Thursday, January 29, 2009

Putin, The Teacher

Long, long time ago I thought that someone who tells others to do differently from what she or he does is called hypocrite. This is the definition from Webster dictionary: "a person who feigns some desirable or publicly approved attitude, esp. one whose private life, opinions, or statements belie his or her public statements". Later on, about 10 years ago, well known then "doctor" Laura said that such person, when applied to her, is called a teacher.

We've just got ourselves new economic teacher: Russian Prime Minister, nee President, Vladimir Putin. In his Davos speech he called others not to allow too much intervention into business, not to fall into protectionism, and a lot of other smart things. Other things were not that smart, for example the idea to have more reserve currencies and to make reserve currencies issuers accountable to other countries. Yeah, right. Putin is talking 3 years about making ruble a reserve currency. He just doesn't understand that you can't appoint reserve currency, it becomes such in decades, if not hundreds of years. In all history there were just a handful world reserve currencies: Roman, then Byzantine denarius, Venetian lira, English Pound, US dollar. Maybe I missed one or two. Yen and Euro both are gradually becoming reserve currencies now, but jury is still out.

But the main thing is: Russia is just set huge tariffs for imported cars. So much for talking about threat of protectionism. As for government intervention in business, Russia is a champion. Any businessman in Russia knows that whatever governments wants from him, it gets. Many give money, shares in business, even abandon businesses to government without fight. Nobody wants to follow steps of Khodorkovsky, who founded the best oil company in the country, was robbed of everything and sent to prison on fabricated charges. Niall Fergusson is absolutely right: “The idea of the Russians lecturing the West about how to run the economy is absurd,”

Of course, the best judge of economic ideas is market. And what mister market told us? Ruble fell another 3.5% against dollar today.

I missed one opportunity to short Russia using Market Vectors Russia ETF (RSX). Maybe it's not too late?

Full disclosure: at the time of publication author did not have any positions in RSX. Positions can change any time.

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Wednesday, January 28, 2009

Swear Roosevelt, Act Hoover

"Buy American" provision in stimulus package, voted by House today, is outrageous. Trade wars is exactly what we need to make current Great Depression 2.0 a long term scenario. It's not even like in 1930, trade wasn't that important then. Countries traded goods, but most production chains were localized in countries. It's absolutely different now. Processors are made in USA, memory chips and disks in Korea, optical drives in China, motherboards in Philippines, everything is assembled in China, US-made operating system installed. Just raise tariffs a little bit and final price can easily jump 50%! Trade wars right now are equal collective economic suicide of the world. Chaos they can bring would be much worse than what we had in 1930. Everybody knows what followed. Do we want World War III as a result of Great Depression 2.0?

They are idiots and don't know what they are doing.

Thursday, January 22, 2009

Three Companies, Three Earning Reports

Last quarter earnings for Apple (AAPL), Microsoft (MSFT) and Google (GOOG) are out. The difference is striking.

Apple beat by a mile. And it was expected, I don't understand analysts who accepts company's projections at face value. Google beat, which is no small feat for a company which gets almost all its revenue from advertising. Microsoft missed.

If we were looking at companies by business description, results would look strange. Economy is in a crisis. We have a company which makes retail goods beating expectations. We have company living by advertising beating expectations. And we have a monopoly, which should be much less sensitive to the economic environment, missing.

But things are not what they look like. These companies actually have quite different business descriptions. Apple business is to make the cutest, the easiest to use consumer electronic devices, which become instant fashion once they hit the shelves. Apple is Christian Dior of electronics, company first made computers easy and fun to use, then moved to other electronic devices. Google business is to organize world information, no less. And they are successful, they are doing it much better than anybody else. Being the geekiest company in the world helps as well. As for Microsoft... can you describe Microsoft business in one sentence? "Rule the world" doesn't cut it, ruling is not a business, and competition is way too stiff. "Make all kinds of software which you can sell"? If that's the business, company is not very good in it, once they meet good competition, they are number 2 at best (in databases after Oracle, in publishing after Adobe and Quark). And Microsoft's Web business doesn't fit in this description, no wonder it's wasting close to half a billion every quarter now.

