Speculation – Page 13 – The Aleph Blog

Don’t be a Fool

Posted on 14 November 201214 November 2012 by David Merkel

When I wrote for RealMoney, I would often write things critical of others, but not identify my target.? Why?

I didn’t want to get kicked out, or have a fight that would discredit RealMoney.
But I did want to teach general principles.

I maintain that practice to this day.? Typically, I don’t name names.? Again, two reasons:

I don’t want to get sued.
But I do want my readers to understand what are shoddy practices, so they can avoid them.

Recently, a large investment website has been loosening up their standards for who they will allow to advertise via e-mail.? Here is one redacted advertisement:

A New Strategy With Startling Results

Dear Investor,

A small group of XXX clients are making 20% to 40% in trading profits…PER DAY.

They call it ?Exploiting the Banker?s Market.?

Their trading methodology is unlike anything you?ll find in today?s financial marketplace.

And best of all, their newsletter is totally free.

Honestly, this is the only investing newsletter worth your time.

?Sign up for free now. [link removed for your protection]

Sincerely,

XXX Investing Team

P.S. By exploiting the banker?s market, they just hit winners on 19 out of 22 trades, including gains of 45%, 48%, 56%, and 78%.

Prior to this, they took gains on 30 out of 33 trades. You can achieve these same returns. It’s simple.

As long as the bankers remain in control of the markets (and now that Obama got re-elected, you know they will), this unique trading methodology offers you a safe and consistent way to profit.

If you?re interested in profiting day after day ? even if the bankers and the Fed are working against you ? then do not miss these unique trading strategies.

It?s all revealed to you in this free newsletter. [link removed for your protection]

YYY
30 Forest Ave
Naperville, IL 60540

Note that YYY is a penny stock promoter.? XXX may be decent enough, aside from their willingness to employ YYY.? Investing in options is a ticket to the poor house for most, because the market is not very liquid.? It is very hard to make money trading options.? Most lose money doing so.

But here is another from the same e-mail list:

Dear Investor,

Where were you on August 13, 2012, when tech-stock guru WWW gave the green light on EZchip Semiconductor (EZCH), then trading at $28.36?

Well, maybe it doesn?t matter because very few investors had ever even heard of this red-hot networking chip company.

But on November 8, EZchip reported a huge earnings beat and rallied an incredible 15% to $34.80 in one day, delivering a 23% gain for ZZZ subscribers [link removed for your protection] who bought alongside Sean at the $28 level.

So we?ll ask you some simple questions?

Do you want to make money off of hot technology trends that have nothing to do with how the US Fiscal Cliff and European drama play out?

Would you like to get in on the hot storage play at which Facebook (FB) and Apple (AAPL) are throwing money?

Or the semiconductor producer that is printing money on the global transition to 4G/LTE smartphones?

How about the left-for-dead social-media play that is about to rise like a phoenix?

If you answered yes, then we’ve got an offer for you.

We?re giving you an exclusive 30% discount on an annual subscription to ZZZ [link removed for your protection] , WWW?s exclusive money-making tech stock newsletter that will help you do all of the above and more.

For just $447 (a savings of nearly $200!), you?ll receive:

? ? ? ? ?

? ? ? Exclusive access to WWW?s hand-picked portfolio of technology stocks ?

? ? ? ? ?

? ? ? Instant e-mail updates whenever WWW makes a trade or initiates new coverage ?

? ? ? ? ?

? ? ? Expert analysis of the most important tech-industry news ?

? ? ? ? ?

? ? ? Access to quarterly webcasts, where WWW delivers in-depth analysis of the technology industry ?

? ? ? ? ?

? ? ? WWW?s special report: 5 Stocks That Will Gain 50% From Apple TV ?

? ? ? ? ?

But most importantly, with a ZZZ subscription, you will get direct access to Sean, who stands by ready to answer any and all reader questions through our regular mailbag feature.

Sean?s goal is simple: to have your ZZZ subscription pay for itself many times over through winning trades while keeping you up to date on everything that?s hot in tech.

So, do you want in? [link removed for your protection]

Advertisements like this appeal to dopes.? There is no easy money in the market.? Anyone can cherry-pick a record of risky calls and show a bunch of wins.? What of the losses? How many and how severe were they?? Why don’t you show the results of an audited real money portfolio that you managed?? What, you didn’t put any real money behind? these calls?

Look, when advertised results are too high, they usually aren’t real.? Get smart.? Avoid websites that propagate such nonsense.? Anyone willing to sully their reputation for a bunch of cheap advertising revenues is not worth your time.? I get about 10 advertising proposals per week, and I turn almost all of them down.

If it seems too good to be true, it is false.? Avoid reaching for the rare exception, and you will be much better off.

