Finance Zen Guru

A political slugfest over allegations from women who apparently are the most selfish and dishonest

2016-10-14T22:51:00.000-07:00

It is so entertaining to watch TV these days as the US Presidential campaign keeps going from bad to worse. A new controversy is raging now a days about women from all corners coming out accusing Donald Trump (@realDonaldTrump) about his sexual behavior. And the media is providing 24/7 coverage to such stories so that public never gets to think about the real issues facing this country and the entire world.

Clearly no politician, including people from his own party, wants Mr. Trump to win the elections because he is not from the political class. It's like the Wall Street club where it is very difficult for any main street person to enter and make it big. All politicians don't want any non-politician to get an opportunity to become powerful and in-turn expose their real faces. Unfortunately in the end, general public always falls for these gimmicks and chooses a seasoned politician (like @HillaryClinton) as their leader. In the end, public squanders away the golden chance that comes only once in many years (4 years in US to be precise) to do the right thing and falls for the most polished politician on the stage.

Coming back to these stories about women who are now popping up like mushrooms everywhere in every corner of the country accusing Mr. Trump. I think that these are exactly the women who bring disgrace to the womanhood itself because they kept their mouth shut for so long. I don't have any sympathy for these women but am actually outraged by their behavior. Why did they not report Mr. Trump's behavior to law enforcement right when it happened, why did they not tell it to their friends and family when it happened, why did they not retaliate themselves at the moment when it happened. Their silence has put so many other girls and woman at risk. I have strong belief in the police, in law enforcement and justice system of this country that these women must have gotten full protection if they were bold enough or caring enough to report these incidents earlier. But that did not happen.

These women actually represent the weakest and most opportunistic kind of people among both men and women. I do not have any sympathy for them but just anger. Anger that these people were either ready to offer their dignity to get some benefits from rich/famous people like Mr. Trump or now framing him to get some benefits from the rival camp. In either case, these people are the ones who never stand firm on their own, never speak against injustice (if that happened in this case) and never think about others. I hope that nobody gives more credit to their sob stories now than they deserve. It could have been some good for public and other women if they had spoken up a little earlier. But now everyone knows that this is just a political theater and I don't think anybody should sympathize with these women at this point. In fact, to the contrary, I would not like any woman to behave and act like these women did if what they claim really happened with them. These women had poor judgement and decision making years ago and are even worse now. Because their actions now are putting whole nation at risk by trivializing the discussions of the race to the most important office in the country. And people of this nation now have to listen to their sob stories instead of focusing on the policies that will impact them and the entire world.

These women were selfish long time ago and they are even more selfish now. In fact I compare such weak, dishonest and selfish people with cockroaches. First of all they are nothing but a nuisance. Second, they all hide in a hole and come out only when they smell some garbage. Forget about why these women did not come out years ago but why did they not come out during the Republican primaries until this year? What were these women waiting for? They were waiting for a garbage news leaked by another (unknown) cockroach. And now these women feel fully justified and entitled to hijack the rights of whole nation to hear about the real issues from two presidential candidates. I question their honesty, integrity and character because of doing so. I hope no other woman of this country and no other girl of this country identifies herself with any of these women.

US Dollar and Great Bernanke Experiment are both doomed

2011-04-18T10:08:00.000-07:00

Market is not paying much attention to S&P warning shot on US debt rating and as usual politicians are still busy playing this news to their own political advantage. In fact, the zero rates, massive debt increases and wilful destruction of US dollar is not to benefit general public at all rather it shows the incompetency and hunger to stay in power or come to power at the expense of public at large. However, putting it bluntly, current administration and central bank officials are doing worse for the public of USA than dictators in the middle-east. In order to win the public votes, administration and central bank is solely focused on unemployment numbers and is running a devastating experiment to destroy the legacy that was hard earned by this nation's forefathers through the investment of their enormous labor, time and money over generations.

And here comes an ignorant and obviously stupid scholar named Ben Bernanke who wants to run a research experiment to corroborate his own faulty research on the Great Depression era even though that experiment is going awfully wrong.

What Bernanke is trying to do is playing a self-defeating game of trying to make the US economy competitive by competing on the grounds of devalued currency. I call it a self-defeating game because:

1) If Bernanke thinks that the only advantage that emerging economies have is their lower currencies then he is awfully wrong. China and India have immense population overall (3 times that of USA) and now more technical and educated population than USA as well.

