Archive
Updating the “Magazine Cover” Indicator
Rocky occasionally peruses his favorite magazine store for investment truths using the “Magazine Cover Contrary Indicator.” Unfortunately, Rocky’s local store doesn’t sell Time, Newsweek or Business Week. Rocky’s local magazine store sells mostly lurid ”periodicals,” ”videos,” and cigars.
Hence, Rocky needed to develop his own contrary media indicator — independent of bulls, bears, and cleavage.
He found one!!
Bloomberg Radio occasionally adjusts their hourly market summaries. Bloomberg no longer even mentions the overnight change in the Japanese Stock Market (up 15% year-to-date); but instead they quote the “yield spread” on defaulted Greek Bonds. For Rocky, this is a very bullish omen for Japanese stocks. And it also means that Greece is irrelevant. (Rocky also noticed his local magazine store has increased its inventory of extremely lurid Shukanshi.)
[Disclosure: Rocky NEVER gives investment advice and he reminds readers that sometimes a "Cigar is just a cigar." However, he confesses that this "radio indicator" contributed to his decision to recently buy some Japanese stocks (currency-hedged) such as the DXJ and NKY Japanese Stock ETF's. He may stay with this position for a long time, or he may spit it out tomorrow like a bad cigar.]
Investment advice for Ron Paul
Rocky never provides investment advice. But for once he’ll violate this rule and offer some advice to Congressman Ron Paul.
Members of Congress must file financial disclosure forms which show all of their assets and investments. Rocky studied Rep. Paul’s portfolio from 2003 to the present. http://www.legistorm.com/memberdisclosure/413/Rep_Ron_Paul_TX.html
Ron Paul’s portfolio violates every principle of sound money management. It is not prudent. It is not sensible. It is volatile. It is speculative. And it may give a window into Ron Paul’s perspective on the economy and free enterprise.
From 2003 to the present, Ron Paul’s stock portfolio owned only gold stocks. He owned some real estate. He had some cash. And he owned mutual funds that make money ONLY WHEN the stock market declines. He did not own any gold bullion. And more recently, he purchased more gold mining stocks and added to his bearish bets on the stock market using leveraged bearish funds.
In 2003, the value of his portfolio was between $860,000 and $2,300,00. (The disclosure form only provides a range of values.) In 2010, his portfolio grew to $2.4 million and $5.5 million. (Gold stocks have declined between 15% and 30% in 2011, so his portfolio has declined commensurately. He will declare that loss next year.)
So, over an an 8-year period his portfolio has appreciated by about 12%/year. (And after this year’s losses for gold mining stocks, it will be a bit less than that.)
Not so bad, eh?
Nope!
If, instead of being such a wiseguy, he had instead just purchased gold bullion, his return would have been 55% better — returning an impressive 18.5% per year! (It’s very strange that Ron Paul doesn’t own any bullion. And a skeptic might wonder whether he owns bullion, but failed to disclose it.)
[Disclosure: If one extrapolates the profile of his portfolio, one must conclude that he either nailed the bottom of the gold market, or he has really lousy long term performance. Remember that (even after this 10 year old rally) gold has appreciated at only about 5% for the past 30 years, while stocks have returned about 11%, and long bonds have returned high single digits. More troubling, however, is the notion that a President of the United States would personally profit from a DECLINING stock market and a declining economy! Even Barack Obama's assets include some S&P Index Funds....]
Why Groupon resembles a ‘roach motel’
The term Roach Motel (“where roaches check in, but they don’t check out!”) was coined by Black Flag pesticides in a decades-old advertisement. Judging from Rocky’s recent experience, Groupon membership is quite similar.
How to prepare for financial armageddon? (Bring your own socks)
In light of the ongoing European financial crisis, Rocky is pleased to learn that the European Central Bank now provides visitors to their headquarters with a “hard hat” at no cost! However, they do ask visitors to ”wear socks.”
