Category Archives: Uncategorized

How Cheap It Was: The 1920-21 Stock Market

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Chapter 19: America on the Bargain Counter (The Forgotten Depression, 2014) (pages: 197 to 200)

On August 24, 1921, the low point of the Dow, many stock prices translated into multiples on 1923 earnings of less than five times. That held true of the steel companies but also of the kind of consumer-products companies that had enjoyed a relatively prosperous depression. Thus, Coca-Cola, at $19 a share—500,000 shares were outstanding, providing a stock market capitalization of all of $9.5 million—was valued at what would prove 1.7 times 1922 earnings and 2.5 times 1923 earnings; the shares provided a dividend yield of 5.26%. Gillette Safety Razor Company, which was selling as many razors and blades in 1921 as it had in 1920, was quoted at a little more than five times forward earnings and yielded 9.23 percent. Radio Corporation of America, not yet revealed as one of the great growth stocks of the 1920s, could be purchased in the market for about as much as the company earned in 1923: $1.50 a share.

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As a matter of course on Wall Street, bargains hold no appeal at the bottom of the market. In August 1921, stock prices had been sliding for almost two years. At such junctures, the memory of losing money is usually more vivid than the imagined prospect of making it.

It didn’t take much imagination to recognize the value of F.W. Woolworth Company, the five-and-dime chain merchandiser that was finishing its tenth year as a fused corporate unit. Frank W. Woolworth himself, founder and builder of the gothic corporate headquarters tower at 233 Broadway in lower Manhattan, had died in 1919, but his successors had distinguished themselves in the depression. They had stopped buying any but essential merchandise after the break in whole sale price in June 1920, while customers, happily, had kept right on buying. Now 1921 sales were on track to surpass the total for 1920. While other chain stores had raised prices, Woolworth hewed to the letter of its five-and dime appellation (15; cents was the top ticket west of the Mississippi). And how was this exemplar of deflation-era merchandising—about to close its year without bank debt and with no mis-priced inventory—valued in the stock market on August 24, 1921?  At a price of $105 a share, or 3.7 times imminent 1922 earnings and 3.3 times what would turn out to be 1923 earnings.  The stock yielded 7.62 percent.

James Grant Explains The Forgotten Depression

Sell the Rally (CUBA)

CUBA

Obama Gives A Green Light on Cuba   Sell the rally!  Because the initial euphoria will set in after a few weeks or months.

current cuban investor

A current investor in Cuba.

Plus, you gotta deal with this: Raul

My experiences in Cuba: A glimpse of Cuba

Go Where the Outlook is Bleakest (RUSSIAN STOCKS)

RSX

One of my favorite quotes, I think from “Investing is the only place where when things go on sale, people run out of the store”

  1. Go Where the Outlook is Bleakest of John Templeton’s 16 Rules **
  2. The Risks of Investing in Russian Stocks
  3. Black Swans

Russias-stock-market-is-very-cheap-but/

RSX_EEM_CCI_161214

Of course, being contrarian requires MUCH PATIENCE. See link (**) above that featured the gold market in my post of Jan. 2014.

HUI

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 OTHER

An intelligent move: sandstorm-gold-announces a buy-back of shares after a 80% decline in share price.  The opposite of tech stock managements who are currently buying back shares at their all-time highs after a six-year move up in their stock prices)

Ghost Airports or EU Mal-investment Gone Berserk

A smart way to view gold ownership by an expert   This bullion dealer understands that gold is money and NOT an investment.

Financial-crises-during-the-gold-standard-era/ (great blog: www.tsi-blog.com)

The Horror of Herbalife

You can watch Pershing Square’sa 7:45 video at:  http://www.factsaboutherbalife.com/herbalife-unmasked/ and the entire 3-hour video is posted at: http://www.factsaboutherbalife.com/herbalife-unmasked/

 

 

 

 

 

A Reader’s Question: What Determines the Price of Gold?

Gold Picture

If those who believe in the value of gold r “gold bugs”, believers in value of financial assets must be “paper bugs” – “bond bugs”, “stock bugs”..