2) Jobs are not created by devaluing the currency. Companies will keep their operations where cost of raw materials and other inputs is low and more importantly right inputs (like trained man power) are available. Also, inherently, companies tried to produce where their customers are to keep overhead costs low. In the long run, with devalued US Dollar, more profitable customers will be elsewhere and not in USA.

3) Lower dollar will force people to move their assets outside and in more profitable countries where interest rates and investment returns are higher. This will become a self-sustaining cycle putting immense pressure of US dollar which will be nearly impossible to break once it sets in.

4) Even if unemployment goes down due to these misplaced policies in the country, general public will not be better off in any way. In fact, it will have the negative effect of hitting the consumers most thus defeating the purpose in itself.

The best approach now is to start normalizing the rates and restore some credibility for the US economy and US Dollar so that local companies can maintain their buying power and make better investment in future technologies and ideas that have traditionally been the source of strength for the economy.

US Dollar and Treasuries are primed for a tailspin downwards

2011-03-30T20:23:00.000-07:00

The US government is adding to debt like a vociferous elephant and relying on its central bank to fund the huge appetite. The problem is that Fed is trying to jump start the economy that is practically dead sans the government debt by trying to stimulate employment for a generation addicted to Facebooking and Tweeting their time away in following Charlie Sheen (an infamous US TV star addicted to drugs) and Snooky (that's not her real name and she is another hugely stupid famous TV star of an idiotic TV show called "Jersey Shore"). Of course, with every central bank printing money and insanely focused on promoting growth, partying is catching up in every country but some countries still have the balance of education and partying maintained. US has to first find this balance before it can try to find balance in its economy and monetary policy.

First of all, I don't believe that central banks have the intelligence or know-how of running the business but suddenly they have become all the more powerful with the "Fiat-currency" policy which makes them falsely believe that they control the fundamental economics of the country by following policies of printing money or draining money through various operations of quantitative easing, discount window, repo and reverse-repo. All these believes rely on one fundamental thesis that money that these central banks are trying to print in a race to outsmart each other by getting to the bottom first is, in the end, considered a storage of value. To create the notion of money as a store of value, it has to be in controlled supply in the first place. With US alone having $3 trillion on Fed's balance sheet so far and an intention of taking on more debt (the liability of social security, medicaid and other government operations ballooning to $500 trillion in medium term), I don't think US dollar has any storage value left for any practical purposes whatsoever.

Now Fed has slowly started washing these dirty linens of the debt-infatuated country in public by embarking on a series of quantitative easing with QE3 being promoted by some financial institution intellectuals who stand to gain again in the short-term by creating an irreversible and irrevocable damage for the whole nation in the longer term. Of course, White House being the political body and focused on next elections also cares about next 2 years only and as long as all these false and misplaced policies can create a false short-term feeling in the voter to persuade them to vote again the current administration for the next four years, President and his staff will be very happy.

Nobody, including me, really cares if US goes into a situation like Greece or Libya after 5 years. As an investor, I can move my money and business around very quickly to the next profit making opportunity in a different country. Even though this idea might seem laughable at the moment, we are approaching it at the speed of light and 5 years is all that is needed in this wired world to abandon the darling country of the present. I am sure that Mr. Bernanke does not have any intelligence to be the Chairman of Federal Reserve Board and he also belongs to the crowd in this nation having brains of Snooky but who are enjoying the limelight because others don't have any clue either. Federal reserve board member Mr. Thomas Hoening seems to have some reason but other members are timid to always fall in line with Mr. Bernanke during the policy meetings perhaps because they don't want to play the party spoiler thinking that this time around outcome will be different. Fed is again focused, more than ever on short-term fixes by keeping the funds rate arbitrarily zero. This time around party is going on with more liquid assets like stocks, commodities and bonds rather than LBOs and housing loans.

But economics and finance have one very fundamental tenet and it is that it's a zero sum game, always. It does not matter whether we have Fiat money, Gold standard or some other measure of money. So there will be some one holding the bag in the end when the song stops again. And this time it will be the administration and central banks given the idiots leading them. Believing that these idiots have enough power and willingness to stay the course, it's certain that US Dollar and Treasuries will not have any intrinsic value soon. The only thing left to be seen will be that how long Mr. Bernanke's thesis survives.