I have my doubts about Apple, wrote about it several times. I still think that Steve Jobs is too big a part of a company and without him it might eventually lose it's fashion value. But it's still one of the greatest companies in the world. I have just an admiration for Google, which found a goldmine on the Web and is making it bigger every day. I don't have any doubts about Microsoft anymore. This is dead company walking. The only way to save it is to split it, as I proposed here. The only problem is that company is not lead by businessmen, it's lead by control freaks. They would die sooner than split company.

Full disclosure: at the time of publication author had long positions in AAPL and GOOG and no positions in other companies mentioned. Positions can change any time.

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Tuesday, January 20, 2009

For Those About To Rule (We Salute You!)

Wall Street congratulated our new President today: Dow Jones fell 332 points. Was it because he is a Democrat? Stocks historically did better under Democratic presidents. Because he is planning to raise some taxes, eventually? Wall Street knew it all along. This is about something which became known today, during inauguration.

Maybe this: "new era of responsibility"? Maybe Wall Street thinks that President really means it and instead of throwing as much money as Fed can print on the problem, he'll start counting it?

Responsibility is good. But it won't fix our current mess. Whatever multiple Japanese governments did in 1990s, they were not irresponsible. Wasn't enough. We are in Great Depression 2.0, and the only way out is to print money and spend it. If deflation takes hold, it would be too late. Mister President, please instruct Treasury to work with Fed to throw more money into the system. Uncle Ben knows that we need it, he'll do his part. Right now I don't even care if this money spend on some good projects or just thrown down from helicopters on poor neighborhoods. Whatever increases amount of money in circulation, not on bank reserve accounts.

Let's be irresponsible. Let's spend tons of money, for good or not, and defeat deflation while it's still a baby. Just drown it in money!

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Buying Preferreds

Banks are being destroyed today. There should be some nuggets in all this bad stuff. But buying common is scary, even common of Wells Fargo, the best (in my opinion) US bank. So I bought some preferred shares, Wells Fargo Trust XII (BWF). Maybe I will even keep it, yield is about 9% at current price.

Full disclosure: at the time of publication author had a long position in BWF. Positions can change any time.

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Thursday, January 15, 2009

Selling Apple.

Sold part of my Apple (AAPL) position today. Big thanks to all fans of the company, they kept price from falling 10%, as it should have.

Full disclosure: at the time of publication author had a long position in AAPL. Positions can change any time.

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Wednesday, January 14, 2009

Time To Sell Apple

No, not all at once. I will be looking for action, trying to figure out trend. But sell I will.

I'm holding Apple (AAPL) since 1999. My greatest pick ever. I started having some doubts last May, wrote about it here. Those reasons are still valid. Apple is becoming almost mainstream in computers, iPod is so mainstream it's hard to see any growth there.

Of course, Apple is a great company. It has great products and religious following among customers. It has great balance sheet: $25 billion of cash and short term investments is a nice pile to have, especially now, when cash is the king.

But there is one problem with Apple which is becoming way too important. Steve Jobs is the Apple. Without Steve, this would be a completely different company. There will be nobody to say about new product "There is no sex in it!". There will be no stop to so-so products which will be released just because it's time for Christmas sale, or MacWorld, or something else.

Steve is seriously ill. I wish fast recovery and excellent health, I wish him live long and happy life. I hope he spends more time at Apple torturing developers and bringing great products to us.

But I don't invest on hope. Health of Steve Jobs is not private matter, not when he is the soul of Apple. We never had good information since his cancer scare. Jim Cramer says that accounting irregularities mean "sell". I say that any information irregularities mean "sell". I am selling at least half of my position on Thursday. Remaining part will be sold depending on action, but no later than May.

I always claim the right to be wrong. I can be wrong about Apple. Company can stay great without Steve. Maybe. If I see something to change my opinion, I will buy Apple back.