Simon Mikhailovich @S_Mikhailovich · Nov 14

Money is a medium of exchange. That means money is the thing that people ask for in return when they supply goods and services to the market. You often see money being defined as something having three properties: medium of exchange, store of value and unit of account. But my view – and this is in agreement with Austrian school economists Menger and von Mises – is that store of value and unit of account are not the definitional properties, they are derivative properties that money has because of its function as a medium of exchange. There can be other goods in the economy that function as a store value but not as a medium of exchange, like property for example. And I would include gold in that category. It is a store of value, maybe superior to the performance of money proper in that respect.–Robert Blumen

The goal of this post is to understand how prices are set for goods that are not consumed like gold or stock certificates.   This is a follow-up to a prior post on Goldbugs http://wp.me/p2OaYY-2Av.

Many analysts covering the gold market lack a basic understanding of reservation demand.  Most gold market research is based on the premise that the supply side of the market can be characterized by the quantity supplied and demand side by the quantity demanded. The specific cause and effect relationship between these two variables and price is often unstated; and perhaps rightfully so: is it not obvious that a greater quantity demanded is the cause of a higher price, and that a greater quantity supplied is responsible for a lower price?

NO!

Market forecasts based on quantities of gold are meaningless. “Gold demand was up by 15% in 2012.” are true but only if they are understood in a misleading sense. The supply and demand sides of the market consist of supply and demand schedules, not quantities. A price forecast based on quantities is a non sequitur because there is no causal connection from the quantities to the price. This error has side-tracked the majority of analysts into an obsessive focus on quantities while ignoring the actual drivers of the price. 

Read: Misunderstanding-Gold-Demand (1) and for more examplesWhat determines the price of gold  Then to reinforce the concepts, Rothbard shows in detail how supply and demand schedules are derived from individual preference rankings in Man, Economy , and State starting with his discussion in Chapter 2, sections 4-5 and Chapter 2, Section 8: Stock and Total Demand to Hold, and then later as applied to money in Chapter 11 (Money and its Purchasing Power) Sections 2-5.  Link here: http://mises.org/library/man-economy-and-state-power-and-market

If you grasp the readings above, you will have a greater understanding than many professional gold analysts. I am willing to take bets on this. Takers?

Then you will not waste your time reading the nonsensical: Global-gold-demand-will-overwhelm-the-manipulators Nathan Mcdonald-sprott-money-news

However, even if you agree/disagree with an analyst’s conclusion, you will know whether the premises are logical if not yet determined to be correct.

Revisiting the Goldman Sachs $1050oz gold forecast/

You might even be able to understand where a forecaster went wrong in their analysis: Eric Sprott sees gold at new high before year-end/

Debt grew and central banks printed so why did the price decline in gold from 2011 to today (Nov. 25, 2014)?

Gold wasn’t always in the dumps.  It rose right along with equities, indeed outperformed equities, from the 2009 Great Recession bottom – when central banks the world over first began implementing their unconventional monetary policies – straight through to its September 2011 top.  The reason we think it did is quite simple.  Coming out of the Great Recession, central bank credibility – their ability to “pull us out” of the Recession – was being severely questioned by investors. Thus, a good portion of investor money found its way into gold. That changed in 2011. Underwritten by these same central bank easy money policies, the as yet unresolved malinvestments of the Housing Bubble turn Credit Bust turn Great Recession, which were in the process of a healthy liquidation, were short circuited, while new, yet to be revealed malinvestments (we think the largest being anything in and around financial engineering) were starting to bear fruit.  The belief took hold that the heroic policies of these central banks were finally working, finally restoring long-term vitality to the economy. Gold then sunk while equities marched ever higher.

So here we are… http://www.forbes.com/sites/michaelpollaro/2014/10/12/central-bank-credibility-the-equity-markets-and-gold/

Right for the wrong reasons

 from www.tsi-blog.com


November 26, 2014

It is not uncommon for people who make predictions about the financial markets to be right for the wrong reasons, meaning that even though their reasoning turned out to be wrong the market ended up doing roughly what was predicted. Here are two examples that explain what I’m talking about.

The first example involves the popular forecast, during 1995-2000, that the US stock market would continue to be propelled upward by a technology-driven productivity miracle. This reasoning was used by high-profile analysts such as Abby Joseph Cohen to explain why stratospheric valuations would go even higher. As long as the bull market remained intact these analysts were generally held in high regard, but their reasoning was terribly flawed.