Beginning of a bull market, really!!

2011-01-06T11:08:00.000-08:00

We are seeing some selling in the stocks today though any selling is not going to be pronounced. According to Jim Cramer, stocks have nowhere else but to go up. Not that I rely on his analysis or his thesis even for a second, but I have to agree with him. The reason is that there are too many players in the market and it's very easy to control a herd because of "herd mentality". I call it that because with so many investors out there, who really has the education, intelligence or even inclination to waste time in going through the financial statements of all the companies whose stock they want to buy. It's so easy just to follow the herd. We even have a dignified term for this on the Wall Street and it's called "momentum play". In simple terms it means that you don't have to do any homework just follow what others are doing assuming they have already done the homework for you. May be Jim Cramer does some of that for you!! There were so many Jim Cramers in 2005-2007 in the real estate market disguised in the form of real estate brokers/agents. They told every one that house prices only tend to go up if you chose the location and house properly (this was the homework part btw that they brought to the table). Combine that with low interest rates and glut of money pouring into the mortgages from US as well as foreign investors searching for extra yield and you had the recipe of straight-line increase in house prices.
The difference is just that this time around it is in the stock market. All other ingredients are same. Interest rates are near zero, Federal Reserve is fully committed to print money (i.e. provide liquidity), Jim Cramer is there and pretty much every one on the Wall Street is a bull now. We can ignore the low earnings estimates otherwise we can't justify the stock prices. In fact, it's very good for retail investors that earnings estimates are low because it provides each company an opportunity to beat them by 1 or 2 cents and thus provide a same day upside of at least 5-10% in the respective stock.
Under this scenario I am very comfortable in recommending any stock on earth as a good or great buy. So investors should not waste time in trying to look through the financials. There is no meaningful information there. Just invest based on "momentum". And I have full faith in Ben Bernanke that he will not let us down. As long as he is providing liquidity ("printing money" in layman's term), we should buy stocks. Keep in mind that Federal Reserve and Congress keep a close eye on the market and do not like it very much if market goes down 100-200 points in a day. So we are fully assured that they will not do any thing to roil this rally and in fact will provide more liquidity if the market conditions warrant (i.e. market drops 100 points in a day). Also money will now be moving into the stocks after saturating the commodities and bond markets. You can also follow Jim Cramer to get an extra 2-3% upside because he controls quite a few herds out there.
In this post I am deliberately not mentioning any particular stocks because as I said before "Any" stock is good. Investors should worry about picking and choosing at a later date.
Remember that many people made a lot of money during the housing boom as long as you know when to get out. So it is the time to make similar kind of money from the stock market now. Dive-in ;-)

Market currents for New Year

2011-01-03T10:51:00.001-08:00

On the first days of trading in 2011 market is up significantly with Dow Jones avergae at 11704 and S&P 500 at 1274. Both of these avergaes are up sharply since August 2010 with no downward pressure at all since Ben Bernanke confirmed that he has all the intentions of creating next asset bubble even though it means destroying the currency and consequently the power center position of the whole country. In Ben Bernanke, we have one person who will successfully diminish and destroy the country, pretty much single handedly, even though he is not a political figure elected by the democratic system in place in USA. Stock markets are up becuase fundamentally stocks do not have any value in today's market. It's driven by those investors who are hungry for yield to benefit at the expense of devaluing the whole country. Any prominent financial institution with access to Fed's lending can access short-term loans at 0-0.25% and can generate a better return by investing elsewhere. So people started with investing in junk bonds (less risky than other investments). As they pretty much exhausted bond market, investors slowly moved into commodities (riskier than bonds but still less risky than stocks). Now copper is hitting all-time highs, gold is up significantly and silver is also making all time highs. Now as commodities look slightly more expensive, investors are turning to stocks with full faith in the stupidity and incapability of Federal Reserve in USA and especially its chairman Ben Bernanke. As long as he is leading the Federal Reserve, I am very bullish on stocks.
The good thing about stocks is that they don't have any fundamental value unlike some of the other asset classes mentioned before. So people might or might not pat what they want for the stock. This is clearly reflected in many high-profile stocks which are trading at all-time P/E multiple of 60-100 (which is enormous by any historical standards) but who cares. As long as I can generate a yield of more than 0-0.25% from my investments, my investors and I are all very happy. I am also advising to move all the profits made in USA to overseas markets becuase its better for the health of investors to stay away from US dollar.
This is pretty much the fundamental investment thesis at every big financial institution in USA. I, on my own part think that sooner or later people in the country will realize the folly of this chairman and put pressure on the government to oust him. I just hope this happens sooner before it's too late. Until then I'll be in the bull market camp and make profits on every day rally of the market. Buying the hot stocks is more rewarding if you have a target of 2-3 day investments. Some stocks in this bucket are: AAPL, NFLX, PCLN and CMG.

