Sunday, November 23, 2014

Maybe US Isn't Turning Japanese...

First, a bit of the money theory. It usually called one of theories, but to me, it's the only one that's working. In short, all money is debt. And it's not the debt that banks take from Fed or Central Bank, it's debt which is taken by people and businesses. Because only this debt is used to buy goods and services. Yes, there is some paper money in circulation, but the volume is microscopic comparing to the total amount. When people say that Fed (or Central Bank) is printing money, that's wrong. In reality money is created by businesses and people which are taking credit to buy goods and services. That credit is usually provided by banks, which need to get credit from each other and Fed to have enough money. Thus, the debt pyramid is build bottom to top, not other way around. The problem with credit money is that credit has to be paid with interest. It means that either money mass should increase in time, or there would be a lot of credit defaults, bankruptcies and financial crisis every several years. Exactly what was happening during "good" days of the Gold Standard, which forced deflation. So, some inflation is necessary. Best growth rates for economies were reached when inflation was between 3 and 5 percent. Despite that, Central Banks of the developed world want inflation in range 2-2.5%. Beats me. In normal times, Central Banks regulate inflation using interest rates. Problem is, when rate is either zero, or pretty close to it, you need different tool. Here comes quantitative easing. Central Bank injects more money buy buying debt, public and/or private. But, remember, money doesn't affect prices unless it it's used to buy goods and services. QE affects consumer debt by reducing rates on private debt. In US low rated trickle down to business and consumer debts, thus increasing money available to buy goods and services. It will be happening in Europe as well, when Euro QE starts for real.

Problem in Japan: link between QE and consumer debt doesn't exist. Money from Central Bank is going to banks, which repair their balance sheets, but in no hurry to lend to consumers. Consumers themselves aren't that ready to use consumer credit to buy goods and services. They want to save, but for the good of economy as whole they need to spend. They need to change culture, which is a very slow process.

But there is another problem as well. Japanese economy is not open, like EU or US. It's hard to import goods, even when official barriers don't exist. To support exports, government buys hundreds of billions of dollars, but growth of export increases value of yen, which forces government to buy more dollars. Cursed circle... Japan is slowly opening economy, but it creates extra deflationary pressure, because internal prices for many goods are just crazy. Just search Google for food prices in Japan... And imports drive those prices down (deflation). In the end (another generation or two), Japan will become another open, consumer based economy. Maybe...

That's why I think that US will be OK. And Europe, too. Because these are open economies, with channels which move money from Central Banks to private banks to businesses and consumers. This process is slow and painful. But it works.

As usual, it's not just an idle speculation. I write my blog in order to get my thought in order and make investment decisions. I am going to hold on my US holdings, buy more Europe and avoid Japan.



Saturday, July 19, 2014

Semi-Annual Portfolio Review

World Cup is over. I liked it, although 2010 one was better. I think. Anyway, my congratulation to Germany's team. Four World Cup wins, equal to Italy and just one short of Brazil. What's more important, it's the first time European team won World Cup in America. European football rules!
Well, back to investments. Looks like I (at around 0%) missed this year's rally. Of course, fixed income helped (I account for most of it separately), but it hurts anyway. Below is my current portfolio and my thoughts
Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.
Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Strategy. I am starting to think that political environment is getting better for stocks. Of course, if GOP takes Senate in November, all bets are off. Other than that, things are getting better. Of course, there is a war between Russia and Ukraine (don't believe that crap about rebels, they are from Russia, mostly). There are problems in Iraq. Europe is still lethargic. But US is booming.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Google (NASDAQ:GOOGL)
Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.
Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.
Since last review stock was split into voting (NASDAQ:GOOGL) and non-voting (NASDAQ:GOOG) shares. I keep both.
Plan: Hold, trade around.
ARM Holding (NASDAQ:ARMH)
Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs
No changes since last review
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold, trade around.
Facebook (NASDAQ:FB)
Not the only social network company worth investing anymore. But the most profitable so far.
No changes since last review.
Risk: Wall Street hates the company.
Plan: hold, trade around.
DSW Inc (NYSE:DSW)
Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.
Reinvested dividends since last review.
Risk: Any retailer is a high risk company. Anything can go wrong.
Plan: hold.
Twitter (NYSE:TWTR)
New position.
I wanted it from the beginning. Didn't get a fair (from my point of view) price until April-May. Many people think that company is only good as a possible takeover target. Wrong! They are just at the beginning of monetizing their popularity.
Sold since last review: Restoration Hardware (NYSE:RH).
Banks / Financials
Banco Santander (NYSE:SAN)
Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles. This is also can be placed in International part of the review.
No changes since last review.
Risk: Currency fluctuations, more problems in Eurozone.
Plan: Hold.
HSBC Holding (NYSE:HSBC)
As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.
Reinvested dividends since last review.
Risk:currency fluctuation, another financial crisis.
Plan: hold.
Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.
Airbus Group (OTCPK:EADSY)
One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.
Added to position since last review.
Risk: currency fluctuation.
Plan: hold, add on weakness.
Polaris Industries Inc (NYSE:PII)
One of the best recreation equipment manufacturers out there. Local (for me) company as well.
No changes since last review.
Risks: another recession, people don't like buying discretionary items in recessions.
Plan: Hold, reinvest dividends.
3M Company (NYSE:MMM)
Most innovative company in Dow Jones index. Another company headquartered in Minnesota.
No changes since last review.
Risk: another recession, management mistakes.
Plan: Hold, reinvest dividends.
Diana Containerships (NASDAQ:DCIX)
Looks like a big mistake. Supply of ships exceeds demand.
Risk: multiple risks related to supply/demand in container ship business.
Plan: Sell.
l'Oreal (OTCPK:LRLCY)
I wanted to buy cosmetics company for a while. Most of cosmetics are produced by diversified companies, which is not exactly what I wanted. I don't care about toothpaste, razors and cotton swabs. l'Oreal is a pure cosmetics company, located in France, fits the bill.
Played around position since last review.
Risk: management, competition, economic downturns.
Plan: hold.
Raytheon (NYSE:RTN)
Bought this company because of instability in the world. Company makes missiles, including popular air-to-air AMRAAM and SIdewinder, radars, software, i.e. most sophisticated military equipment.
New position.
Fixed Income
I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on stocktalk of Seeking Alpha.
Disclosure: The author is long ARMH, DCIX, DSW, EADSY, FB, GOOG, GOOGL, HSBC, LRLCY, MMM, PII, RTN, SAN, TWTR.
Additional disclosure: I have no position in RH. Positions can change any time.