Anyone with a basic understanding of good economic theory knows that increasing productivity causes prices to fall, not rise. Furthermore, while it is certainly possible for some individual companies to justifiably obtain higher market valuations by becoming more productive than their competitors, a general increase in productivity will not cause a sustained, economy-wide increase in corporate profitability and will not justify higher valuations for most equities. To put it another way, the main beneficiaries of higher productivity are consumers, not stock speculators and investors in equity-index funds. Consequently, there was never a possibility that rising productivity was behind the 1995-2000 surge in the US stock market. “Rising productivity” was just a story that sounded good to the masses while the market was going up.

Like all bull markets in major asset classes, the bull market in US equities that ended in 2000 was driven by the expansions of money and credit. After the pace of monetary expansion slowed, the bull market naturally collapsed.

The second example involves the forecast, in 2011-2012, that the gold price was destined to fall a long way due to deflation. Regardless of whether your preferred definitions of inflation and deflation revolve around money supply, credit supply, asset prices or consumer prices, there has been no deflation and plenty of inflation over the past 2-3 years, so advocates of the “gold is going to lose a lot of value due to deflation” forecast could not have been more wrong in their reasoning. However, the gold market has performed as predicted!

Rather than being a victim of deflation, gold was a victim of the reality that over the past three years a bout of rampant monetary inflation led to a huge rally in the broad stock market, which, in turn, boosted economic confidence. Ironically, had the reasoning of the “gold to fall due to deflation” group been close to the mark, the gold price would probably have experienced nothing more than a 12-18 month consolidation following its September-2011 peak. This is not because gold benefits from deflation (it doesn’t), but because the combination of economic weakness, declining economic confidence and the actions taken by central banks to address the economic weakness would have elevated the investment demand for gold.

I’ve noticed that fundamentals-based analysis is rarely questioned if it matches the price action and, by the same token, is often greeted with skepticism if it is in conflict with a well-established price trend. During a raging bull market even the silliest bullish analyses tend to be viewed as credible, and after a bear market has become ‘long in the tooth’ even a completely illogical or irrelevant piece of analysis will tend to be viewed as smart, or at least worthy of serious consideration, if its conclusion is bearish. However, from a practical investing perspective, fundamental analysis can be most useful when its conclusions are at odds with the current price trend. The reason is that the greatest opportunities for profit in the world of investing and long-term speculation are created by divergences between value and price.

Spend the time to understand how prices are set/determined and you will avoid faulty analysis and think better for yourself.

HAVE A HAPPY THANKSGIVING!

Valuing Growth

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 Valuing growth is an art.  The readings below will help you think about how to assess growth in your valuation.

Greenwald_2005_Inv_Process_Pres_Gabelli in London This lecture places valuing growth in the overall context of value investing.

Greenwald-Class-Notes-5-Liz-Claiborne-Valuing-Growth-2  See pages 10 through 14 for a discussion on valuing growth.

Growth Stocks and the Petersburg Paradox

St Petersburg Paradox and Tech Stocks 2000

Ben_Graham_and_the_Growth_Investor_Bryant_College_041008

A Method of Valuing Growth Stocks

Newer Methods for Valuing Growth Stocks_1962_Security Analysis  Ben Graham tackles a tough subject.

Comments on the 15 Growth Illusion

When Growth Stalls

Deep Value Master, Walter Schloss

W Schloss

Walter Schloss had a phenomenal track record over many decades.  His accounts returned profits almost every year, so the amount he managed stayed small.  His approach is a good one for individual investors. he would buy cheaply and average down. However, now might be a difficult time to practice his approach with many sectors of the market lacking a margin of safety unless you delve into (horrificly cyclical) certain mining companies, oil-drillers, and community banks.  But if you are interested in the deep value approach, you must study Schloss.  Does your personality match his approach?

The Superinvestors of Graham and Doddsville by Warren Buffett

Schloss_May_8_2008

schloss_lecture

Profit_Guru_Walter_Schloss_interview

graham_reminiscence

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16 Investing Rules from Walter Schloss

Walter Schloss – OID Interview

Walter Schloss Lecture: http://youtu.be/v-7e_97icWY

Learning from Schloss (excellent review) http://youtu.be/5KM9eY7BbzA

What do YOU think? 

