Be Fearful When Others Are Greedy

The Put Call Ratio vs the S&P 500 Is Unhealthy Once Again

Everyone Buying Calls & No One Is Buying Puts

Healthy Markets Correct To Clean Out The Crap & Pretenders

This Market is Phony Just Like The Fed Who Does Not See A Bubble

This is Not a Map But An Important Chart to Understand

Be Fearful When Others Are Greedy: Investing During Recessions

In the world of investing, the old adage, "Be fearful when others are greedy and greedy when others are fearful," encapsulates a timeless strategy, particularly pertinent during economic recessions. While the temptation to follow the herd can be strong, understanding the nuances of market psychology and economic cycles is crucial for making informed investment decisions. Here’s why recessions present unique opportunities and why one must exercise caution amid widespread optimism.

Understanding Market Cycles

Economic recessions are periods of declining economic activity, characterized by reduced consumer spending, falling stock prices, and increased unemployment rates. While these conditions can be daunting, they often present opportunities for savvy investors who can look beyond short-term volatility. Historical data shows that many of the best investment opportunities arise during downturns when asset prices are depressed, and the general sentiment is pessimistic.

The Psychology of Fear and Greed

Human psychology plays a significant role in financial markets. During a recession, fear often grips investors, leading to panic selling and market downturns. Conversely, during periods of economic growth, optimism can drive prices up, leading to speculative bubbles. The phrase “be fearful when others are greedy” underscores the importance of contrarian thinking. When the market is booming, and everyone is eager to buy, it might be time to consider selling or at least reassessing your investment strategy.

Opportunities in Recession

1. Valuation Discounts: Recessions typically lead to lower asset prices. Stocks, real estate, and other investments often become undervalued as fear dominates the market. For long-term investors, this can be an ideal time to buy quality assets at a discount.

2. High-Quality Investments: Companies with strong balance sheets and solid business models often emerge stronger from recessions. Investing in these companies during downturns can lead to significant gains as the economy recovers.

3. Diversification: A recession is a reminder of the importance of diversification. By spreading investments across different asset classes and sectors, investors can mitigate risk and capitalize on opportunities in various areas of the market.

Caution in Overconfidence

While there are opportunities during recessions, it is essential to approach them with caution. The temptation to invest heavily based on the belief that prices will continue to fall can be dangerous. It’s important to:

• Do Your Research: Thoroughly analyze market conditions, economic indicators, and individual investments before making decisions.
• Avoid Herd Mentality: Resist the urge to follow the crowd. Often, the most significant gains come from taking a contrarian stance when others are panicking.
• Stay Informed: Keep abreast of economic trends and financial news to make informed decisions that align with your investment goals and risk tolerance.

Conclusion

Investing during a recession can be a daunting task, but it also offers unique opportunities for those willing to navigate the complexities of market cycles. By understanding the psychology of fear and greed, recognizing undervalued assets, and maintaining a disciplined approach, investors can position themselves to benefit from downturns. As Warren Buffett famously said, “The stock market is a device for transferring money from the impatient to the patient.” Embrace patience, stay informed, and let the market’s volatility work in your favor.5

Is a Currency War about to Cause the Next U.S. Stock Market Crash?

Is the money printing debt ponzi scheme about to come to a crashing end?

In the intricate web of global finance, the notion of a currency war looms ominously over the stability of economies and financial markets. With recent geopolitical tensions escalating, particularly between major global powers, concerns about the onset of a currency war have intensified. But what exactly is a currency war, and could it spell disaster for the U.S. stock market?

Understanding Currency Wars

A currency war can be broadly defined as a situation where countries engage in competitive devaluations or monetary policies to gain a trade advantage. Typically, this involves countries deliberately weakening their currencies to boost exports, protect domestic industries, or reduce the burden of debt denominated in foreign currencies. While each country may have its own justifications for such actions, the collective impact can destabilize global markets and economies.

Current Geopolitical Landscape

As of recent updates, tensions between major economic powers, such as the United States, China, and the European Union, have been strained. Issues ranging from trade disputes to sanctions and geopolitical posturing have heightened the potential for economic retaliation, including currency manipulation strategies.

Implications for the U.S. Stock Market

The U.S. stock market, being one of the largest and most influential in the world, is intricately linked to global economic conditions. A currency war could impact it in several ways:

1. Market Volatility: Increased volatility is a hallmark of uncertain economic environments. Currency fluctuations can exacerbate this volatility as investors react to sudden changes in exchange rates.

2. Corporate Earnings: For U.S. companies with significant international exposure, currency fluctuations can impact their earnings. A strong dollar can make exports more expensive and reduce revenue from overseas operations when converted back into dollars.