No mention is made whether visitors must empty their pockets of spare change upon entering.
For a full text of the ECB’s dress code, see “What to wear” at:
http://www.ecb.int/ecb/visits/how/nep/html/index.en.html
Rocky’s (latest) view on gold
Knowing that he’s been a gold bull for years, Rocky’s friends keep asking: “What you do think of gold, NOW?” (These people actually think that Rocky and certain other TV commentators can predict the future.)
Rocky’s answer: “I have no idea, and have NEVER had any idea about what the price of gold will do tomorrow.”
But does he still own gold?
“Yes, and I also own some stocks. And I own some real estate. And I own some bonds. And I own a copy of last week’s People Magazine. And I have no idea what the price of these will do tomorrow either. My experience has been that pundits who claim perfect knowledge of the future are generally either liars or idiots. (Whoopi Goldberg is the exception to this rule.) What I’m doing is called diversification.”
But when will he sell gold?
“The PRICE of gold is irrelevant. As I’ve written on this blog, I will sell gold when the gold story (or more accurately, the market’s perception of the gold story) changes! Gold’s ascent is a confluence of negative real interest rates; undisciplined central bank behavior; a growing loss of confidence in government policies and financial systems; loss of Swiss bank secrecy; an accumulation of economic wealth by individuals in parts of the world without stable property rights and rule of law. Can gold drop $100 tomorrow? Sure it can! Can gold drop $300 next week? Sure it can! Can gold drop $1000 next year? Sure it can! But so long as these FUNDAMENTAL factors remain in place, the underpinnings and demand for hard assets that are beyond the reach of governments will remain.”
“Almost all of my really smart friends are very bearish right now. They all think this move is idiotic. Many think this is a bubble. And eventually they will be right. But eventually could be a really really long time. And it could include a trip to unimaginably higher prices first. Their skepticism is not predictive of anything. And importantly, they are not betting that gold will decline either. All it tells you is that they aren’t long gold and missed this move. I’ll admit that I get nervous when prices rise quickly. And historically, buying after a sharp rally isn’t a good idea. But why should any of this market chatter affect my long-term porfolio construction/diversification? After all, I’m not afraid to admit that I have absolutely no idea what prices will do tomorrow.”
[Disclosure: Rocky NEVER gives investment advice. He's owned gold for a long time. And he owns some hedges that will protect him if gold drops sharply while he's asleep. And some day, he will sell his gold. But whether it's at $2,000/oz or $10,000/oz is out of his control. It's in the control of millions of other investors around the world, and how they react to the policies of their central banks and governments.]
Making one head(s) spin: the US credit rating
Rocky penned the following brain-teaser for the pages of an august publication — and wants to share it with his loyal readers…as it highlights an important market foible:
“I’m sure that we’ve both noticed that whenever Moody’s or S&P release a bearish
press release about the sovereign AAA rating, the stock market gets whacked by
1+%, but the US bond market hardly moves (or even rallies). One can explain the
downward move in stocks by observing that “in times of uncertainty, people
reduce their risk and seek the safety of riskless investments.” But is this
rational? Here, the increased uncertainty is arising from the RISKLESS asset.
So, if the riskless asset is becoming more risky, must it follow that the risky
assets are proportionately more risky? That is, if you sell the risky asset
because you’re scared of the riskless asset, does it follow that you should buy
more of the riskless asset even though it’s becoming more risky, and that’s
what made you sell the risky asset to begin with?
[Disclosure: Rocky expects that if Congress raises the debt limit without substantial spending cuts, bond yields will rise sharply....]
Trivia triggers technology titillation
After Rocky finishes reading the National Enquirer, he turns to the Guinness Book of World Records to find investment themes.
Question: What technology company and product holds the Guinness World Record of being the “fastest selling consumer electronics device ever?” [Hint: it happened in the past 12 months.]
Answer: Click here for the answer.