Friday, April 25, 2014

Everybody Hates Twitter. That's Why I Bought It

I waited. And waited. Wanted to buy Twitter (TWTR) for a long time. But price was too high for my taste. Now it's close to the IPO price. So I decided to open this position. Another reason: nobody likes the company. Cramer plain hates it.
I think this company can make big money for shareholders. They just started monetizing and are close to break even. Might be something like Facebook (FB), which increases earnings despite all forecasts.
Twitter reports next Tuesday. Nobody knows what is in the report and how market would react. So I started position today, and if stock drops after earnings, well, that would be a good reason to increase position.
It's hard for me to understand current internet sell-off. The biggest risk right now is war between Russia and Ukraine. Formally speaking, war is going on, it's just not full scale. But what does it have to do with the internet? Whatever any internet company is earning in these two countries can't be seen in the microscope. Industrials and energy are more at risk here.
Disclosure: I am long FB, TWTR.
Additional disclosure: Positions can change any time.

Tuesday, March 11, 2014

Why I Reduced Restoration Hardware Position

It looks like I found this stock too late. I like the stores, I'm sure that they sell stuff appealing to rich home owners. But there is a small problem. There is nothing unique in the stores. OK, they recover, restore and sell beautiful (and not so much, but beauty is in the eye of the beholder) pieces of hardware for home decoration. But... Last Saturday I went to Home and Garden show. There were a lot of companies selling restored hardware. Granted, they don't have variety of Restoration Hardware (RH) stores. But it's just a matter of time.
Another problem: one of the reasons I bought the stock in the first place was the fact that CEO was Italian. Well, that CEO is gone.
I am not sure I want to close the whole position. I might as well be wrong. I am thinking about it.
Disclosure: I am long RH.
Additional disclosure: Positions can change any time.

Friday, March 7, 2014

I Am Ashamed To Be Russian

I don't write here on political matters. But, the situation is way too dire.

For the first time in my life I am ashamed to be Russian. When USSR entered Afghanistan, I was young and poisoned by Soviet propaganda. Later, I was happy when USSR fell apart. I thought that I could live in free Russia. By 1994 I found out that people of Russia don't want to be free and responsible for themselves. Now I live in USA, I am US citizen, proud of my new country and relatives are the only link to my former country. But now Russia invaded Ukraine. This is war. It doesn't matter that nobody died yet. Naval blockade, occupation of Crimea and its almost certain annexation are acts of war. And it doesn't look like the end. Russian military already probed approaches to Ukraine borders in the North (shortest way to Kiev). They retreated, when found out that Ukraine military are ready to meet them. Will they retreat next time?

I know a lot of people in Ukraine. My heart is with them. I wish them all the luck, they need it.

Ukraine sovereignty was guaranteed by US, UK and Russia in 1994 (Budapest agreement). Looks like this was just a piece of useless paper. US and UK don't want to defend Ukraine in any meaningful way and Russia is an aggressor. According to Budapest agreement, Ukraine surrendered all nuclear weapons on its territory to Russia. I don't think they are happy about it now. The lesson is clear.

If Putin is not stopped now, Baltic countries will be next. This looks like beginning of World War III.

My heart is with Ukraine.

Слава Україні! Героям слава!