Stock market is highly overpriced

2010-08-27T10:25:00.001-07:00

Today Dow Jones industrial average is hovering around 10000 level while S&P500 is at 1057. Of course we have come down slightly from highs of the year and that gives some investors an argument to make that stock market is undervalued or too cheap. I think this argument is totally baseless. In fact stock market is highly overvalued given the future earnings that actual companies are seeing. Recent spate of M&A activity is highly reflective of that. Companies are destroying stock holder value at a record pace in a bid to get a fictitious boost from the target companies. Recent examples of such offers are Dell and HP's bidding war for 3Par and BHP's bid for Potash (POT). These highly overvalued acquisition bids show one clear thing: that companies are so worried about holding their earnings (and thus trying to hold on to their market valuations) that they are ready to take highly expensive short-cuts. But if history is any guide, these short-cuts cost a lot of money to shareholders. I call these short-cuts because Dell, HP and BHP all have capabilities and resources to develop the technology of their targets quickly if they are willing to deploy half of bid amount into in-house development. This will also create a huge number of new jobs in the economy. But their urgency to not take this slightly longer route sends only one signal very loud and clear. These companies, as they stand now, do not have enough earnings in the future to support their current share prices (or market valuation) if they don't quickly get into newer domains. This comes at huge cost to existing share holders through unreasonable value destruction.
On the other hand, Federal Reserve is adamant on destroying the value of US dollar. Their hypothesis is revolving around avoiding deflation and stock market pressures. I can only see that by taking steps to further undermine the local currency, Fed will be creating a much bigger problem for citizens of USA. As we see everyday in report and data that US public is not earning enough to support big purchases. Credit card loans are lower because line of credit to many consumers has either been reduced by banks or has been completely pulled. Mortgage delinquencies are rising. In such a scenario, in desperate bid to support the stock market which is overvalued anyway, Federal Reserve is trying to stock inflation. I think even slight inflation will kill the economy completely and will send recovery into downward tailspin contrary to the common belief of it helping the economy. There are fundamental problems in the economy and until they are fixed, we'll not see a sustained recovery. The biggest of these are, highly unskilled workforce in USA as compared to countries like China and India, misplaced health care costs for the companies, aversion in work force to work for lower wages and extremely high dependency on credit with less savings culture. Of course, this is a longer path to correct these fundamental problems, so even administrations and central bank are busy in taking short-cuts.
These corporate as well as administrative short-cuts will be costing share holders and general public huge sums. But people don't learn the lesson until they see the results. But this time, in a highly integrated world where information travels very quickly, by the time policy makers see the results of their short-cuts turning out into nightmares, it might be too late for the country, currency and stocks to recover.

