Saturday, April 7, 2012

Astrology Update On Dollar and Metals

Below is an excerpt of an email discussion yesterday between Karen and I regarding what she thought about the recent Dollar strength and Gold weakness. I thought it had some good information and wanted to share.

What are you thinking about the recent dollar strength and gold weakness. if you can confirm that the dollar is heading lower and gold is going to rally then I think that would be bullish for markets. ~ Jeff

Mercury went direct today at 23 Pisces is significant and could have been far worse for the markets, but since it did not retro all the way to 22 Pisces is why the market did not wipe out. 22 Pisces would have opposed the US Neptune at 22 Virgo and that would have been really bad. Merc retro’s are quirky too and I always pay close attention to the range in the retro. I don’t see a wipe out here, we should start to move up. As for gold and silver I have the 10th as significant move up – 4/10 could be weaker for $ into Summer. ~ Karen

Egan Jones Downgrades USA From AA+ To AA, Outlook Negative

A few weeks ago when discussing the imminent debt ceiling breach, and the progression of US debt/GDP into the 100%+ ballpark, we reminded readers that in February S&P said it could downgrade the US again in as soon as 6 months if there was no budget plan. Not only is there no budget plan, but the US is about to have its debt ceiling fiasco repeat all over as soon in as September. Which means another downgrade from S&P is imminent, and continuing the theme of deja vu 2011, the late summer is shaping up for a major market sell off. Minutes ago, Egan Jones just reminded us of all of this, after the only rating agency that matters, just downgraded the US from AA+ to AA, with a negative outlook.

From Egan Jones:

Inflection point - when debt to GDP exceeds 100%, a country's financial flexibility becomes increasingly strained. For the first time since WWII, US debt exceeds 100%. From 2008 to 2010, debt rose a total of 23.6% while GDP rose a total of 1.6%. Unfortunately, with an annual federal budget deficit in the area of $1.4T, debt is likely to reach $16.7T as of the end of 2012 while assuming GDP grows 2.5%, total GDP is likely to reach $15.7T. Therefore, as of the end of 2012, debt to GDP is likely to be in the area of 106%. Assuming the federal deficit for 2013 remains at $1.4T and GDP growth is 2.5%, the total debt will rise to $18.1T and GDP will rise to $16.1T, resulting in debt to GDP of 112%. In comparison, France's and Italy's debt to GDP are 81% and 117% respectively. Regarding efforts to address budget problems, the Super Committee was seeking spending cuts of $1.5T over 10 years or merely $150B per year, and was a failure. Obviously, the current course is not enhancing credit quality.

Without some structural changes soon, restoring credit quality will become increasingly difficult. Yields on 10-year treasury notes have fallen to their lowest since early Feb 2010 with US Federal Reserve's aggressive purchases of US Treasuries. A concern is the rise in interest rates placing higher pressure on the US's credit quality. Excess growth of money supply (i.e., debt monetization) harms creditors and ultimately, the economy. Weak debt reduction efforts force a neg. watch.

Louis Farrakhan : The Fall of The Dollar (The Fall of America)

Louis Farrakhan - The U.S Dollar Is Worthless. Its Time To WAKE UP! (Debt, Gold, Fiat Money, War) ! On May 13, 2007, Minister Louis Farrakhan delivered a powerful lecture entitled, "The Fall of The Dollar" at Mosque Maryam in Chicago, Illinois - Headquarters for the Nation of Islam (Debt, Gold, Fiat Money, War) : Truth has no color what this guy is saying what all great economists have been saying all along. Minister Louis Farrakhan is right on point and all will soon see once the dollar is collapsed. The Warning is just about up and the chastisement will began greater and greater and greater. The greatest nation on Earth is on the brink of economic collapse, yet all we care for is to be entertained. Make the politicians pay for their plans. Vote out ALL incumbents. Every single one. We must take back our country.

Why Not Print More Money?

Is Stock Picking A Myth?

Year after year it gets harder for mutual funds to beat the index. It seems like the top stock pickers hit high marks one year then fade to mediocrity the next. With the high fees associated with mutual fund management, and some of the largest funds consistently underperforming the market, you have to question whether mutual fund managers can really pick stocks. For those who invest in mutual funds, it's a very good question: If, over time, mutual fund managers can successfully pick stocks then the price of active management is worthwhile; if not, index funds are the best bet.