Full disclosure: at the time of publication author had a long position in AAPL. Positions can change any time.

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Thursday, January 8, 2009

I Am No Raging Bull

My last article had a lot of comments. That's great! My thanks to all who left comment, doesn't matter if you agree with me or not. I want to answer to some comments here, in no particular order.

First of all, I am no raging bull. And as my readers know, I'm not a "buy and hold" investor, although I can hold positions for a very long time: my Apple (AAPL) and Ebay (EBAY) positions are almost decade old. Actually, I started as a "buy and hold" guy in 1998, and thought that I'm on top of the world. Then March of 2000 came. I didn't do real trading until 2006. Thing is, there is a supercycle on the stock market, about 35 years long. Each period of the cycle consists, roughly, of a bull market and a sideways market, each 12-17 years long. Last bull market finished in 2000, now we are in sideways phase.

I don't think we are going to see inflation soon. All data is screaming deflation. My advice to those who doesn't believe that deflation can happen with fiat currency, read about Japan and think again.

Yes, a lot of people lost everything during Great Depression, had to change their whole life, definitely didn't have any money to invest. But majority of people in the country still had jobs and many of them still could invest. But they didn't anyway, stock market was something people thought too risky until 1950s. And then again, in the next sideways market, BusinessWeek printed and article "The Death of Equities" in 1979. We need to follow Buffett's advice, be greedy when others are fearful.

We are not at this point yet. The moment to buy is when everybody tells you that stock market is dead, that it's going to zero, that world is going to end soon.

Last but not least, I might be too early. New York Times might just print an article "Great Depression II Is Here" sooner than common acceptance comes. I mean the article on the front page, with a huge headline. It's possible. The closest headline I found in NY Times archives was printed on January 1, 1932. Market went down more than 40% down after that. But if you bought on January 2 of that year, you'd have a good profit by summer of 1933. We can't expect to catch an exact bottom. Investment is not an exact science. We just need to earn more than to lose.

Full disclosure: at the time of publication author long positions in AAPL and EBAY. Positions can change any time.

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Tuesday, January 6, 2009

Great Depression 2.0: Acceptance Is Settling In

I'm afraid of GD 2.0 for more than a year. I wrote about it in multiple entries of my blog:

Moral Hazard, Fairness And Other Bullshit
Depression: Great Or Not So Great
Great Depression v2.0: Missing Piece Of The Puzzle
Great Depression v2.0: Reason For Optimism
GD 2.0: Jim, We Are There
Great Depression v2.0: Road Ahead

and others. Most writers and bloggers didn't see depression and deflation coming, were afraid of inflation and even hyperinflation. Many continue to do the same even now. Come on, people! Wake up!

We need to move through usual phases to acceptance, as mentioned in the last article in the list. Acceptance is what can focus decision makers in businesses and governments. And I mean multiple governments, because we have huge international depression.

Acceptance is coming. Jim Cramer almost mentioned that hated term, Great Depression. Now he lost hope in US government and his only hope is China. Good luck with communists, Jim! But you are close to acceptance at last, good. Acceptance coming in some articles now. Today we have two on Seeking Alpha site:

This Great Depression Is Just Getting Started


Deflation: The 800-Lb. Gorilla in the Room.

But probably the most important is the Paul Krugman's blog entry:

The second Great Depression has arrived …

Yes, Krugman is writing about Ukraine and Latvia. From my sources, situation in Russia isn't much better. Anyway, acceptance of the fact (and the fact that depression is international) is coming.

And I am happy! That's what we need. We need acceptance first, nothing will work without it. We can get real bull market real soon!

Let's wait for NY Times article "Great Depression II is here". When we see it, buy, buy, buy. Doesn't even matter what, buy any decent companies. If not sure, just buy index funds, index options or index ETFs, like Spyders (SPY) or Diamonds (DIA). And foreign stocks, funds and ETFs. I'm planning on buying when this happens, going "all in" and even buying on margin. That would be real once in a lifetime opportunity. Like it was in the fall of 1932.