Fixing the Economy

2010-06-29T09:08:00.000-07:00

We are seeing some sell-off in the market today because the quick fixes put in by governments and central banks are not working. A lot of authors, including myself, have written a lot about how Federal reserve policies alone and government stimulus are not going to pull the economy out from recession. In fact, by design such policies create more confusion and more volatility in the markets. For example, treasury market is going into bubble territory because 1) US treasury is assumed to be risk-free. 2) Banks can borrow money at 0.1% from Fed and invest in treasury to earn 0.6-3.0% risk-free depending on the duration. And lastly 3) There is an assumption of Fed itself providing the backstop for treasury market in case of disruptions. Even though Fed as of now has stopped buying treasuries but market believes that it can force it to do so if need be.
These are exactly the reasons why M1 money supply has not increased so much even after unprecedented liquidity increase from Federal Reserve. Banks do not have any incentive to lend money as long as the differential between their borrowing costs (Discount window lending and interbank lending, where both these rates are set by Federal Reserve) and yields on US treasuries stays large enough for banks to pour money into treasury market. But Fed is scary of raising rates because it thinks that stock market will not digest it easily. I agree with it in the short-term, may be 3-5 market sessions, but then market will return back to fundamentals.
By increasing the rates, Fed will force banks to go back to their core business of lending money to real customers.
Also, we have to keep one more thing in mind. The concept of money itself was invented to make the exchange process in economy easier. Money is a medium not the end itself. So economy has to grow based on other factors. Though research shows that manipulating the money supply has its effects on economy and thus in-turn on inflation as well. But I am postulating that this effect is more pronounced on reducing the money supply to curb economic growth. It does not work so well in the other direction. By increasing the money supply we can not stimulate growth beyond a limit. The reason is simple. In the former case, economy itself is growing and money is needed for transactions. By reducing money supply we can cut down on some transactions which do not have high value (or return in simple terms). Thus risk aversion increases slightly with reduction in money supply which in turn brings down growth rate. On the other hand, later case has different dynamics. By increasing the money supply we can reduce the risk aversion to some extent thus having some stimulating effect on the growth. However, it is impossible to generate transactions simply by increasing the money supply. Transactions will increase only if economy by "itself" is strong.
So here are few methods to make US economy strong in itself.
We have to create incentives for businesses to innovate. This involves giving them incentive to hire highly skilled work force easily. That in turn means making visa and immigration process for skilled workers easy and more streamlined. By hiring these workers, US companies will not only acquire competitive edge but will also need to create lower end jobs. For example, if a company hire 20 high skilled workers then it might need more office space (construction jobs), more maintenance (janitorial staff, security staff etc.) and more technology support. This cycle becomes self-sustaining as new workers will be willing to invest more in the country in the form of taxes, buying houses and buying other amenities. The only way for US government to make US economy grow at this point is to reform the immigration policy in favor of hiring and retaining highly educated and skilled workers. This will also make US companies more competitive and future-ready in a global economy.
We also have to invest in research and development of future technologies and processes. Government should create incentives for private sector to increase spending in this area by providing more tax reliefs and also by increasing government's own spending in these areas through grants.
We have to realize one more economic reality. Economy always grows "top-down" and not "bottom-up". We need airports and vast number of airport employees not because we could create those jobs first but because we created the aeroplane in the first place. By trying to focus government's approach on saving or creating lower-end jobs (e.g. hourly jobs in construction etc.) at the expense of tightening policies for higher-end jobs (Engineers, MBAs from foreign countries) we'll be doing more harm than good for the long term health of the economy. Government should try to create policies to support growth at the top that will automatically trickle down. How fast it trickles down can be controlled by monetary policies but focus to promote growth at the top is essential. This is the only way to have economic growth.
In the mean time, I am shorting treasuries because it's trading at very high price right now. Once way for retail investors is to buy TBT. If you want to be more aggressive then you can buy TYO and TMV. However, I am not a big fan of 3x leveraged ETFs. PST is a play for shorter duration treasuries. I would stay with TBT though.

