Japan is a rapidly aging nation !

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Potential Shortage of capital to Fund Treasuries

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Dennis Gartman Trading Rules

Dennis Gartman’s trading rules:

1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.

3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.

7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.

8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.

9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.

10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.

14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.

15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.

16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.

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Currency ETF List- A detailed list of currency ETFs

Currency ETF List- A detailed list of currency ETFs

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How to Capitalize on the Coffee Guys’ Mistakes

Now I would be the last guy to tell you to buy coffee or sugar futures, because, quite frankly, I am terrified of getting an e-mail asking what to do with the truckload of beans that just showed up.But these are most enlightened times, and there are Exchange Traded Funds (ETFs), Exchange Traded Commodities (ETCs) and Exchange Traded Notes (ETNs) for most everything these days, including coffee.

The name (oddly enough) is the iPath Dow Jones-AIG Coffee Total Return Sub-Index (JO:NYSE). The fund has been falling pretty much nonstop on the idea that coffee was going to tank. But now that coffee is clearly still the drug of choice, I suspect those fortunes are about to experience a real sea change.Last price on my ticker is $39.01 a share and quite frankly, the volume is as thin as all get out. But if a body were to enter tenderly over several days, I imagine they could enjoy quite a ride.

Today's Taipan Daily

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Jeremy Grantham Says Stocks Going To Moon

Jeremy Grantham was one of the few forecasters to call the crash, He was also one of the few to call the bottom two months ago–publishing “Reinvesting While Terrified” on the exact day the market bottomed. And now, in his quarterly letter, the great Grantham has a surprise for those expecting a return to unremitting gloom: He’s (mostly) bullish!

Grantham adds: In a rally to 1000 or so, the normal commercial bullish bias of the market will of course reassert itself, and everyone and his dog will be claiming it as the next major multi-year bull market. But such an event – a true lasting bull market – is most unlikely. A large rally here is far more likely to prove a last hurrah … a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s. The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.It all sounds plausible, maybe my gut says he is right, but is following his forecast a smart way to invest when you don’t have unlimited capital? Perhaps following his lead, taking the big bet, will be a great reward, but perhaps not. The smart money says to let the market lead, then follow.

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Beat The Market

1) Bearlish Zones : When Moody's average Baa bond yield minus S&P earning yield are greater than 4.6%.
Neutral Zones : Between 3.45 AND 4.6%
Bullish Zones : Below 3.4%

Yield Data:
http://online.barrons.com/mktlab

2) Stocks are bullish when S&P earning yield at 95% or more than the average yield of 90-day tresury bills and 10 years US government notes.
Neutral to Bullish : between 85% to 95%
Negative Zone :Less than 85%

3) Combine Model :

• Buy Condition #1 : Remain invested if both Baa bond method and US Government Bond method lie within their most bullish zone.
• Buy Condition #2 : Remain invested if either Baa bond method and US Government Bond method lie within their most bullish zone.

If both model neither not in bullish zone not the time to invest aggressively in stock
Stay clear when both model lie in most negative zone.

4) Stock market is likely to perform well during periods in which # of stock advance in price exceed # of decline.( Advance/Decline line )
http://online.barrons.com/public/page/9_0210-trddiary.html
Example :

Market Advance/Decline Totals
Week ended last Friday compared to previous Friday
Weekly Comp.	NYSE	Alternext	Nasdaq
Total Issues	3,229	681	3,041
Advances	1,653	396	1,415
Declines	1,527	227	1,549
Unchanged	49	58	77
New Highs	19	13	40
New Lows	7	0	48

Weekly Breath Reading for NYSE = (Advance - Decline) divided by the total issues.

Next step : calculate the six week expontial MA.
Smoothing constant =6 weeks +1 divide by 2 is 0.286.
Start with 6 weeks moving average, e.g
1. Multiply .286 times this weeks actual price e.g 60 , minus previous week 55. x0.286 * 5 ( 60-55 ) = 1.43.
2. add 1.43 to 55 = 56.43 new EMA
3. Next week 61, 0.286* 4.57 ( 61- 56.43) + 56.43 = 57.73

Buy or hold when 6 weeks EMA above 0.25 or 25%
SEll when the EMA decline to -0.5 (-5%)

Combine Model
1. Buy when either modles in most bullish zoen with EMA above 25%.
2. Unteill EMA decline to -5% and bond model fallen below most nullish zone or both modles in most bearish zone.

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Ten Principles for a Black Swan-Proof World

From FT.com today:

Ten principles for a Black Swan-proof world

By Nassim Nicholas Taleb

Published: April 7 2009

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

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Guru Investor Strategies

Graham :

• P/E no greater than 15.
• P/E x P/B not exceed 22
• Current ratio < 2, less than 2 is utility or telecom
  
• Long term debt < Value of the Assets ( Net current assets )
  
• Sa;es > 340M
  
• 30 to 50% below real value
• 10 years EPS growth >30%
• Total debt/equity ratio < 100% , Utilities,phone, railroads <230%
• Continue Dividend

John Neff :

• P/E >40% of market average < 60% of market average
• EPS growth >7%<20%,
  
• Futures EPS growth rate >6% current year AND >6% for long term
• Sales growth > 70% of EPS growth rate, <70% of EPS growth rate but >7%
• Total return/P/E > ( Market total return/P/E) x2, or > ( Industrial total return/ P/E) x2
• Free cash flow > 0
• EPS by quarter ( Q1 most recent q, Q5= 5 q ago), Q1>Q5 and Q2>Q6, and Q3>Q7, and Q4>Q8