But, I should caution. We are not there yet. I hope we get there fast, sometime this year. Before that, it's trader's market. And we can get new bottoms, and these bottoms might be much lower than what we had on November 20.

Full disclosure: at the time of publication author did not have any positions in SPY or DIA. Positions can change any time.

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Closing TBT

Sold my TBT position today for a small profit. That was a play on window dressing. Wouldn't short Treasuries for any other reason right now. I need to see some inflation to do that again.

Full disclosure: at the time of publication author did not have any positions in TBT. Positions can change any time.

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Monday, January 5, 2009

Still In Range

So much for Santa rally. Dow fell under 9000, returning to the same, 2 months old 8000-9000 range. No bull...

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Sunday, January 4, 2009

New Year, What's Different?

December was a month of dancing bulls. Looked strange, with market, I mean Dow, trading in 8000-9000 range. Anyway, investment world was full of dancing bulls shouting "Stocks are so low, they can't get any lower, it's a bottom, buy, buy, buy".

Now we have a new year. Just a number in the calendar. Yeah, good rally on the first trading day of the year. Still looks like a bear market rally. And now bulls are not dancing anymore. They are running like in Pamplona. Hey bulls, do you know what happens to your Pamplona relatives in the end? Lucky ones end up killed by sword, after entertaining public. Unlucky are just sent to meat processing plant.

Let's see what's really going on. First of all, why bulls think that market can't go any lower? In years of Great Depression market fell 89% between peak in 1929 and bottom in 1932. In today's Dow points such bottom would be somewhere around 1530. At that point I myself will say that it can't go much lower. Before that, I don't know. Nobody knows.

Market is going up for several days when all news are bad? Usually it's a bullish signal. But we have a new year, which also means a new quarter. For me, it's just a number in a calendar. But for fund managers, it's time to make changes in portfolios. For bad ones, it's time to sell stuff they bought for window dressing, for good ones, to profit from such window undressing, and for the best ones, it means nothing. Current market might reflect some new trends, or just plain window undressing.

Oil is going up sharply and other commodities are going up as well, although not that fast. The common (mis)conception is that investors are preparing for coming inflation. May be. But oil jump so far is looking like typical bear market rally. And other commodities might react to different events as well.

Now, inflation. Everybody is talking about it. Fed's rate is near zero: inflation! Never mind that Japan had (and still has) it's rate near zero and they are still looking for that elusive recipe for economic revival: inflation. Obama's team preparing a massive economic stimulus: inflation! Yeah, right. Japan had stimuli as well. So far what I see is quite a modest stimulus package, and it's a big question when and in what form Congress adopts it. And several trillion dollars question, of course, is: how big should be a stimulus to revive economy? How to inject money into economy so it goes into real market, into wages, supermarkets, shops and causes some inflation, instead of going into Treasuries and dollar carry trade?

We are still in deflation mode. And deflation = depression in current economy.

I am an optimist, of sorts. I hope that some way or another we pull out of this crisis, unlike Japan. This country, my country, is way too dynamic to stay down for decades. That's why I believe that this Great Recession (if not Great Depression 2.0) will not last more than 5 years. I also hope that it will not last more than through 2011. Other than that, all bets are off. The most optimistic scenario is that we start recovering in the beginning of 2010. If market, as usual, recovers half a year before economy, real bull market might start this summer. Not now.

I'm not trading or investing on hope. No big changes for me right now. If I'm wrong and bull market prevails, long portion of my portfolio will take care of it. If we go much lower, I have cash on sidelines and will buy stocks which I feel fell too low. I'm going to close my position in TBT this month, unless some event changes my mind. And I'll try not to miss any obvious trades. Other than that, I'm neutral or slightly bearish and remain so until there is a reason to change my approach.

Full disclosure: at the time of publication author had a long position in TBT. Positions can change any time.

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