Uhh, sounds like he might struggle to break even this year after he pays his commissions.  He basically repeated things you might read in a textbook.

Hmmm

Another guy raised $18 million and hasnt done anything yet, lol

Hmmm

Fund managers holding cash

Fund managers are holding the most cash on average since the last overall market downturn in 2008. 

I get two things knowing that bit of info.  The people are expecting an overall downturn to occur.  Most of these fund managers cant find an opportunity to buy.

I see several opportunities.  There is usually at least one good opportunity available, especially for fund managers with deep pockets.  Either their trading methods are too constraining or they are not experienced enough to trade specific industries.  I see no reason to hold a bunch of cash.  That is double bad right now since the dollar will generally weaken from its recent highs and one could buy china, oil, Mexican peso and more.  I wish i had the money to compete with those jokers.  I would have a fund with entry based on family/friends or referral only.  People would beg to join.  That could be fun.

Financial movies

I was just thinking about financial drama movies and how one theme is to have a ‘terrorist’ type of person create a disaster so people panic and sell.  Of course the bad guys are short and expecting to profit big from a downturn.  I have seen this situation appear several times like an afterthought for an action movie.   I think the main reason this is written into scripts is because it sounds better for a bad guy to be a short seller.  They do some damage, they cash out and run away.  This was in Jack Ryan: Shadow Recruit and Survivor. 

If a bad guy in a movie wants to manipulate the market and profit from a crash, they should do what people do already in real life.  Create a bubble.  Start shorting when it gets ridiculous and if the bad guy is the source of the bubble, he can simply end his buying pressure once he has shorted enough, then it would crash.  I am not sure where bombs, violence, abduction and all the other typical things you would see in a movie with a financial terrorist would fit into the picture, pun.  It would be a plot for a likeable bad guy or a normal person who was tempted.    This is basically in The Big Short except Its more like some guys took advantage of the bubble others made.

You could have Wall Street 3 or something similar with a likeable bad guy who creates a bubble, gets everyone excited, then shorts it, then maybe does a double buy back to lock in profits and get ready for another expansion.  I guess the whole evil/violent terrorist thing just doesn’t make sense to me in real life which makes it harder to have in a good story.

Other scam plots where money is just stolen or someone breaks laws is common for financial dramas.  Billionaire Boys Club, Wall Street 1 and 2, The Trade, Rogue Trader, Limitless and Boiler Room are all full of white collar law breakers.

You dont even need to break laws or have a terrorist or criminal to have a good story.  Other People's Money, Qicksilver, Trading Places, Dealers, Pi, Cash McCall, Barbarians at the Gate, the Hudsucker Proxy and Margin Call prove a struggle or unique situation is all you need.

 
The more complicated and logical, the better.
Just my thoughts.

An analyst

Wow, so I listened to a Chief Global Strategist give his opinion on everything going on in the markets and I felt like he had no idea what he was saying.  I won’t say his name but he worked for Wheaton and Co. 

 

He referred to vultures circling very high right now but not swooping in for the kill yet.   Vultures don’t kill their prey, they eat dead animals.

He said the S&P500 might go down to 1750 but not any further down.   That means he thinks in this economic downturn the market will only go down 17%, really?  Most of the world’s equity is already lower than that.

He sure stuttered a lot, he sounded nervous.  Would you take the advice of anyone who stutters and sounds nervous? (assuming he doesn’t have a speech impediment)

He said there will be more pain in Houston, referring to the oil crash getting worse and continuing.  Considering I work in that industry and in that city, I really don’t think it could get ‘much worse’ and oil stocks have generally bottomed out around 40% from their highs for a couple months now.  The ‘rich, evil, planet-hating, reckless oil mongers’ are still that.  High ranking officers who do get ‘laid off’ probably leave with wonderful severances.  Of couse most are normal, good people. 

 

If I disagree with your Chief Global Strategist, and I turn out to be more correct and knowledgeable than him, may I have his job or become his supervisor? jk

 

Trading vs Investing

Whats the difference?

Its confusing to me because investors make trades, just more longer term such as a position trader, but people describe each as being "different".  Im a position trader, but im not sure if im an investor.

A trader's "style" refers to the timeframe or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:

Position Trader – positions are held from months to years
Swing Trader – positions are held from days to weeks
Day Trader – positions are held throughout the day only with no overnight positions
Scalp Trader – positions are held for seconds to minutes with no overnight positions

So is an investor more longer term than a position trader?  Maybe.

Maybe investing should be called long term position trader to prevent confusion.  I think psychology of older people with money affects the term used.  They think it sounds more safe and responsible to be an investor, rather a trader.

im a position trader, i make bets. Investors make bets but they might be longer than a few years.  If i happened to hold onto a position trader for a few extra years, would i then be an investor?  This is confusing.

Buybacks

About a trillion $ was spent buy public companies to purchase their own shares.  It was a record year.  But as usual, when everyone does something, few do it right.  Companies were buying shares to make their EPS ratio bigger, but they did it when the market plateaued at all time highs.  There was no more buying pressure.  Why make your numbers look good when few are buying?  Is it fun fighting over scraps?  Now there are companies with nice EPS ratios but there stock just keeps drifting down.
It seems like normally companies buy back to coax people into buying and pushing the stock price up.  That sounds ljke a bad reason to buy something but thats how people are.
Maybe they bought back shares for different reasons, like preventing a hostile takeover, to give as a bonus to employees or whatever.

What i can say is i would have argued with all of these executives and cfo's about their timing.  Horrible timing.  The people making these decisions know little.  Instead of going overboard in Q4 2015, they should have waited till Q2 or Q3 of 2016.  They could have gotten similar EPS but at a much cheaper price.  Gopro bought heavily and their stock just tanked.  Noone cared. I guess a newer company like that wont have anyone with real experience.  Established companies have more experience in their staff, they will make bad decisions.  Newer companies will nearly self implode.

Linkedin

Its lost about half of its value after a bad outlook was created.  I have a feeling the execs are trying to kill the stock so they can buy it back real cheap.  It sounds like they elaborated on their bad outlook pretty well, saying anything bad they could.  They would do this if they have big plans in the future. 

Oil supply

To put these storage issues into context, Goldman estimates $1 billion of gold would fit into a bedroom closet. Crude oil of the same value would require 17 supertanker ships that can hold about 2 million barrels of oil each.

OPEC continues to pump oil at full throttle as it seeks to avoid losing further market share to higher cost producers in the U.S. and elsewhere.

Many figured U.S. shale drillers would scale back much faster as prices fell.

The latest EIA figures show that the U.S. pumped 9.32 million barrels per day in November. That's actually up 1% from the year before and not too far below (4%) the April 2015 peak.

So...aramco's strategy did not work.  Oil companies could make a killing in the next few years.  We will never have a problem storing gold.  Opec is desperate.

Several industries are down

Auto makers are down a lot and biotech is close to -40% from its peak.

I wish ford or gm or a biotech company was in my 401k.

Whole market/industry specific

A recession or expansion refers to an entire economy being in the same boom or bust.  The truth is the performance of one or more industries affects others.  Everyone affects everyone.  Different industries are only a little connected, not completely.  So it is possible to have a few industries crash while the overall economy is expanding.

What makes a recession or expansion is many industries moving together.  People talk about recessions, referring to the whole economy but they hardly care about recessions for specific industries.

My point is one should monitor specific industries and buy them low/sell them high.  Maybe some will go down together, and its called a recession, maybe not.  I would buy x industry when its at a routine low whether its the only industry crashing during an expansion or recession.

People talk about the whole economy as if there is nearly 100% correllation and thats not the most expert way to view things.