June 1, 2013
Comment on Model Portfolio activity
We keep trying to
trade the short term top ins GM by selling the warrants yet keep going back
into the warrants as we did today. One of these times we will hold on to them.
The trading has been profitable. We also added Facebook where are trading
hasn’t been so profitable. We are taking small positions looking for singles
not home runs in these overheated markets.
last week so of course Bulls declined to 52% from 54% and Bears ticked up to
19% from 18%. Still way too many Bulls.
Jeff Saut has been right on the markets for the
past five years. Although his short term (next month) views don’t agree with
ours as to this present rally his discussion is worth a read.
With the Upside Dream Still Alive, the 'Buying
Stampede' Will Continue
By Jeff Saut May 28, 2013 10:05 am
Since the Dow Industrials closed up 8.60
points last Friday, the buying stampede is still in force with today being
Over the long weekend, I decided to type the
words “buying stampede” into Google to see what popped up. To my surprise,
there were more than 2,000,000 “hits” on the phrase “buying stampede,” and many
of them were attributed to me. While that was a pretty humbling experience,
it also was surprising because I would have thought more investors would have
used that phrase in connection with the many upside rally skeins that have
occurred over the past dozen years.
The term “buying stampede” was first coined by
me back in the 1970s when I observed that runaway rallies tended to have a
rhythm to them. Indeed, a typical buying stampede lasts for 17 - 25 sessions
with only one- to three-session pauses, or pullbacks, before continuing to
trade higher. It just seems to be the rhythm of the “thing” in that it
tends to take that long to get everyone bullish enough to throw in their “bear
towels” and buy stocks just in time to make a trading top. While it’s true some
stampedes have lasted for 25 - 30 sessions, it is rare to see one extend for
more than 30 sessions.
Prior to the past few years. the longest
buying stampede chronicled in my notes of some 50 years was the 38-session
“march” into the August 1987 peak of 2722.42 by the Dow Jones Industrial
which set the stage for the Dow Theory “sell signal” of October 15, 1987 and
subsequent stock market crash of October 19. There is actually a plaque that
resides in my office from a dear friend and stock broker, titled “Runaway” with
the record of Del Shannon’s hit tune “Runaway”
attached. The second longest stampede occurred a few years ago and lasted
for 53 sessions. However, the current buying stampede is nearly twice that long
since today is session 102!
I revisit the “buying stampede” theme this
morning because I have been deluged with emails asking, “Is the current
stampede over since the S&P 500 (INDEXSP:.INX) has closed down for three
consecutive sessions?” First, my stampede sequence uses only the Dow
Industrial, not the SPX. Second, it does not need any confirmation from
the Dow Jones Transportation Average (INDEXDJX:DJT), or any other index, like
Dow Theory needs. Third, it does not measure the percentage gain that will be
experienced by the Industrials during the stampede. Fourth, the buying stampede
concept is based only on my own observations of investors’ emotions and the
psychology I learned from the epic book Extraordinary
Popular Delusions and the Madness of Crowds by Charles
MacKay. Fifth, the reciprocal of a buying stampede is a “selling stampede,”
which uses the same day-count sequence, except on the downside. Sixth, since
the Industrials closed up 8.60 points last Friday, the buying stampede is still
in force with today being session 102.
So the upside “Dream Is Still
Alive,” and I continue to believe the SPX is going to
trade north of 1700 into the end of 2Q13 before becoming vulnerable to a more
significant decline beginning in the July/August timeframe. Obviously I have
never seen a buying stampede like this one, which has lifted the senior index
above a basing formation in the charts that was 13 years in the making. I have
commented on this upside breakout before having experienced the basing
formation, and subsequent upside breakout, of the “big based” 1966 - 1982
market that launched the secular bull market of 1982 - 2000.
I was reminded of the history of “big bases”
in an excellent slide deck that was sent to me over the weekend, which was
un-authored. he slides show that there have been four “big bases” since
1900 that have lasted for more than 12 years. The years in question are:
1906 - 1924 (18 years), 1929 - 1955 (26 years), 1966 – 1982 (16 years), and 2000
– 2013 (13 years), as can be seen in the chart below from said slide deck. The
author goes on to note, “The characteristics of the market when it breaks out
of a base that exceeds 12 years in length is different. Investor behavior
reflects an underlying distrust or disinterest and is characterized by
underinvestment in equities. This results in a rebound that is relentless,
providing little opportunity to buy on pullbacks.”