3. Investor Sentiment: Currency wars often lead to heightened uncertainty and can dampen investor confidence. This could lead to capital flight from riskier assets like stocks to safer havens, affecting stock prices negatively.

4. Interest Rates and Inflation: Central banks often adjust interest rates in response to currency movements. Higher interest rates to defend a currency can increase borrowing costs for companies and consumers, potentially slowing economic growth.

Historical Precedents

Past instances of currency wars, such as the competitive devaluations during the Great Depression and more recent trade disputes involving China and the United States, offer lessons. These events have shown that currency tensions can escalate quickly and have profound implications for global markets.

Mitigation and Preparedness

While the specter of a currency war looms, investors and policymakers can take steps to mitigate its potential impact:

• Diversification: Maintaining a diversified portfolio across asset classes and geographic regions can help mitigate the risks associated with currency volatility.

• Monitoring Policy Developments: Keeping abreast of central bank policies and geopolitical developments can provide valuable insights into potential market movements.

• Risk Management: Implementing robust risk management strategies, such as hedging currency exposure where feasible, can help protect portfolios from sudden currency movements.

Conclusion

The possibility of a currency war causing the next U.S. stock market crash remains a significant concern amidst current global economic tensions. While the future is uncertain, understanding the dynamics of currency wars and their potential implications is crucial for investors and policymakers alike. By staying informed and prepared, stakeholders can navigate the complexities of a volatile global financial landscape more effectively, potentially mitigating the worst impacts of such a scenario.

In summary, while a currency war may not be inevitable, its potential ramifications underscore the interconnectedness of global financial markets and the importance of prudent risk management in safeguarding investments and economic stability.

Obama's Views About Business

Translation on Obama's Views About Business

Prop up all big crappy businesses (ie. Auto Industry & AIG) to protect middle-class jobs that will crush all disruptive and innovative start-ups. Bigger businesses are better than free market innovation and smaller more volatile companies. Free market capitalism does not work so let the Government call all the shots about what businesses succeed.

Obama's business plan for the USA might as well have been written by a 5th grader.  His vision is incredibly short term, thinking that roads, bridges, and now runways (ooooh) will somehow create sustainable jobs?  This is ridiculous since that was our business plan from the 1930s and has nothing do with wealth creation or capitalism.  How does this help the United State create jobs and new companies that compete with China, Brazil, and Russia in a global economy?  It does not and has nothing to do with technology, education, healthcare, or environmental innovation.

There is a huge disconnect and this is why IPO's, venture capital, start-up acquisitions are at its lowest levels in decades.  The Democratic National convention should be a rude awakening for all start-ups and investors.  Put your money and checkbooks away if Obama gets elected because it will be a market of big businesses getting bigger.  Protecting middle-class jobs will be more important than letting start-ups innovate that create sustainable jobs and long-lasting companies.

The problem is capitalism is happening 100x faster than ever before and many Democrats are too stupid to get out of the way.  What would the auto industry look like today if we let GM go bankrupt?  We might have fewer jobs but better & cheaper cars?  Companies like Tesla might actually be an industry leader.  Think about all the companies that wanted GM to fail?  That's capitalism and preventing capitalism goes against American ideals.  Democrats call it a "zero-sum" game.  But no . . . the Government decided that GM is better.

Failure is good for business so they can be restructured.  GM was a huge shareholder cram down without restructuring by a shareholder (aka Gov't) with unlimited money. Some call this a Ponzi scheme because the cram down shareholder (Gov't) can print unlimited money and prop up the stock in the free market. GM has the same union problems and will ultimately fail soon as smaller companies slowly catch up to compete.  Obama just delayed innovation in another decade. Slower change is better? F that.

This goes without mentioning that the capital cycle needed to start new companies is broken because of faulty taxation assumptions.  Millionaires and billionaires (limited partners in VC, Private Equity, and Hedge Funds) need to be incentivized more to invest more.  Raising taxes on capital gains will kill the capital cycle flow back into companies drastically.  Making the pie bigger is a far better solution than redistributing money through higher taxes.  Mediocrity will soon become the middle name of the USA. 

Our Government is too big and needs to be restructured as well.

Facebook's IPO Valuation Should Be $25B

I would like to take you through a simple math equation for determining the fair value of Facebook before its IPO filing tomorrow without comparing growth metrics.  Here are my assumptions when comparing Facebook, while using Google as the benchmark.  Google's annual revenue is $37 billion with a market capitalization of $188 billion currently as of January 31, 2012.

