Saturday, January 4, 2014

Billionaires Dumping Stocks, Economist Knows Why

Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.

In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.  (more)

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This Will Cause Catastrophic Financial Destruction In 2014

from KingWorldNews:
Eric King: “Is 2014 the year that the derivative time bomb explodes?”
Ing: “Eric, that’s a very good question. Derivatives are not only a ticking time bomb, but the pervasiveness in terms of the use of these destructive instruments inside of the financial system is mind-boggling….
“We see enormous quantities of derivatives not only from the banks who are creating these, but now we see the players are turning out to be governments and sovereigns. This is why this is most troubling. They have stepped into the vacuum and have been playing aggressively in the derivatives market.
John Ing continues @
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7 ETFs to Buy in 2014

2013 was a phenomenal year for stock investing, as the S&P 500 added more than 30% in the time frame. This came after a flat 2012, and the great performance was had despite worries over the taper and still muted economic growth.

It was also a great year for the ETF world as well, as close to 100 (net) new products hit the market, and assets under management crossed the $1.5 trillion mark. Now there are more than 1,500 choices out there, giving investors a near paralyzing amount of ways to slice and dice exposure to hundreds of market niches.

A few of these stand out though, as potential top performers for the New Year. Below, we highlight seven of our best ETF ideas for 2014, any of which we are looking for outperformance from over the next 12 months:

SPDR S&P Regional Banking ETF (KRE - ETF report)

As the Fed continues to taper, longer term rates look likely to creep higher. However, short term rates are holding pretty firm, creating a bigger interest rate spread between long and short term rates (see all the Top Ranked ETFs here).

This is great news for companies like regional banks which focus on ‘basic’ banking activities like lending. After all, these banks borrow money from depositors at low short term rates, and give loans at the higher rates, making it that much easier for these firms to make money. (more)
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Debunking Real Estate Myths – Part 1: House Price Indexes

Real estate bubble, sub-prime mortgages, securitized products and their derivatives were largely responsible for the ultimate collapse, leading us the the economic conditions of today. Policy makers and investors alike were, and still are, basing their actions on a false set of commonly accepted myths.
The first example is provided by the many different House Price Indexes. Borrowing a table from my cyber-friend Calculated Risk, here are the most recent changes in the indexes put together by various different sources:

calculated risk home price summaryHouse price increases according to a variety of sources

Depending on who one prefers to believe, house prices have appreciated between 5.2% to 13.2% year over year. Case-Shiller is probably the most commonly referenced index today. Their fancy model with a nice interactive chart can be found on the S&P/Case Shiller website. Those who want to engage in a bit of intellectual exercise can read the 48 page explanation of the Case Shiller methodology. A much better read however, is this simple one page overview by FNC that debunks all the house price indexes, including their own. I would like to add that no index takes into account the prevailing interest rate and lending practices, and no-one has figured out a method to make appropriate adjustments. For example, how does one compare a house that sold for $100,000 in 2005 utilizing sub-prime financing, vs. the same house that sold for $70,000 cash in 2013, with a few foreclosures and flips in between? Was $100,000 a meaningful indication of value? Did it really depreciate by 30% in 8 years? Here is the well-known Case-Shiller chart:

CS home price chart
Case Shiller house price indexes – click to enlarge.

Everyone is somewhat familiar with the chart. About the only conclusion I can draw is that easy monetary policy and irresponsible lending practices may lead to a bubble, and bubbles do always burst. It has no predictive value nor does it really tell one much about the past. Gurus may compare today's prices to the sub-prime peak or some imaginary "norm", as if that could offer guidance to policy and investment decisions.
Looking at the Case-Shiller 20 cities composite index simply makes no sense.

20 citiesThe 20 cities disaggregated

These twenty cities all have different demographics that change independently from one another over time. What would be the purpose of contemplating these peaks and troughs, especially when combined in an index?
It is baffling that the FOMC supposedly looks at data such as the various House Price Indexes and somehow decides on that basis that buying agency MBS is a good policy. They even figured out that $600 billion was the right amount for QE1 in 2008, and an additional $600 billion was appropriate for QE2 in 2010. Of course with QE3, the Fed determined that $40 billion per month was good for 2013, but $35 billion is better for 2014.
The wisdom of the Fed escapes me at the moment. Maybe it has other, unrelated objectives in mind. Stay tuned for Debunking Real Estate Myths – Part 2: Overly Stringent Underwriting.

Tables by: Calculated Risk & S&P/Case-Shiller, chart by S&P/Case-Shiller
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2014 Is Going To Be A Year Of Utter Turmoil & Chaos

from King World News
With continued uncertainty around the globe, today a man who has been involved in the financial markets for 50 years, and whose business partner is billionaire Eric Sprott, warned King World News that 2014 is going to be a year of utter chaos and turmoil. He also discussed what this means for investors around the world in major markets, including gold and silver. Below is what John Embry had to say in this powerful and timely interview.
Embry: “I am deeply concerned about the deterioration of the geopolitical situation. I think there is no better example of what’s happening than in Japan. You have the Japanese leader, Abe, who is making a mess of their economy and ultimately their currency and bond markets….
Continue Reading at…
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Fleckenstein – Historic 2014 Stock Market Crash & Dislocation /
With bullish sentiment on stocks reaching levels not seen since 1987, today Bill Fleckenstein warned King World News there is a strong possibility bullish investors will experience a historic stock market crash and dislocation.  He also warned that this would mean a “wipeout” for investors who are positioned aggressively in stocks.  Below is what Bill Fleckenstein, who is President of Fleckenstein Capital, had to say in this powerful interview.
Eric King:  “When it (the stock market) turns, rather than have a typical 12%, 15%, or maybe 20% correction, could it be much, much deeper than that?”
Fleckenstein:  “Of course.  We could have a crash.  No problem.  Absolutely no problem.  Are you kidding me, with the computers doing what they do, we could easily have a crash….
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Best Trade Ideas For 2014

Record worldwide production has caused prices to decline 48% from the August 2012 peak.  However, demand is also at record levels and there's talk of China building a strategic corn reserve.  If China were to stockpile corn at the current rate of their cotton and copper reserves, they would need to accumulate an additional 308 million tons above their current needs, which is equivalent to 12.125 billion bushels.  Currently, the USDA forecast shows China ONLY importing 7 million tons of corn this year.  Another wildcard is weather, there is absolutely no weather premium factored in at current prices. Therefore, I would buy July, 500 corn calls for $450.
Corn Futures - Weekly Continuation

Chart by APEX
The fundamental story for platinum is very bullish.  Supply is contracting and worldwide auto catalyst demand is increasing.  In fact, the 2014 world platinum balance is expected to be negative 600,000 ounces.  Whenever I see world demand outpace supply, I pay careful attention to a bullish technical setup to confirm the fundamental story.  Also, auto catalyst demand from China and India are expected at record levels for 2014, which could result in the largest deficit on record.  Call or email me for specific strategies. Platinum is thinly traded so you will need an expert to help navigate this market.
Platinum Futures - Weekly Continuation

Chart by APEX 
S&P 500 Futures
We will be very closely studying the S&P 500 futures market this year, watching for trading opportunities to develop from a technical point of view, with a strong emphasis on candlestick charting.
March S&P 500 Futures - Daily

Chart by APEX
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