Picking Stocks in an Efficient Market
For anyone who has taken Finance 101, you may recall the efficient market hypothesis (EMH). Eugene Fama from the University of Chicago presented his argument in the early part of the 1960s that the financial markets are or can be very efficient. The concept implies that market participants are sophisticated, informed and act only on available information. Since everyone has the same access to that information, all securities are appropriately priced at any given time. This theory does not necessarily negate the concept of stock picking, but it s call into question the viability of consistent abilities to outperform the market by exploiting information that may not be fully reflected in the price of a security.

For example, if a portfolio manager purchases a security, he or she believes that it is worth more than the price paid now or in the future. In order to purchase that security with a finite amount of money, the portfolio manager will also need to sell a security that he or she believes is worth less now or in the future, again exploiting information that has not been reflected in the price of the stock. The concept of efficient market theories was expanded upon in a short book, which is now a staple for those who study finance, "A Random Walk Down Wall Street" by Burton Malkiel.

It is taught that the EMH comes in three distinct forms: weak, semi-strong and strong. Weak theory implies that current prices are based accurately on historical prices; semi-strong implies that current prices are an accurate reflection of financial data available to investors; and strong form is the most robust form, implying that all information has basically been included in the price of a security. If you follow the first form, you are more likely to believe that technical analysis is of little or no use; the second form implies that you can toss your fundamental security evaluation techniques away; if you subscribe to the strong form, you may as well keep your money under your mattress.

Markets In Reality
While it is important to study the theories of efficiency and review the empirical studies that lend creditability, in reality, markets are full of inefficiencies. One reason for the inefficiencies is the fact that every investor has a unique investment style and ways of evaluating an investment. One may use technical strategies while others rely on fundamentals, and still others may resort to using a dartboard. There are also many other factors that influence the price of investments, from emotional attachment, rumors, the price of the security, and good old supply and demand. Part of the reason Sarbanes-Oxley Act of 2002 was implemented was to move the markets to greater levels of efficiency because the access to information for certain parties was not being fairly disseminated. It's hard to say how effective this was, but at least it made people aware and accountable.

While EMH does imply that there are few opportunities to exploit information, it does not rule out the theory that managers can beat the market by taking some extra risk. Most contemporary stock pickers fall in the middle of the road; although they believe that most investors have the same access to information, the interpretation and implementation of that data is where a stock picker can add some value.

Stock Pickers
The process of stock picking is based on the strategy an analyst uses to determine what stocks to buy or sell and when to buy or sell. Peter Lynch was one of the most famed stock pickers who employed a successful strategy for many years while at Fidelity. While many believe he was a very smart fund manager and topped his peers based on his decisions, the times were also good for stock markets and he had a little luck on his side. While Lynch was primarily a growth style manager, he also used some value techniques blended into his strategy. This is the beauty of stock picking: no two stock pickers are alike. While the racier varieties are in the growth arenas, the variations and combinations are endless and unless they have a strategy that is absolutely written in stone, their criteria and models can change over time.

Does Stock Picking Work?
The best way to answer that question is to evaluate how portfolios managed by stock pickers have performed, and open the debate of active vs. passive management. Depending on what periods you focus on, the S&P 500 typically ranks above the median in the actively managed universe. This means that usually at least half of the active managers fail to beat the market. If you stop right there, it's very easy to conclude that managers cannot pick stocks effectively enough to make the process worthwhile. If that's case, all investments should be placed inside an index fund.

Taking out management fees, transaction costs to trade and the need to hold a cash weighting for day-to-day operations, it's easy to see how the average manager underperformed the general index by those restrictions. The odds were just stacked against them. When all other costs are removed, the race is much closer. In hindsight it would be easy to have suggested investing solely in index funds, but the allure of those high-flying funds are too hard to resist for most investors. Quarter after quarter, money flowed from lower performing funds to the hottest fund from the previous quarter, only to chase the next hottest fund.

The success of stock picking has been hotly debated, and depending on whom you ask, you will get various opinions. There are plenty of academic studies and empirical evidence suggesting that it is difficult to successfully pick stocks to outperform the markets over time. There is also evidence to suggest that passive investing in index funds can beat over half of active managers in many years. The problem with proving successful stock picking abilities is that individual picks become components of total return in any mutual fund. In addition to a manager's best picks, in order to be fully invested, the stock pickers will undoubtedly end up with stocks that he or she may not have picked or needs to own to stay in the popular trends. For the most part, it is human nature to believe that there are at least some inefficiencies in the markets and every year some managers successfully pick stocks and beat the markets. However, few of them do this consistently over time.