New portfolio on Stockpickr

I started a new portfolio on Stockpickr.com: Tech Have Beens. It's a list of companies which were great tech companies in the past. They still can make you money. Most of them probably will make you money. But don't expect the same return you get from Apple or Google.

Full disclosure: at the time of publication author didn't have any positions in stocks mentioned in this portfolio. Author has long positions in Apple and Google. Positions can change at any time.

2008: No Predictions And No Resolutions

Everybody is making predictions for 2008. Almost everybody making resolutions.

My take: no resolutions. If I want and can do it, I will. Otherwise, it doesn't worth it. No predictions. I'll play 2008 by ear.

Red Hat: getting ready to get rid of

Red Hat (RHT) reported a decent quarter. Stock is up today. Waiting some time to find out the trend, then probably selling it. It's a good company, has a decent business model, top notch product. Why I am selling? Because there is a better product on market: Ubuntu.

Full disclosure: At the moment of publication, author had long position in RHT, although positions may change at any time.

Disclaimer: This article is not intended as investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Fiat money, gold and free market

There is a lot of noise lately about return to Gold Standard. There is even a presidential candidate, Huckabee, who has is as a part of his program. Proponents are saying that Gold Standard is better for free market than fiat money (i.e. all currencies today). That's totally wrong!
Gold Standard was a creation of governments, not a free market initiative. It was created in the second half of 19th century. Before that, most currencies were either based on silver or were bimetallic (sliver + gold) and were also set up by governments. If you want real free market money, just let anybody to create their own money. It actually was the case in US in the beginning of 19th century when a lot of banks issued bearer's notes. It's partially the case now, because there is no ban on creating your own money. Example: game Second Life, which has it's own currency convertible into US dollars. The only problem with private money is that it's not universal. Government created money is universal, mandated to be accepted as a legal tender. There is no ban in US on accepting something else as a tender, many shops near Canadian border accept loonies.
In short, if you don't like government money, create your own. Advertize it, promote it, make it accepted. Base it on gold, or silver, or rare shells and try to make people to use it. That's a free market approach.

Housing crisis and immigration

There is a solution for a current housing debacle: immigration. Legal: speed up Green Card process, temporary increase quotas for countries. It might add about 1 million immigrants, most of which want to buy a house. Of course, this is only some relief on the market, but every little bit of help is important now.

Complete solution needs, well, legalization of illegal immigrants. Total number is about 12 million, if you make usual assumtions (4 people per family, 60% families want and able to own a house), that's going to take about 2 million homes off the market.

Another politically impossible solution for economy...

China's bubble

There are two opinions:

1. China is in a bubble.

2. China is not in a bubble, economy is developing fast valuations are not very high.

My two cents: there is no way that one country, even as big as China, produces almost half of raw steel in the world and it's not a bubble.

Depression: great or not so great?

Interesting article from Paul Krugman here . Good explanation of current mortgage debacle in layman terms. Unfortunately, no quantification. OK, I see that if prices go down 20%, 13.7 million homeowners would have negative equity. How many of those will decide to walk away from mortgages? Mind, walking away might seem like a good financial decision, but you are ruining your credit score at the same time, which is a bad financial effect. And that makes all the difference. If there are 13.7 million foreclosures in couple of years, that's a Great Depression in the making. If there are 3 million, it's bad, but survivable. Current rate is close to 1.2 million for this year, not so awful yet.

Moral hazard, fairness and other bullshit

I'm tired of it. All those talks about bailout, moral hazard, fairness, blah, blah, blah. Economy is not about morality or fairness. It's all about efficiency. Nothing more, nothing less. If Fed allows banks and other lenders to fail, it will punish everybody, not only irresponcible lenders. Just read about Great Depression. If banks stop lending, economy stops. Period. Bad for everybody, even permabears (where are they going to borrow shares to short if brokers are closed?)

We are closer to GD than anybody thinks. If we are in recession right now, Fed needs to pump huge amount of money into economy just to keep it running, never mind stopping recession. Couple of Fed mistakes (and they are probably made already) and we are no better than Japan in 1990. One more administration thinking that markets can fix everything, and we are deep in it. The biggest danger though if China's bubble is burst now (or soon). Then it's global. Buy the apple cart.

Just in: Fed cut .25. "They know nothing!" (Jim Cramer, you are great. And you know it). Where I can buy a good used apple cart?

Help is coming

Thank you, Henry Paulson. You persuaded president at last. Now if uncle Ben reduces rates by .5%, we just might be OK. Might.