[Disclosure: Rocky never provides investment advice, but he admits that he has started purchasing shares of the company that manufactures the Fastest Selling Cosumer Electronics Device EVER! ]
Lady Marmalade
Skinflint. Miser. Penny-pincher. Frugal. Tightwad.
All of these adjectives describe Rocky in most matters. However, Rocky throws open his wallet and spares no expense for three important purchase categories: automobile tires, bath towels, and orange marmalade.
During her recent two-day trip to London, Trophy Wife’s marching orders were clear: find a jar of Fortnum & Mason’s finest Orange Marmalade, and carry it home for Rocky’s (discount) crackers and crumpets.
Trophy Wife scored a bottle of “Wake-Up Marmalade” early in the day, and all was well until Heathrow Airport Security seized the jar from her luggage as a “security threat.” Horrified, humiliated, and fearing the “Wrath of Rocky,” she ran to the Airport’s Duty-Free Shop, where she fortuitously found the marmalade section next to the Cuban cigars and over-priced single malt scotch. Unfortunately, the Duty-Free Shop’s marmalade selection was sparse, and she selected a jar of Sir Nigel’s Orange Marmalade. (Fortnum & Mason produces more than 40 marmalade varieties.)
From the marmalade bottle: “Noted 1920′s actor-manager, Sir Nigel Playfair was used to getting what he wanted – like the thick-cut, tough-guy marmalade remembered from his childhood rather than the effete flapper versions fashionable at the time.”
After sampling the marvelous marmalade on generic Stop&Shop water biscuits, Rocky agreed that he would no longer consume “effete” American marmalade . A tough guy like Rocky deserves a tough-guy marmalade. But in a show of tenderness, Rocky thanked Trophy Wife profusely for her valiant efforts, and gave her a sticky peck on the cheek.
[Disclosure: Terrorists should note that airport security will detect explosives dissolved in blood orange marmalade . ]
David Hasselhoff, Baywatch & California finances
A recent article in the Orange County Register reminded Rocky of the glory days from Baywatch , (the most-watched TV show of all time.)
The newspaper article explained that being a REAL lifeguard may be a better gig than being a TV lifeguard!
From the newspaper story: “According to a city report on lifeguard pay for the calendar year 2010, of the 14 full-time lifeguards, 13 collected more than $120,000 in total compensation; one lifeguard collected $98,160.65. More than half the lifeguards collected more than $150,000 for 2010 with the two highest-paid collecting $211,451 and $203,481 in total compensation respectively. Even excluding benefits like health care and pension, more than half the lifeguards receive a total salary, including overtime pay, exceeding $100,000. And they also receive an annual allowance of $400 for “Sun Protection.” Many work four days a week, 10 hours a day.
The article continues: “On face, the compensation packages for these guards are staggering. But take into consideration the retirement benefits being paid to currently retired lifeguards and lifeguards who will retire at these pay levels in the future and the problem is further compounded. Lifeguards are able to retire with 90 percent of their salary, after only 30 years of work at as early as the age of 50.”
The entire story can be found here: http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/44783/
[Disclosure: Although Orange County generously provides a $400 "sun protection" allowance, Rocky notes that they do not yet provide a plastic surgery allowance. Pamela Anderson wannabes should take note...]
New terror threat: snowglobes
Trophy Wife snapped this photo at a major NY airport, and then emailed it to Rocky. No word whether her Blackberry was seized during the ensuing pat-down search.
It’s good to see that the TSA has adopted the international “No Snow Globe” symbol.
[Disclosure: Rocky always carries a Pez Floaty Pen -- which is effective at filling out Government Forms, and earns compliments at serious Corporate Board Meetings. Rocky fears that the TSA ban on Snowglobes may spread to Floaty Pens. If that happens, he'll switch to a Crayola Crayon. ]
Good news (gospel) saves Baptist savers
Rocky notes the Shiloh of Alexandria Federal Credit Union currently offers a 5.05% APY 1-year CD.