David Dreman :

• P/E in bottom 20% of the market
• Price/Cash flow ratio in bottom 20% of market
• Price/Book Ratio in bottom 20% of market
• Price/Dividend Ratio in bottom 20% of market
• Market cap among 1,500 largest publicly traded stocks
• EPS Q1 >EPS Q2
• EPS growth in the immediate past and future, EPS growth from Q3 to Q1 > S&P 500 growth Q3 to Q1 and projected growth for this year > S&P 500 growth for this year
• Current ratio > Industry average or > 2
• Payout ratio < average historical payout ratio
• ROE > 27% or top third of 1,500 largest -cap stocks.
• Pre tax margin > 22% to 8%
• Yield > Dow yield +1 %
• DEbt to Equity ratio =0 but <20%

Warren Buffet:

• Earning Predictability ( Y1 most recent years, Y10 10 years ago), Y1>Y2>Y3>Y4...Y10 and no years with negative EPS ( A dip from a prior year's earning that no more than 45% , also acceptable but o years negative EPS)
• Long term debt < 2 times earning or <2 < 5
• ROE ( Average over the last 10 years) > 15%
• Return on Total capital ( ROTC ) > 12%
• FCF >0
• Utilization of RE, return of Retained Earning > 15% or >12<15%
• Initial Rate of Return ( Earning Yield ) = EPS/P, > long term T-bond yield)
• Return on equity >15% or >12<15%
• EPS growth >15% or >12%<15%
• Average final return ( Expected ROE+ Expected EPS)/2 >15% or >12%<15%

Peter Lynch:

• PEG and Yield adjusted PEG>0<0.5 or >0.5<1
• Change in Inventory , financial or Service Co not applicable,change in inventory/sales is negative or zero or positive but less than 5
• Total debt-Equity ratio financial or Service Co not applicable,D/E < 30%, or >30<50%, or >50<80%
• For Financial stocks : Equity to Asset Ratio > 5% or >13.5%. ROA > 1%
• P/E for fast Growers, Sales >$1 billion and PE < 40
• EPS growth for fast growers > 20<25% or >25<50%.
• Stalwarts ( Earning growth 10 to 20% and annual sales $2billion or more ). EPS >0
• Yield > S&P yield and > 3%
• Bonus Criteria: FCF to Current ratio > 35%
• Net Cash per share to Current Ratio >30<40% or >40<50

Kenneth L Fisher:

• Price/Sales Ratio, Noncyclical and Tech stcoks : PSR < 0.75, PSR >0.75<1.5 are good vale. Cyclical stocks : PSR <0.4. > 0.4<0.8 are good value.
• Total debt/equity ratio <40%
• Price/Research Ratio <5 best, >5<10 Pass, >10<15 ok.
• Price/Sales for super stock, Noncyclical and Tech <0.75, Cyclical <0.4
• Inflation adjusted EPS growth > 15%
• FCF > 0
• 3 years ave net Profit Margin > 5%

Martin Zweig:

• PE Ratio >5 and <43 and <3x Market PE
• Revenue growth >85% of EPS growth or Revenue growth > 30% per year
• Current EPS >0
• EPS for quarter one year ago >0
• Growth from Q1 to Q5 >0
• Annual Earning Persistance , Y1>Y2>..Y5.
• Earning growth for past 4 quarter compare with previous year quarter must > 50%
• Long term EPS growth > 15 Pass or > 30% best case
• Growth Q5 to Q1 >30% and > Historical growth rate
• D/E < Industrial average
• Insider sell = 0 AND buy > 3

James O' Shaughnessy

• Market Cap >$ 150M
• EPS Persistance , Y1>Y2>.....Y5
• PSR <1.5
• In top 50 stocks of passing the three criteria

Value Strategies

• Market Cap >$ 1billion
  
• Cash flow per share > Market average cash flow/share
  
• Share outstanding > Market average shares outstanding
  
• Trailing 12-Month sales > ( Market average sales (TTM)) x 1.5
• Dividend Yield in top 50 passing the previous four criteria

Joel Greenblatt:

• Determine Return on Capital ( Earning before interest and taxes)/(Net working capital + Net Fixed asset)
• Determine Earning Yield ( Earning before interest and taxes)/( Enterprise value)
• ROE + EY among 20 lowers of eligible stocks

Joseph Piotroski:

• B/M in top 20% of market
• ROA >0
• ROA most recent year>ROA previous year
• CF>0
• CF from operation > Net income
• LTD/A for most recent year < previous year
• CR recent year> previous year
• Number of share outstanding in most recent year < previous year
• GM recent > previous year
• Asset turnover recent > previous year

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Gauging the Turn in Dollar, Gold and Oil

Technically, the ensuing positive correlation between the USD and global equities suggests an acceleration of the dollar sell-off as equities extend their recovery (albeit still deemed a bear market bounce). Indices would have to rally by more than 27%-28% from this months lows to 845-855 in the S&P500, 4,460-4,500 in the FTSE-100, 4,680-4,700 in the Dax-30 and 9,000-9,100 in the Nikkei-225.

Safe Haven | Gauging the Turn in Dollar, Gold and Oil

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