If that prose sounds familiar, it should
because it is very similar to the six stages of a bull market I wrote about on April 1 of
this year. To wit:
Following the end of a bear market, and the
initial "lift off" move of the beginning of a new bull market (Stage
1), there are tumultuous cries, "This is just a rally in an ongoing bear
market," which brings us to Stage 2 (Guarded Optimism). E-v-e-r-y rally
after a bear market bottom is encased with John Templeton’s
pessimism/skepticism as represented by comments like, "This is the last
chance to get out." Recall that was the media’s chant du jour after the
March 2009 bottom as various pundits were trotted out to tell us how bad things
were going to get. Yet, as participants realized their worst fears would not
materialize, a "guarded optimism" has set in whereby stocks are being
bought because of their dividend yield. As things continue to get better, that
"guarded optimism" should give way to ‘enthusiasm,’ or Stage 3.
Interestingly, in last Thursday’s conference
call with Richard Bernstein, Rich spoke of the same stages. He reminded us of
the selective memories investors have by stating that “uncertainty” spells
opportunity. To be sure, “fear and uncertainty” are the hallmarks of the first
seven innings of a secular bull market. When everyone is “certain,” that
typically means we are in the eighth inning of the “bull.” He went on to
reflect about the beginning of the 1982 - 2000 secular bull market, opining that
portfolio managers didn’t begin embracing stocks until 1985/1986, and that
individual investors didn’t do so until the first quarter of 1987. Moreover, he
noted that the same issues plaguing investors in 1982 and 1983 are the same
issues currently plaguing investors (slow growth, budget deficits,
entitlements, tax reform, etc.). Rich commented, “The equity markets don’t care
about the ‘absolute’ of good or bad conditions, but about things being better
or worse.” And clearly the US is getting better. He concluded with, “The
rotation out of bonds into stocks is not the right question. The right question
is about the great rotation out of non-US equities into US equities!”
Accordingly, it will be interesting to see if
that rotation continues this week because last week was the first weekly loss
in five weeks. The main culprit for the loss was Wednesday’s intraday 275-point
downside reversal. Indeed, an early morning 154-point rally by the INDU gave
way to a 122-point decline before firming into the close, leaving the senior
index down roughly 80 points. By the close the INDU had traced out what a
technical analyst would term an outside bearish reversal pattern, meaning
Wednesday’s intraday high, and intraday low, were above and below the previous
session’s high/low, suggesting the potential for further downside. And that is
what the equity markets attempted to build on the balance of last week without
a whole lot of success. Nevertheless, the SPX has fallen below my 1660 “energy
level” and as stated, “It is difficult for stocks to extend their rally with
the daily internal energy level so low.” So we enter this week with “guarded
optimism,” waiting to see if the bears can press their advantage on last week’s
The call for this week: While last Wednesday’s
downside reversal raised a “red flag,” it was not a 90% Downside Day, meaning
90% of total volume, and total points, traded did not come on the downside. So
I agree with my unknown author in believing that last week’s pause/pullback was
Read more: http://www.minyanville.com/business-news/markets/articles/will-buying-stampede-continue-stock-market/5/28/2013/id/50033#ixzz2UbB5bfCy
May 24, 2013
Comment on Model Portfolio activity
The markets popped 1% higher
on Wednesday as Bernanke delivered his testimony to Congress and we used the
opportunity to move to cash realizing nice profits in First Solar and Ascena Retail and a wash in Juniper and GE and a slight
loss in Alcoa. Bullish sentiment is too great. (See next item). On Friday we
repurchased Aéropostale that we sold on May 15 at a 10% off sale when quarterly
Investors Intelligence: Bulls 55%; Bears 18%.
These numbers suggest the old adage that as share prices rise folks become more
Disney share price is at an all-time high,
Disney’s CEO Bob Iger received record bonus and pay
of $32 million for the last year and this week ESPN, Disney’s cash cow and most
profitable subsidiary announced it would fire 400 folks. This event
reinforces the image of the two tiered economy and the return the Robber Baron
(Bob Iger got his: Iger, 61, who also serves as chairman of the Burbank-based
entertainment company, received total compensation valued at $40.2 million in
the last fiscal year, a 20% increase over the prior year, according to a
regulatory filing. The pay package included a bonus of $16.5 million, and $9.53
million in stock awards, in addition to $2.5 million in salary and nearly $4
million in other compensation, a filing with the Securities and Exchange Commission
shows .Iger's compensation, which is mainly tied to
the financial performance of Disney, reflected a strong year for the owner of Pixar Animation Studios, Marvel Studios and ESPN. The
entertainment giant's revenue rose 3% to a record $42.3 billion in the year
ended Sept. 29. Profits climbed 18% to $5.68 billion in the year.)