The Last Bear Commits Suicide

suicidal-bear

Marry Rich!

Reality show

I researched scams, frauds and penny dreadfuls (penny stocks) many moons ago, so I am on every scam list. Periodically, I will share some of the better con jobs so as to refresh ourselves with the psychology of sociopaths and cons.   

Anyone wish to marry rich (or receive 40% of $8.5 million)–here is your chance. A Cinderella story gone horribly wrong!

 FROM: joy.kipkalya@yandex.com, 

 
Re: PLEASE MY DEAREST ONE I NEEDS YOUR HELP.

 

My Dearest,

I know you will be surprise to receive this email, but Before I go further I will like you to understand that, I am writing this mail to you With due respect trust and humanity, I appeal to you to exercise a little patience and read through my letter I feel quite safe dealing with you in this important business, honestly i am writing this email to you with pains, tears and sorrow from my heart, i will really like to have a good relationship with you and i have a special reason why i decided to contact you, i decided to contact you due to the urgency of my present situation here in the refugee camp. My name is Miss. Joy Kipkalya Kones, 25yrs old female and I from Kenya here in Africa; my father was the former Kenyan road Minister. He and Assistant Minister of Home Affairs Lorna Laboso had been on board the Cessna 210, which was headed to Kericho and crashed in a remote area called Kajong’a, in western Kenya. The plane crashed on Tuesday 10th, June, 2008.

After the burial of my beloved father, my stepmother and uncle conspired and sold all my  father’s properties to an Italian Expertrate which they shared the money they sold from the properties among themselves and live nothing for me. Unfortunately to me I fined my father’s briefcase and when I opened it I found a document which my Father used to deposited amount of money in one bank here in Burkina Faso, with my name as the next of kin. I travelled to Burkina Faso here I am, to withdraw the money for a better life
so that I can take care of myself and start up a new life and also further my education, when I arrival to the bank, the Bank foreign Operation Department Director whom I meet in person told me that my father instruction to their bank is that the fund would only be release to me when I am married or present a trustee/partner who will help me and invest the fund overseas after the transfer, and the bank ask me to go and look for a foreign partner, that was why  am contacting you, which I believe that you are going to be honest and reliable person that will help me and stand as my trustee/partner, so that I can present you to the Bank for the release and transfer of the inherited fund into your bank account in your country.

I have chosen to contact you after my prayers and I believe that you will not betray my trust. But rather take me as your own wife. Though you may wonder why I am so soon revealing myself to you without knowing you, well I will say that my mind convinced me that you will be the true person to help me. Moreover, I will like to disclose much to you if you can help me to relocate to your country because my stepmothers have threatened to assinate me. The fund my Father deposited into the bank, is ($8.5 USD) Million United State Dollars, and I have confirmed from the bank here in Burkina Faso, on my arrival, You will also help me to place the fund in a good profitable business venture in your Country, However you will also help by recommending a nice University in your country so that I can further my education. It is my intention to compensate you with 40% of the total money for your services and the balance shall be my capital in your establishment. Now my dear as soon as I receive your positive response showing your interest and wiliness to help me, I will put things into action immediately. In the light of the above, I shall appreciate an urgent message indicating your ability and wilingness to help me and also handle this transaction sincerely. Awaiting your urgent and positive response. Please my dear I want you to keep this as a top secret only to your self for now until the bank will release and transfer my inherited fund to you as my appointed trustee/partner. I beg you once again not to disclose this to any body until i come over your country because I am afraid of my weeked stepmother who has threatened to kill me and have my inherited fund alone. I thank you very much and am expecting to hear from you soonest.

Yours Sincerely
Joy Kipkalya Kones.

P.S. You gotta love the mis-spellings combined with the multiple tragedies. I give a less than 0 probability of the email being even remotely true.

How to Steal from Banks Through Accounting Fraud

Now What

 

Robbing Banks

http://www.zerohedge.com/news/2014-05-25/bill-black-robbing-banks-inside-weapon-choice-accounting

Keys to A Few Value Vaults

Click on VIEW FOLDER and there are many books, cases, and more. Let me know if you wish more posted. Here are a few vaults.

Books View Folder
VV_CS_Inv View Folder

 

UPLOAD_Contributors View Folder