How can they offer such a high rate? Probably because they have no full-time employees, and they’re only open on Saturdays and Sundays from 9:30 to noon.
Additionally, to join this credit union, you must be a member of the Shiloh Baptist Church of Alexandria, Virginia. The credit union does have NCUA deposit insurance (which is equivalent to the FDIC.) See: http://www.shilohfcu.com/savings.html
Since Rocky neither lives in Alexandria, nor is a Baptist, he cannot take advantage of this fabulous deal.
[Disclosure: Rocky avoids engaging in Faustian bargains. However, he acknowledges that high interest rates are an innovative approach to increase church attendance!]
CPI shows women & children first?
The Captain of the Titanic supposedly said, “Women and children first!” when directing his passengers to the lifeboats.
Rocky, (hardly a chivalrous fellow), thinks recent Consumer Price Index data demonstrate “Women and Children LAST!”
He notes that women’s and children’s apparel prices are declining at a noticeably faster rate than men’s apparel prices. (See the bottom three lines of the chart above.) Although Rocky continues to wear the same ragged grey sweater and chinos, Trophy Wife may find this data to be an impetus for a visit to the shopping mall.
Rocky theorizes that women can wear men’s clothes (which support the price of shirts and pants), whereas most men wouldn’t be caught dead wearing a dress or skirt. However, if this trend continues, Rocky’s miserly nature will prevail, and he’ll try on a kilt or two.
Japanese stocks yield more than US stocks
For the first time in decades, the dividend yield of Japanese stocks exceed the dividend yield of US stocks. As of the close on March 15th, the S&P-500 dividend yield is 1.86. After last night’s 10% decline in Japan (and the horrific catastrophe unfolding there), the dividend yield on the Nikkei-225 is now 2.02%. (The chart above shows the S&P-500 dividend yield minus the Nikkei-225 dividend yield using monthly data. It doesn’t include the post-earthquake price moves.)
Determining whether this represents an investment opportunity, or an accurate reflection of the long-term prospects for Japanese industry, is left as an exercise for the reader. Rocky notes that Japanese 10 year bonds yield 1.21% and US 10 year bonds yield 3.24% — which makes this dividend phenomenon even more striking.
[Disclosure: Rocky never provides investment advice. He will also forgo any jokes about the dismissal of the Aflac Duck because it would be inappropriate -- as the Japanese people suffer the aftermath of a historic disaster. ]
Efficient markets meet efficient yogurts
At the behest of his daughter, Rocky sampled his first “Pinkberry” frozen yogurt in New York City’s Greenwich Village on Sunday. Pinkberry has a cult following, and it was time for Rocky to audition for the cult.
The small cup of plain with two toppings cost $6.25 — and while Rocky found the concoction uninspiring — he found the profit potential intriguing.
An unscientific 10 minute demographic survey revealed all of the customers in the store were ultra-skinny women under the age of 30 and just one skinny man (whose attire and makeup were sexually ambiguous.) Judging from their fluency in Pinkberry nomenclature, all were regular customers. The tiny store was grossing over $300/hour — on a cold, rainy March afternoon!
Rocky started salivating. Not from the yogurt. From the profit potential!
But before he could grow lascivious about live cultures, Rocky looked out the window and noticed two stores across the street with “Opening Soon” banners in their window. Red Mango and “YourGurt” had Pinkberry’s prodigious profits in their sights. A frozen yogurt war would soon commence – and monopoly yogurt profits would undoubtedly become the first casualty….
[Disclosure: All that glitters isn't gold, and all that shines isn't Pinkberry pomegranate with strawberries. But the jingle is worth a listen: click here. ]
Rocky’s coif makes the Financial Times
The bald facts
Blended whiskey meets blended crude
American v. London Crude Price
An interesting oil trade reminds Rocky of the song “America” from West Side Story (the Broadway show): “I like to be in America! OK by me in America!, Everthing free in America! For a small fee in America!”