The 200 biggest public U.S. companies by revenue
paid their outside directors a median of $244,637 in 2012, up from $231,021 in
2011, with equity, such as restricted stock, representing a majority of that
pay, according to the National Association of Corporate Directors.
A separate survey of 957 public companies by the
association showed board participation consumed an average of 218 hours last
year, down from 227.5 hours in 2011.
Carry the one, and, let's see here, that's a
median salary of $1,122 per hour, for a part time job. (Many corporate big
shots have four or five board memberships. They're the corporate equivalent of
a weekend lemonade stand, though requiring less work.) And the pay is going up every year, as the
necessary hours go down.
The Seven Craziest Findings
in the US Investigation of Apple's Tax Avoidance Practices
By Quartz May 21, 2013
Leading up to Apple (NASDAQ:AAPL) CEO Tim Cook’s testimony on his company’s dubious-if-legal tax strategies today, here’s the report members of Congress are up in arms about.
1. Almost all of Apple’s
foreign operations are run through an Irish company with no employees.
The company told investigators that
it lost all records concerning why Apple Operations International was
originally set up in 1980, and why all of Apple global sales go through it. You
might have a few ideas why if you keep reading.
2. Apple pays 2% — or less —
in corporate income tax in Ireland.
The already low-tax country gives
Apple special treatment with a negotiated 2% income tax rate. But that’s just
the top-line number: Between 2009 and 2011, one Irish subsidiary, Apple Sales
International, earned $38 billion and paid $21 million in taxes, for an effective rate of .06%.
3. Apple Operations
International, which provided 30% of Apple’s worldwide net profits from 2009 to
2011, doesn’t pay taxes anywhere.
This move is devilishly brilliant:
The US decides if it can tax you based on where you incorporate your company.
Ireland decides if it can tax you based on the location of the people managing
the company. So if you incorporate a subsidiary in Ireland, and manage it from
the US, you don’t (so far) have to pay taxes in either country. And that’s
exactly what Apple has done, not filing a tax return for AOI anywhere in the
world in the last five years.
4. Apple’s US profits keep
ending up in Ireland, too.
The report alleges more than just
the avoidance of US taxes on foreign sales of Apple’s products. It also argues
that Apple is effectively sending US profits to its Irish subsidiaries, too. How? Transfer pricing. Apple has set up a cost-sharing agreement with its Irish
subsidiaries that gives them a disproportionate share of the profit from
research and development that occurs in the United States. From 2009 to 2012,
Apple allocated $4 billion in R&D costs to its US unit, which had $38.7
billion in profits, while its Irish subsidiary had $4.9 billion in R&D
costs — and $74 billion in profits.
5. Most of the $102 billion
Apple is keeping “overseas” is in US banks.
Just as its Irish companies are
managed by US employees, Apple’s Irish cash is mostly kept in US financial institutions, largely managed by Braeburn
Capital, Apple’s financial engineering nexus in Nevada.
6. The magic of
“check-the-box” makes whole companies disappear.
One of the most favored tax
loop-holes for multinationals is known as “check-the-box.” It allows companies to instruct the government to
completely disregard certain foreign subsidiaries for tax purposes. Apple’s
main Irish subsidiary, AOI, checks the box for its entire global distribution
network. This allowed the company to avoid paying $12.5 billion in taxes that
would have been assessed for foreign sales by its network of global
7. Apple is seemingly
terrible at estimating its own taxes.
In annual reports between 2009 and
2011, the company told investors it was setting aside $13.7 billion to pay
federal taxes — but it has actually paid only $5.3 billion. Those set-asides
are only advance estimates, but it’s pretty strange that each year they’re off
by many billions of dollars. As a result, Apple’s actual US tax rate is only 20.1%, much lower than the 24% to 32% it said it
was paying. Absent this congressional investigation, we wouldn’t know the
This story by Tim Fernholz originally appeared on Quartz.
