Personal Finance

6 Things To Ponder This Weekend

ponderingAs we wrap up a most interesting, and volatile, week there are some things that I have discussed previously that are now brewing, interesting points to consider and risks to be aware of.  In this regard I thought I would share a few things that caught my attention as I look forward to wrapping up the week that was.

….read it all 6 items HERE

Short Update and Things

The FED Blinked. It’s been my expectations that if “tapering” actually began, it wouldn’t be long before the FED would be pressured to go back to QE mode as the economy starts to accelerate to the downside. Well they blinked and now have begun the process that should lead to a perception of going from in front of the curve to behind.

The gentleman noted in this Zerohedge article truly hit the nail on the head (and Lies-man of TOUT-TV remains one of  chief mates on the ships of fools that litter that network).

Gold meanwhile had a key reversal and while I would like to wave an “all-clear” flag I know the manipulators who were applying their trade just a couple of weeks ago won’t just simply go away. Interesting days ahead for the yellow metal.

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Where have all the U.S. dollar bulls gone? We’re close to key support and while I don’t anticipate breaking below on the first couple of tests, the bears are sniffing some bull meat upcoming.

I said a few weeks ago that I felt the 3% yield on the 10-yr. T-Bond should be the high mark until the real crisis comes when the world finally concludes America no longer has real ability to pay its debts.

And finally, shame, shame shame on all those who walked out the room 

 

Market Buzz – CAPE Crusaders Renew Epic Battle – Is it relevant to you?

With the S&P 500 (broad gage of U.S. stocks) up over 16% year-to-date and almost 31% since the beginning of 2012, it is fair to ask if broader North American markets should be considered overvalued. Anecdotally, it is certainly more difficult to identify striking value than it has been over the past several years – but not impossible as growth has picked up in select areas.

One such method which has proven successful in identifying market extremes (both over and undervalued) is the Shiller PE Ratio or cyclically adjusted price-to-earnings ratio, commonly known as CAPE. Developed by Yale economist Robert Shiller and built off the work of legendary value investors Benjamin Graham and David Dodd, CAPE is a valuation measure usually applied to broad equity markets. It is defined as price divided by the average of ten years of earnings, adjusted for inflation.

The central theme behind the CAPE is simple. Taking a multiple of one year’s earnings is misleading because stock markets naturally adjust when investors believe profits are cyclically high or cyclically low. Compare prices instead to the average of earnings over 10 years (Prof Shiller also corrects for inflation) and it becomes clearer whether stock markets are overvalued or undervalued.

For over a century, extremes in the CAPE have coincided with favourable times to buy and sell. By staying far above its long-term average during the rebound that followed the internet bust from 2003 to 2007, the CAPE also provided a warning that the rally was not to be trusted – ahead of the far worse crisis of 2007-09.

Prof Shiller and the CAPE (not the one some believe he wears) are sound the alarm once again, recently implying that the U.S. market is 62% overvalued and more expensive than any other big stock market.

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Economics without debate is like politics without scandal. It’s not going to happen. It should be no surprise that the CAPE is under attack from another renowned economist, Jeremy Siegel, who contends that it is based on faulty data. Many on Wall Street discount CAPE, but most have a vested interest.

Prof Siegel of the University of Pennsylvania’s Wharton School has produced a new version of the CAPE, which he says corrects Prof Shiller’s mistakes. His version of the CAPE (again not the one his followers think he wears) suggests that the U.S. stock market is sending a different signal – stocks are cheap.

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But there is plenty of reason to worry broadly about the economy including public (unfunded pension liabilities included) and private (consumer) debt. While U.S. consumer debt has been headed in the right direction, levels still remain historically high. U.S. unemployment is also a big concern.

Within Canada, our relative insulation from the great recession has unfortunately spared us a valuable lesson and consumer debt has not been paid down. In fact, Canadians are borrowing more, piling on consumer debt – credit cards, conventional bank loans, car loans and lines of credit. At some point this ends and a spending vacuum could limit growth.

Perhaps this partially justifies the S&P TSX Composite’s poor performance on a relative basis, being up a scant 3.3% and just 7.5% since the start of 2012. Slumping commodity prices (outside oil of late) are also a major contributor to the underperformance of the resource laden TSX.