Rocky notes the price of WTI crude oil in America is at a record discount ($15/barrel) to London’s “Brent” Crude Oil — even though the London oil is worth slightly less to refiners. Oil’s not yet “free in America,” but 17% is a remarkable discount.
Some production problems in the North Sea and an inventory overhang in Cushing, Oklahoma explain this discrepancy. Since America imports crude oil, Rocky believes it’s just a matter of time before cargos get diverted from the USA to Europe, and this price spread collapses. Hence, Rocky is slowly buying crude oil futures in America, and shorting crude oil futures in London.
If the spread doesn’t collapse in the next few months, Rocky’s Plan B is to fill his many empty Scotch Whiskey bottles with crude oil and “deliver” the recycled bottles to London…(which will also force the aribitrage to close.) Of course he’ll have to convince airport security screeners that the duty-free bottles of crude oil don’t pose an in-flight threat, and will explain that instead of a blended whiskey, it’s the ”Brent blend.” He’s also prepared to hear the TSA Agent recite Anita’s words from West Side Story: “I know a boat you can get on.” See: VLCC.
[Disclosure: Rocky never gives investment advice, and these sorts of trades entail considerable risk not to mention a nasty hangover. Nonetheless, this trade is a "Rocky V." (See "definitions" tab at the top of this page.)]
Cold comfort: natural gas glut vaporizes
Buried in yesterday’s news cycle (and Northeastern snowbanks), Rocky noticed that the widely reported “glut” of domestic natural gas inventories suddenly vaporized. Or more accurately, it oxidized.
The Department of Energy reported yesterday that Eastern US natural gas inventories are now BELOW their five-year average, and national inventories are in-line with their five-year average. See: http://ir.eia.gov/ngs/ngs.html
Rocky believes that inventories remain ample. However, a few more weeks of arctic cold weather, and natural gas consumers will feel the same chill that heating oil consumers have been experiencing.
[Disclosure: Rocky never gives investment advice, but he thinks natural gas is "cheap" compared to crude oil. But that doesn't mean the natural gas price will go up or the crude oil price will go down.... For details, see Rocky's Definitions at the top of this page under Rocky I and Rocky V. ]
Reduce the deficit: sell the White House
Zillow.Com is a nice website that “values” properties across the country. But sometimes Zillow gets a little too cheeky.
Their “zestimate” for 1600 Pennsylvania Avenue is $251,617,000. For only a monthly mortgage of $1,036,276, you can enjoy 16 bedrooms and 35 baths in this 55,000 sq. foot mansion. (Built 1752). See: http://www.zillow.com/homes/1600-pennsylvania-avenue-washington_rb/
Zillow says the White House market value declined 25 % since the peak of the housing boom. Hence Rocky believes it’s a great time for value-oriented condo-developers to swoop in. (“Great views, working fireplaces, bullet-proof windows, great yard for the kids and dogs….)
[Disclosure: Rocky continues to shop for a nice vacation home, but he hates DC's muggy summer weather.]
The best kind of pay raise
Rocky just approved his employee paychecks for the first pay period of 2011. He noticed that everyone’s paycheck increased by almost 2%.
“I don’t remember approving any raises!” Rocky grumbled to his CFO. ”Especially not for Bosley in the mailroom. That’s the guy who nodded off while sitting in front of the postage meter — and his forehead wasted a few hundred dollars in postage stamps!”
“Rocky, it’s the tax cut,” explained the CFO. “Congress passed a one year holiday on Social Security and Medicare taxes. Everyone’s paycheck went up by about 2%.”
“That’s great,” said Rocky. “Allowing people to keep their own money is always a good thing. But what should we do with all those wasted postage stamps? Maybe we should hand them out as holiday bonuses?”
[Disclosure: Reducing taxes is the most efficient way to stimulate an economy.]