Thursday, February 6, 2014

Annual Portfolio Review

Annual Portfolio Review [Edit or Delete]0 comments
Feb 6, 2014 3:59 PM | about stocks: ARMHDSWDCIXEADSYFBGOOGHSBC,LRLCYMMMPIIRHSAN
Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.
Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Strategy. As I already mentioned in my blog before, political environment doesn't look good for the economy. Strategy changes: increased cash cushion, reduced long positions, more trading around positions. This estimate is not changed, despite huge bull run on the end of the last year and extremely bearish beginning of 2014.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Google (GOOG)
Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.
Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.
No changes since last review.
Plan: Hold, trade around.
ARM Holding (ARMH)
Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs
No changes since last review
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold, trade around.
Facebook (FB)
Not the only social network company worth investing anymore. But the most profitable so far.
No changes since last review.
Risk: Wall Street hates the company.
Plan: hold, trade around.
DSW Inc (DSW)
Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.
Added to position since last review.
Risk: Any retailer is a high risk company. Anything can go wrong.
Plan: hold.
Restoration Hardware (RH)
Creamer's recommendation. As a part of research, I visited a local store. And liked it a lot. Company sells various home improvement stuff, mostly restored old furniture and other decorations. There is no real competitor in US, because unlike others, this company got style.
Added to position since last review.
Risk: as any retailer, RH is a high risk company.
Sold since last review: Red Hat (RHT).
Banks / Financials
Banco Santander (SAN)
Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles. This is also can be placed in International part of the review.
Reduced position since last review.
Risk: Currency fluctuations, more problems in Eurozone.
Plan: Hold.
HSBC Holding (HSBC)
As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.
New position.
Risk:currency fluctuation, another financial crisis.
Plan: hold.
Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.
Airbus Group (OTCPK:EADSY)
One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.
New position.
Risk: currency fluctuation.
Plan: hold, add on weakness.
Polaris Industries Inc (PII)
One of the best recreation equipment manufacturers out there. Local (for me) company as well.
Traded around position since last review.
Risks: another recession, people don't like buying discretionary items in recessions.
Plan: Hold, reinvest dividends.
3M Company (MMM)
Most innovative company in Dow Jones index. Another company headquartered in Minnesota.
Added to position since last review.
Risk: another recession, management mistakes.
Plan: Hold, reinvest dividends.
Diana Containerships (DCIX)
When Cramer recommended to by Diana Shipping (DSX), I did some analysis. I think material intensive growth in China is over, country is trying to change growth model to less material intensive. Which means less demand for general cargo shipping in the world (i.e. raw materials). Which, in turn, means that DSX is dead money. Not only China demand for raw materiel is not growing, but also a lot of general cargo ships have been built in the last 10 years. Less demand, more supply, no profit. I decided to go with DCIX, because it owns container ships, which should do good when trade is growing. So far, stock didn't live to expectations and I am not sure it's not a mistake.
Risk: multiple risks related to supply/demand in container ship business.
Plan: Not sure. Thinking about it.
Sold Applied Materials (AMAT) since last review. Also bought and then sold FIAT(OTCPK:FIATY).
l'Oreal (OTCPK:LRLCY)
I wanted to buy cosmetics company for a while. Most of cosmetics are produced by diversified companies, which is not exactly what I wanted. I don't care about toothpaste, razors and cotton swabs. l'Oreal is a pure cosmetics company, located in France, fits the bill.
No changes since last review.
Risk: management, competition, economic downturns.
Plan: hold.
Fixed Income
I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on stocktalk of Seeking Alpha.
Disclosure: I am long ARMH, DSW, DCIX, EADSY, FB, GOOG, HSBC, LRLCY, MMM, PII, RH, SAN.
Additional disclosure: Positions can change any time.

Friday, January 24, 2014

Why I Bought Airbus

My apologies to my readers. I promised article yesterday, but writing it now, about 10 AM Central time.
So why Airbus (OTCPK:EADSY)? Well, try to find another industrial company which has orders for 8 years ahead. I know another one, Boeing (BA), but Boeing is in US, and one of my investment theses is that Europe just started recovering. So if there is a choice between similar US and Euro companies, I choose Europe.
When I'm looking at Airbus (and at Boeing for that matter), I ignore all noise about new exciting products (A350, Dreamliner etc.). What matters is core business. Core business of Airbus is A320 family. Company has backlog for 8 years at least. Producing 42 aircraft a month is not enough, so company is going to increase output.
As usual, I can't ignore dangers. First of all, it's competition from Boeing 737. But demand is so great, there is a place for both companies (BA also has about 8 years backlog). Second danger is from Bombardier (BORAF) and Embraer (ERJ), both of which are developing their own 120 seat aircraft. This danger is not significant so far. Reasons: planes are not ready yet, they only compete in part of A320 segment, A320 has a very good history with airlines.
Disclosure: I am long EADSY, .
Additional disclosure: I have no positions in other stocks mentioned. Positions can change any time.