Finally, the money
held overseas is actually held in U.S. banks. Why? Because U.S. banks are the
safest in the world ala the Treasury rescue of 2008-22009. So Apple and other
corporations are happy to accept the protection U.S. taxpayers afford through
their tax dollars but are unwilling to bear their fair share of the burden. The
BS about double taxation (at the corporate and individual level) is just that.
Individuals pay U.S., state and local taxes plus FICA and Medicare and then
when they spend that left over money they pay 5% to 10 % sales taxes. If
corporations want to be treated as individuals under the law- which they are
and they do want- then they too should bear the burden of being located in the
May 17, 2013
Comment on Model Portfolio activity
popped on an analyst upgrade ahead of earning’s next week. Two days prior an
analyst had downgraded the shares. We took a trading profit and will revisit
after earnings. We added shares to Juniper holdings.
continued their merry march higher this week as investors suffering performance
anxiety and yield hunger moved all in. We are content to rest on last year’s
laurels and await a better entry point. Risk /reward were positive last
October; it isn’t now.
Tesla with projected sales of
5000 automobiles this year is valued at $11 billion in the market place. Profit
for the year is estimated to be minimal. GM will sell over 9 million cars
worldwide and earn over $6 billion. Tesla Is valued at $12 billion in the
marketplace and GM is valued at $38 billion. Speculators are paying a lot for
growth and investors too little for value.
A sermon for the ages
by David Atkins
Many of you may already have seen
Bill McKibben's extraordinary sermon
"God's Taunt" at the Riverside Church in New York. If not, definitely
take the twenty minutes to watch and listen:
For those who cannot watch the
video, here are some excerpts compiled by Diane
Sweet at CrooksandLiars. He begins by speaking of Job answering to
God that he cannot control the weather, noting that in fact that is no longer
...Rather, Job has to answer as
all mortals did up until our time, because all of a sudden we've gotten rather
large. Our first sense of that sudden change in stature came with the
detonation of the first atom bomb at Alamagordo in the New Mexico desert. J.
Robert Oppenheimer, watching the mushrooming cloud, quoted from the [Bhagvad Gita],
from the Hindu scripture - "We are become as gods, destroyers of
But the images of those blasts at
Hiroshima and Nagasaki were enough to persuade us, so far at least, to go no
further down that path, thank god. We could imagine the horror of those titanic
explosions. We, so far, have NOT been able to adequately imagine the effect of
the explosion of billions of pistons in billions of cylinders every minute of
every hour of every day, but those explosions are wrecking the earth just as
surely and almost as fast as nuclear war.
Consider that, so far, human
beings have burned enough coal and gas and oil to raise the temperature of the
planet 1 degree Celsius...the energetic equivalent of exploding 400,000
Hiroshima-sized bombs every day...enough energy so far to melt the
Arctic...We've taken one of the largest physical features on earth and we've
broken it, and with the others not far behind. The oceans are now 30% more
acidic...The atmosphere itself, because warm air holds more water vapor than
cold, is now 5% wetter than it was 40 years ago, which loads the dice for
drought and for flood...
...This is the largest social
justice issue that we have ever faced...When I started this work, one of the
things I'd always heard was that environmentalism was something for rich white
people who had taken care of their other problems, and if you worried where
your next meal was coming from you wouldn't be an environmentalist.
What we found as we worked around
the world is exactly the opposite. Rich people tend to feel themselves immune
from these changes. Most of the people that we work with around the world are
poor and black and brown and Asian and young because that is what most of the
world consists of. And what do you know, those people care as much about the
future as anybody else, maybe more, so because if you are poor in this world
right now, the future bears down harder on you than it does on anybody else...
...As I've said, so far we've
raised the temperature one degree but the same scientists who told us that
would happen have shown quite clearly that that one degree would be 4 or 5 by
century's end unless we act very swiftly to get off coal and gas and oil.
And the larger question is why
aren't we doing that? Why aren't we trying to make ourselves somewhat smaller?
Why aren't we following, say, the lead of Germany, the only major country
that's really pursued renewable power at an appropriate pace? There are now
more solar panels in Bavaria than there are in the United States. There were
days last summer when Germany generated more than half the power it used from
solar panels within its borders and this is Germany. Munich is north of
Montreal. Think what a country could do if it had, oh, I don't know, Florida or
Nevada, Texas or California or Arizona to work with!