So where does this epic tug-o-war leave us – which one of these statements is true?

“The stock market is overvalued.” “The stock market is undervalued.” Investors ask us these every day.

From our perspective, both statements are simplistic and most often irrelevant.

It is a market of stocks, not a stock market.

We do not recommend you buy “the market,” when you look to beat the market. Our clients create their Small-Cap Growth Stock Portfolios with discipline by purchasing 8-12 cash producing stocks over a 12-18 month period. Our holding periods are typically between 1-5 years and beyond.

Over that 1-5 year period, the broader market will have its ups when it is likely overvalued based on a number of metrics and downs when it may show as undervalued based on those same metrics. What is important to us and to you as a client is whether your 8-12 stocks are continuing to create shareholder value through a number of company specific metrics including cash flow increases, growth, a higher return of capital (dividends) and an improving balance sheet.

Outside of this, Mr. Market will create a great deal of “noise” on a day-to-day basis. Try not to pay too much attention – it will allow you to sleep far better each night.


KeyStone’s Latest Reports Section

9/18/2013
CASH RICH COMMUNICATIONS SOFTWARE COMPANY POST STRONG Q3 2013, EXPECT FURTHER ACCRETIVE ACQUISITION IN 2013-2014 – RATING MAINTAINED – GAINS OVER 215%

9/5/2013
DIVERSIFIED BUSINESS ACQUISITION COMPANY REPORTS SOLID ORGANIC GROWTH IN 2013, ACQUIRES INDUSTRIAL SCAFFOLD – CONTINUED GROWTH IN FREE CASH FLOW EXPECTED OVER NEXT YEAR AND STRONG BALANCE SHEET ($22 MILLION IN NET LIQUID ASSETS) – UPGRADE LONG TERM

8/29/2013
UNDERFOLLOWED INTERNATIONAL/CANADIAN ENERGY SERVICE STOCK POSTS STRONG Q2, SOLID 5.7% DIVIDEND WITH SOLID BALANCE SHEET ($0.41 PER SHARE IN CASH), NEAR-TERM MODERATE, LONG-TERM POSITIVE – BUY RATING MAINTAINED

8/22/2013
SHARES OF FOCUS BUY SURGE – ENERGY PIPELINE CONSTRUCTION SMALL-CAP POSTS RECORD Q2, STRONG GROWTH IN SEASONALLY WEAK QUARTER, PE OF 6 & OUTLOOK POSITIVE – REITERATE BUY (FOCUS BUY) DESPITE 142% GAINS

8/21/2013
ENERGY SERVICE & INFRASTRUCTURE STOCK POSTS WEAKER Q2 (EXPECTED), WELL POSITIONED FOR GROWTH IN SECOND HALF OF 2013 – LONG-TERM RATING MAINTAINED


 

 

 

 

 

 

 

George Soros: His Last Trades

His last 645 trades, dates & performance:

 ….view all 645 trades  HERE

George Soros is known for the unmatched success of his Quantum Fund. A hedge fund guru, he is recognized for having the best performance record of any investment fund in the world over its 26-year history. A mere $1000 invested in 1969 when Soros established the Quantum Fund would have been worth $4 million by the year 2000. During that time he achieved a cumulative 32% annual return.

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….view all 645 trades  HERE

Martin Armstrong’s GOLD UPDATE

 

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“we will be increasing in volatility the last week of September”

….more comments and charts HERE

House Votes to Defund Obamacare – Again

 

However, Congress must pass a CR to set federal funding levels by Oct. 1, or the government will partially close. No doubt our computer has been targeting the last week of September and then the weeks of Oct 7th/14th look key. House Republicans see the mandatory deadline as a final opportunity to cripple the 3-year-old Obamacare law.

….read more HERE

It’s a Matter of Confidence

 

Stocks are not rising because of “confidence” in the Fed, the central banks have themselves been buying stocks lacking confidence in public debt. Money has NO CHOICE but to go to stocks. Pension will go bust and stocks are becoming the ALTERNATIVE to government debt.

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Even during the Great Depression, corporate bonds were in higher demand than government. Read the newspaper of 1929 and you will see the complete opposite interpretation of the same fundamentals from today.

There is a cycle to fundamental interpretations as well.

….read more HERE