On the stockpickr.com, I see the first recommendation for my portfolio which makes at least some sense: DSX. I already have it in my sights.

Santa arrived?

I decided to do all blogging here. I had a blog on stockpickr.com, but I couldn't get into it (until today) after stockpickr software update.

Is it Santa Claus rally? Does it look too good? Wall of worry helps, of course, but it's based on very real concerns. Usually wall of worry consists mostly of old age grumble (I can do it too, and I do!), but now, real estate crisis is real. It's the first time since Great Depression when residential real estate prices fell for the country. With inept Fed, possibility of something like GD is, to put it mildly, higher than 0.

GD recipe consisted of:

1. Structural crisis.
2. Financial crisis, created mostly by government and Fed.
3. Real estate crisis.

We have (3) and possibly (2). Can we have structural crisis? Who knows. There were a lot of changes in economy lately, are they enough? Internet and globalization are significant forces, but it's hard to calculate their combined hit on old economic models. We have deadwood papers (sorry, newspapers) in decline, TV is about to be hit by internet advertising, outsourcing already done whatever it could. Yeah, music business is almost dead, at least big 5 (or is it 4 already?). All of the above is not a very big chunk of economy to create big structural crisis. But have I overlooked something? Can PayPal, Google checkout etc. undermine banking system? Can VOIP kill phone companies? And if both are true, is it enough for structural crisis?

If economists read this, they'd say: rubbish. But GD happened in Japan in 1990s and they still aren't out of the woods.

Uncle Ben (Bernadke), please, save us!

Today's grumble.

I have a portfolio on stockpickr.com: http://stockpickr.com/members/port/Alex-Portfolio/. It more or less represents my real life investments, although it doesn't reflect position sizes. One thing I don't understand about stockpickr.com is how recommendations are made. Recommendations for my portfolio from Pros: among others, two (!) insurance companies. Never mind that my portfolio is loaded with tech and foreign investments. Go figure. Recommendations from non-Pros are more understandable: three mature techs of five. Of course, I don't care for mature techs. They are have beens of tech world, just take a look at IBM.
Funniest thing, recommendations from "Both" don't include any from previous two sets. Looks like some strange math is involved.

But it's just me...

Get out of Russia!

One of investment rules of Jim Cramer: Politics influence economics. Nothing is more clear than Russian politics right now (well, for most of people, anyway). Consequences of such politics for Russian economy:

1. More government control of economy. Usually a sell signal. Example: government just created a new corporation, "Rostekhnologia", with assumed goal of technology development. Real goal is increased control, which, of course, would stifle any development. The joke from Soviet era: How to make sand in Sahara hard to find? Answer: Give control of it to Gosplan (Soviet planning agency).
2. More corruption. Sell signal.
Little bit more about it. Many people assume that destruction of (some) Russian oligarghs is an anti-corruption fight. Wrong! The only oligarghs destroyed (Berezovsky, Khodorkovsky, Gusinsky) are those who are in opposition to the current regime. Everyone else still enjoys life. Message: you can be as corrupt as you like if you are with us. Which also means that govenment officials will become more and more corrupt with the time. Tame media and lack of political opposition equal corruption.
3. Rampant anti-americanism in 1970s style. It might be a news for some Americans, but you can't read Russian press now without reading a lot of stuff which would make Valentin Zorin blush (for those who don't know, Valentin Zorin was a 1970s TV guy in USSR who built his career on antiamericanism). It's unbelievable what crap you can find even on so-called moderate sites, like mn.ru or pravda.ru. Antiamericanism itself is dangerous economically, but it also can be a basis for expropriation of property. Sell signal.

Based on politics, the following strategies are prudent:

1. Sell Russian ETFs and CEFs: RNE, TRF, RSX
2. Sell CEF with big investment in Russia: CEE
3. Sell ADRs of Russian companies: VIM, MBT
4. Be careful with companies which have significat investments in Russia: TOT, ENI, RDS-B.

Russia is known as part of BRIC, economies with fast development. Russian ETFs, CEFs and ADRs made a ton of money lately for investors. And it's possible that Russian economy would still develop fast in dangerous political environment. There is a relatively safe strategy to make money on such development: buy companies which produce things Russia just have to buy abroad. There are a lot of good companies with such products: CAT, BA, VOLV etc.

Full disclosure: At the moment of publication, author did not have positions, long or short, in any of above mentioned stocks, although positions may change at any time.

Disclaimer: This article is not intended as investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.