But we don't act; and for a
particular reason-- one that will be clear to those who are used to reading the
Gospels. Our richest people don't want to act because it would reduce their
wealth somewhat. The fossil fuel industry is the one percent of the one
percent, the richest enterprise in human history. Exxon made more money last
year than any company in the history of money. There are far more eminent
theologians than me in this room; I'm not a theologian at all. But it is my
firm belief that these companies have more money than God.
And so far, they have been able
to deploy those funds in political ways to make sure that nothing ever changes.
They have bought, in our nation's capital and many others, a 25-year bipartisan
effort to accomplish nothing...
...It's not that Americans are
addicted to fossil fuel; most of us would be just as happy if our power came
from the sun and the wind, if our cars ran on electricity. The addicts...are
the folks who run the fossil fuel empire, addicted to profits so great that
they turn away sorrowful from the knowledge that they're wrecking the future...
...The man who runs...[Exxon]
finally admitted for the first time last summer that global warming was real
and caused by carbon emissions. But, he said, it was an engineering problem
with engineering solutions. Asked what he meant, he explained, "If we need
to move our crop production areas, we will"...Crop production areas are
what most of us call farms, and we already have them...The Exxon CEO made plain
the reason for his unwillingness to change in a second interview a few weeks
ago with Charlie Rose who asked him his philosophy...He just looked at the
camera and said, "My philosophy is to make money."
...[The fossil fuel divestment
movement] is designed less to bankrupt the industry - we can't do that - but
more to take away their social license, to keep them from being able forever to
overpower science with money and with political favor. If it's wrong to wreck
the climate then it's wrong to profit from that wreckage. And to say that out
loud is an important first step in dealing with the problem we find ourselves
...The arc of the physical
universe is short and it's bending toward heat, and doing it very rapidly. If
we don't win this fairly quickly, than we will not win this at all. We've
waited a long time to get started; the momentum of physics is very large.
Having lost the Arctic, we have no room for complacency.
May 10, 2013
Comment on Model Portfolio activity
took a loss on our U.S. steel holding and a small profit in T-Mobile. We added First
Solar when it dropped 10% on earnings and also repurchased Aéropostale and more
GM warrants. And we added to positions in Ascena Retail Group.
repurchased the GM warrants above our recent sale price (which was a profit)
because the U.S. has only a bit over 200 million shares left to sell to
eliminate its position. The selling of that position has placed pressure on the
share price for the last year. It is possible that there will be a block trade
soon to place the last shares of the holding. Institutions would be willing to
buy a block even Warren Buffet who owns 30 million shares now because overhead
known supply would be eliminated. We want to own the warrants for the longer
term when that occurs and we are no longer willing to be out of the warrants
awaiting the sale. We are on the plus profit side of the ledger in our trading
of the warrants over the last two years.
buying stampede of this year is unprecedented (Jeff Saut) with 91 days of up
movement without a pullback of three consecutive down days to break the run. That is almost twice as long as the usual bull runs before
correction. How long it continues is unknown but the longer it runs the closer
it gets to the end- like life. Only banks and brokers who see both sides of the
trade and exist to take advantage of their customers are able to have day after
day of only making trading gains. Ordinary mortals are not so fortunate. (WASHINGTON
(MarketWatch) -- J.P. Morgan Chase (US:jpm) disclosed in a Securities and Exchange Commission filing that it
didn't suffer any daily trading losses the entire first quarter, with the bank
recording a gain during one of the 63 days of more than $200 million. Rival
Bank of America (US:bac) had disclosed
Tuesday that it too went the entire first quarter without having a loss day.)
The Video at the URL below
represents One Half-Second of High Frequency Trading.
May 3, 2013
Comment on Model Portfolio activity
Sell in May and go away. We sold in December
after a great year last year and have so far missed the move this year. Missing
part of move up is more palatable than participating in a down move. The Sell
in May scenario has been the correct action for the past three years so the law
of averages would suggest that it may not work this year.
Our guess is that the economy OK (today’s jobs
report was good and also revised last month’s up to a decent number) but that
it is not great and the new highs we are seeing are more of function of no
other game in town than that stocks are cheap. A pause and pullback is needed
but that doesn’t mean a pullback will occur. Mr. Market has a way of
frustrating the best thought out plans.
We added a new position in T
Mobile, the fourth largest wireless company when the new company that is the
result of merger of T Mobile and PCS wireless became final
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