Google's annual display ad revenue from Double Click is only $5 billion + they have $32 billion of additional revenue sources.  That means if Google only had the display ad business similar to Facebook their valuation would be 1/8 or less or around $25B.  Here is the scary part when you start to look at Facebook's proposed IPO valuation of $100B with 88% of its revenue coming from one source.

Facebook simple valuation equation based on current estimates:

Google Market Cap = $188B at $580 per share
Google Total Annual Revenue = $37B
Google Display Ad Revenue = $5B

Facebook Market Cap = $100B
Facebook Total Annual Revenue = $5
Facebook Display Ad Revenue = $4.8
Facebook Fair Value Equation = ($37 / $5 = .135) x $188 = $25B

The latest news sources reported that Facebook's annual display ad revenues were around $3.8B in 2011 and so I will assume this revenue number has grown to $5B in 2012.  $5B in annual revenue for Facebook is 1/8 the size of Google's at $37B.  Facebook has 88% of its revenue coming from display ads only which is not very diversified if you ask me.  Keep in mind this does not factor in growth rates but they cannot be that dramatic to change my valuation estimates. 

S&P Low 666 (2009) x 2 = High 1332 (2012)

S&P Low in 2009 of 666 x 2 = 1332 High in 2012

The rigged stock market will undoubtedly become a key issue in the 2012 Presidential race.  The Obama administration will promote the fact that the stock market is up almost 100% since he took office in 2008.  Mitt Romney is going to attack the fact that the market is up 100% but so is the unemployment rate, which went from 5% to 10%.  Pick your poison.  The Federal Reserve's balance sheet is bloated and helped to rig the stock and bond market game.  How will it end in the next few years and what is the best path to long-term free market prosperity and organic economic growth in the U.S.?

The stock market has become a rigged game in the last few years.  It is being propped up by the Federal Reserve and Ben Bernanke's team by printing unlimited dollars to buy futures and bonds in the open market.  Bond prices are artificially low in order to encourage people to spend and not save.  However, the smart people running big corporations are sitting on hoards of cash earning 0%.  Its because the market has been propped up in a phony way and there is no organic growth.  Executives are expecting a stock market crash of grand proportions that will wipe out all of the Government businesses that have been propped up.  Cash will be king in the future and there will be no safe havens.  It's just a matter of time before the huge "House of Cards" bonds and stocks all fall at the same tim,e wiping out the wealth that has been artificially created.

Yes, the United States can print endless amounts of money in order to create inflation and promote growth.  The experts think we can grow our way out of the debt crisis and reduce the current 100% debt-to-GDP ratio that has doubled under the Obama administration.  However, the austerity in Europe is nothing compared to what we might see in the U.S. if Mitt Romney gets elected and the Federal Reserve money printing press is halted.  It will be painful in the short term but the long term gain for my kids and grandchildren will be tremendous.   The U.S. Government must feel the pain of overspending and let the free markets take over their bloated and egregious spending habits.   Don't forget Mitt Romney has been a private equity / restructuring guy in the private sector and will have the biggest turnaround project of all time on his hands once he pulls the Fed plug.

Mitt Romney knows that a healthy economy will grow through organic investment and capitalism at the local level.  In healthy economies, the Venture Capital & Private Equity industries thrive and so do quality IPO's that foster the cycle of wealth that has built the foundation of the United States.  However, the recent financial crisis has led the Government to step in and act as the market "Big Brother" to prevent big investors from losing money.  The VC industry and private equity industries are shrinking drastically because large LP's (limited partners) have no incentive to invest with below 0% annual returns due to overbearing Government regulations.  We all know in healthy free markets there are winners and losers.  However, now the losers are being prevented from losing and this is not capitalism.  Bailouts have been preventing huge bankruptcies and progress towards creating new and more efficient businesses.  

Thousands of banks should have gone out of business and so should have many of the auto companies like General Motors.  Restructuring and bankruptcies are all part of the free market cycle and we have yet to go through it on a large scale downturn.  The 2009 downturn was prevented by the Government by double its debt load in the trillions and now the next recession could be even worse and deeper.

In summary the only thing that is going to help the economy in the long run build a foundation of growth that is sustainable is if the Government simply gets out of the way.  We investors are all "Big Boys" and taking loses is part of the game.   Trying to impose regulations on the financial services industry to prevent loses only restricts the free market capital flows and prevents investors from doing anything.  We need investors to be excited about investing and now restricted.  These two bills / laws need to be repealed by the next President and then you will see healthy organic investment growth come back to the private sector.

1)  Repeal Sarbanes Oxley
2)  Repeal Dodd Frank Bill