Money, Media and Politics

2010-06-24T14:49:00.000-07:00

This picture is the true testament of our selfishness and cruelty. But I am surprised that financial reporting channels like CNBC and Bloomberg allow their anchors to take drastically partisan positions on such matters. Through all my years of experience in investing and financial world, I have found one eternal truth. That, to make money you have to be neutral. The minute you start wearing democrat or republican idiotic ideological hat, you tend to make foolish investments. Then it is beyond my understanding why reputable channels like CNBC and Bloomberg are trying to side with BP.
I am a Chicago school follower and fully believe in free market enterprise. But free market does not mean that we give the freedom to everyone to do what they want to do without any respect to law of the land. If that is the case then, idiots like Kudlow on CNBC will argue that we were wrong in punishing Enron executives for creating havoc in energy markets back in early 1990s, we were wrong in punishing WorldCom and Martha Stewart for doing illegal activities. Then why on earth are we trying to favor BP and saying that by implementing an escrow fund, Obama administration is trying to shakedown BP? If Mr. Kudlow and other CNBC anchors have their way then they will soon ask to legalize prostitution, remove ban on drugs etc. These are also industries in some context.
Following free market ideology does not mean closing your eyes and argue like a fool. Chicago school of thought is based on critical thinking more than on any single ideology. We are encouraged to question the norm. Capitalism can thrive only if we use our brains and not by following an ideology to the extreme so that we walk on the edge of being idiot.
Today, Bloomberg also reported that letting BP go under due to this oil spill will not be good for the economy. We can improve the economy by pushing for child labor, prostitution, gambling and drugs also. I want to ask that Bloomberg reporter what he thinks about these ideas. His argument is as ridiculous as it can get.
If a company can't do the job properly that it is supposed to do then free market dictates that it should be eaten over by more efficient enterprises. Here is a company, BP (British Petroleum), which pays its CEO almost 10 million dollar in salary who does not even know precisely how many deepwater rigs they have (based on his testimony in Congress). Is this the best way of running a company. If they can't even fire the guy who has been making downright stupid comments throughout the oil spill fiasco then I think BP deserves to go down.
All the shareholders of BP, which I guess include Mr. Kudlow, some of his fellow reporters and of course Louisiana judge who overturned the drilling ban recently, are in for a huge surprise. The longer they hold their investment in the hope of republicans (in this particular case only, I am not saying democrats are any better) being able to do something, the more money they will loose.
I don't think BP will survive if government implements the plan to recover the claim costs from the company. And rightfully so. Any company where CEO does not know what is going on in the company does not and should not survive for long. We have had Lehman Brothers as an example. BP is relatively too small to fail. All the jobs will perhaps still be working on the same assets/departments albeit under a different company name (Exxon, Conoco, Shell etc.) depending on which company gets which assets.
I normally don't agree with politicians though in this case I agree with Obama that it is in our best interest for a great future to start thinking about our appetite for energy and waste. We are also partial culprits here. But it is also our collective responsibility to make sure that BP pays every dime and more than compensates for management mishaps that it has been practicing until now without worrying about consequences. Their should be some reigning in of corporate greed that harms innocent lives in the process of enriching few stakeholders. Free market preaches better efficiency through better management and thoughtful resource utilization to maximize profits. It never teaches us to take short cuts. Whether BP fails or survives will depend on the ability of its board and management to bring the house in order. Though one thing is very clear, BP's stock is worthless at this point whether you like it or not.

Analysis of Jim Cramer's CANDIES

2010-06-22T09:11:00.000-07:00

Since quite a few retail investors watch CNBC and particularly Jim Cramer because his theatrics make his opinions more fun to watch and perhaps more credible too. In past few days he mentioned a fun word, Candies (basically it's an acronym for Chipotle, Apple, Netflix, Deckers, Intuitive Surgical and Salesforce). These are all growth stocks that have given some good returns until now. So I thought it will be a good idea to put these into some perspective for investors and followers here. Growth stocks are good because they provide good returns as the underlying company is in the growth phase and their earnings are increasing at a fast pace. As analysts align their expectations with real earnings, these stocks tend to go up. However, investors should keep in mind that growth stocks are much more volatile too and any one event can totally wipe out gains in these stocks. In fact high returns are a result of much higher risk in these stocks. The risk is even higher for those investors who try to play the catch on role and missed the initial up moves. Also these stocks are highly dependent on the economy and consumer buying power.
Lets start with Chipotle (CMG). Stock is already up almost 70% for the year-to-date. I believe at this point all the earnings growth is already priced into the stock. Unless company opens a lot of new restaurants and can operate them profitably, stock will have significant resistance going forward. Also competition from similar concept chains like Qdoba (a unit of Jack-in-the-Box, JACK) and startups like Burrito Beach is bound to take some traffic away from Chipotle.
Apple (AAPL) is a little complex story. Its biggest problems are that it's already too expensive and almost every analyst has buy recommendation on it. It's a very crowded trade. It has launched innovative products but the bigger problem is that most of these concepts seem to come from one father figure in the company, namely, Steve Jobs. I wish him good health but investors might be in for the biggest disappointment if he retires or is simply unable to actively participate in the company. Then AAPL will be like RIMM or HP or may be even both combined. Current valuation of the company might not seem too rich based on recent products but it is too overvalued based on the success of one person. Now Apple's ardent followers will vehemently contest it but Apple's history tells me that it's like any other device manufacturer without Steve. Considering the highest target for stock so far is around $370/share. That represents a 30% gain from current level of $275/share but any disappointment on the way may be too costly for those investors who are trying to get on the ride at this point.
Netflix (NFLX) is a good stock which has enjoyed no-competition environment so far. But returns on this stock going forward will depend on the actions of the competitors rather than the company itself. Recently services like Redbox and Hulu are trying to take some market share. But it's too early to tell the outcome in digitally delivered subscription based content.
Deckers (DECK) is a pure consumer play. And I don't think that majority of US consumer is going to be in a comfortable spending situation anytime soon. Though earnings multiple is not too high for this one, but any downside in net earnings itself may change that multiple drastically.
Both Salesforce (CRM) and Intuitive Surgical (ISRG) are B2B plays and their earnings are the result of many factors including ease of credit, macro-economy and overall business conditions. As we know, economy is not out of woods yet and there may be significant pressure on discretionary spending in businesses also similar to the household situation.
All of these stocks have gained more than 40% year-to-date and I believe that at this point these particular growth stocks reflect a balance of their growth potential and sales environment. Any downside in economy may get reflected with bigger downside in these particular stocks. So instead of getting into these names at current levels, I would advise investors to stay away until a pullback in these names. Any new positions should be opened only as a pure speculative plays rather than a long term investment.

Putting one and one together of China's currency move

2010-06-20T17:40:00.000-07:00

In what may appear as a victory for US and Tim Geithner specifically, china today announced its intention to let the renminbi float more freely against a basket of currency. However, the range is still kept at plus or minus 0.5% daily. I am not at all surprised by this move for two reasons: First and foremost, it seems like a symbolic move to me than a real move. Second, it looks like Chinese government is trying to appease the local public by letting the Yuan appreciate a little bit so that economy has less inflationary pressure in the short term.
However, these constant intervention in today's markets by central banks are putting investors at a huge risk. The reason is simple, long term investors make their decisions based on analysis focusing on assumptions about a company's revenue and its cost of capital. These regular interventions by central banks give rise to confusion about those assumptions and result in more volatility. Looks like central banks have become more short term market focused around the world rather than being focused on long term growth of their respective country's economy. This sea-change started from market focused actions of Greenspan during his term at Federal Reserve and that trend has now spread to the whole world with faster speed of information these days. For example, low earning people in India are reeling under intense inflation pressure but central bank there is reluctant to make any large rate moves due to market concerns. What these economists at central bank don't understand is that markets are governed by valuations. And irrespective of their moves market may still find itself overvalued and go down.
Given the cyclical nature of growth, I think market still looks to go down. The reason is simple: people don't buy a house every year, a car every month and a laptop everyday. So by making predominantly easier policies, we can move the future demand around to today in the hopes of stimulating the economy. But it makes the danger of future shortfall even more exacerbated because demand is not evenly spread out.
I believe that we had much higher growth until 2008 due to loose policies and given the cyclical nature of economy, we are not going to get the real demand back until end of 2011. Central banks should understand these limitations and not try to intervene unnecessarily. Irrespective of their moves, market will eventually reflect these fundamentals and current path for it is go down as analysts trim down their earnings expectations. According to my analysis, S&P500 will have to go down to at least 850 before earnings expectations are aligned with fundamentals for next 2 years.
Current move by China to let the Yuan move will hurt Chinese stocks quite a bit as most companies will find it more disadvantageous than beneficial to them. But as I had written in my earlier blogpost, central bank in China was really running out of the options to prevent asset bubbles in the country. While it will help in identifying the fundamental strength of the economy, I believe that emerging market economies are solely reliant on developed economies. Most of the local demand is due to increased earnings of local people from export driven industries. So the "real" fundamentals are much weaker than most investors would like to believe.
I think with more interventions from central banks, market will go down even more as we try to manipulate demand. This will make the recovery even more prolonged and painful. I would ask investors to keep taking money off from the market as it makes upside moves because market is prime for huge downside move as valuation aligns itself with economic reality.
Technical chart below shows that S&P500 is hitting the upper envelop of (20,2) Bollinger band and RSI is getting again into over-bought category.

This means that next big move for S&P500 will be a huge down move to 1000 in the short term.
Any short-term increase in import prices of US companies will put even more downward pressure on their earnings as they will find it increasingly difficult to pass on the price increases. So S&P500 looks more overvalued now.Specifically, I would be selling Chinese stocks if People's Bank of China really lets renminbi move. BIDU is highly overbought and with an over 100 P/E ratio it's a sell candidate. Shorting China ETF (FXI) is a good option for the medium term, specially if it makes any up-move in the aftermath of PBC's announcement.