Sorted Weekly Tweets

Posted on 10 November 2012 by David Merkel

Politics

California Democrats seize super majorities in both houses of Legislature http://t.co/Wp2cVYTF CA businesses plan exit strategies $$ Nov 08, 2012
Harsher energy regulations coming in Obama’s second term http://t.co/JHDKAhok Fracking, chemical emissions, & more $$ -losing green energy Nov 08, 2012
US crop insurance a post-election target, farm bill elusive http://t.co/9OdbRVjy W/Ag doing so well over last 5 yrs, this should b ez, not Nov 08, 2012
Ethanol Going Ugly Turns Bush Plan Into Obama Test http://t.co/Pe6ixxc1 Should b a no-brainer, but Congress ag state politics r ugly $$ Nov 08, 2012
Could This Be End of Evil Filibuster? http://t.co/t72aR3OR Limit filibusters to actual votes & require physical presence on the floor $$ Nov 08, 2012
Obama Win Means Health Overhaul to Move Ahead in States http://t.co/ybXggsLt Destroy health care 2 replace it w/single-payer system $$ Nov 08, 2012
Yep, There Have Been Problems With Email Voting in New Jersey http://t.co/lZjzVNrG In general, probability of fraud in voting is rising $$ Nov 07, 2012
Defense Fund Rockets to Four-Year High: Romney Rally? http://t.co/3fzUDRTH Discounting Obama’s change of heart after election $$ 😉 Nov 06, 2012
Romney Threatens Pimco?s Gross With Bernanke-Dumping Plan http://t.co/xO6Tm0aF 2 many links in the chain of reasoning; low prob correct $$ Nov 06, 2012
Southfield Twp. voter appears to die, then asks ‘Did I vote?’ http://t.co/2ZwRgotp I found his words to his wife 2b touching in many ways $$ Nov 06, 2012
Tuesday Is Election Night, Be Careful What You Tweet http://t.co/UdPPMYiJ Measure twice, cut once, tweeps. & bring a dose of skepticism $$ Nov 05, 2012
Three Men Make a Tiger http://t.co/eX1PziJK John Mauldin predicts Romney as victor; piece is mostly about eliminating confirmation bias $$ Nov 05, 2012

China

China: Worse Than You Ever Imagined http://t.co/Kp69IC1n 40MM+ people were killed during the “Great Leap Forward.” Mao deserves derision $$ Nov 08, 2012
China’s leadership challenge in new era: douse “inequality volcano” http://t.co/pJiAksUl Widespread poverty in China scares Communist Party Nov 08, 2012
A Cheerleader for Mao’s Cultural Revolution http://t.co/d3RhdV95 Lied about Cultural Revolution & The Great Leap Forward. Millions died. Nov 08, 2012
The Chinese Credit Bubble – Full Frontal http://t.co/MDZn1jCs As I have argued for some time, total debt in China is quite high $$ #danger Nov 07, 2012

Companies

Peltz Takes Stake in Danone http://t.co/P1AdRe9G Danone $DANOY is a French firm, will be difficult to encourage change $$ Nov 08, 2012
Prudential Records $618 Million Loss on Derivatives http://t.co/6ZQK1Uk5 I worry about life industry; the acctg 4 secondary gtees: yuck $$ Nov 08, 2012
Nucor Galvanizes Gas Hopes http://t.co/NmfZ9fmJ $NUE provides capital 4 development of gas resources of $ECA -Gets 50% stake in wells $$ Nov 08, 2012
Office Depot-OfficeMax Deal Seen Rescuing Value http://t.co/bNsFKuJU The failure of office retailers as the non-profit $AMZN undercuts $$ Nov 07, 2012
SapuraKencana Agrees 2 Buy Seadrill Tender Rigs http://t.co/XXrAsjFj Interesting deal, clever investor; expands Malaysia exposure $SDRL $$ Nov 05, 2012
Sharp blunted, and it?s not alone http://t.co/5jTHzKuN Argues that Japanese electronics mfg & exports r getting killed by strong yen $$ Nov 04, 2012

Federal Reserve

Inflation, QE and forcing the banks to lend http://t.co/XuPgRPJm I’ve subscribed 2 The Economist for 25 years; they r getting dumber $$ Nov 04, 2012
Casting Dual Roles, at Treasury & the Fed http://t.co/kIwpAzZ3 Bernanke’s Last Supper & The Return Of Larry Summershttp://bit.ly/Sp9PBZ $$ Nov 04, 2012
Off of the last tweet, it would be nice 2c Bernanke retire; he really may b tired of the abuse. His prob was he thought he knew what 2 do $$ Nov 04, 2012
& as a result, could not c that Neoclassical macro does not work with an overindebted economy. We need fewer economists at the Fed & Tsy $$ Nov 04, 2012
Wrong: Seth Klarman Goes Nuts On The Fed In His Latest Investor Letter http://t.co/G6gAkMfU Y I think value investors should run the Fed $$ Nov 04, 2012
Seth Klarman, like most value investors, is farsighted & not just thinking about how to goose GDP for the next year. Klarman 4 Fed chair $$ Nov 04, 2012

Eurozone

Convergence between the core and the periphery economies in the Eurozone http://t.co/2oD2exeV Drowning PIIGS pull Germany & France under $$ Nov 08, 2012
ECB & Fed: Worlds Apart http://t.co/zZuaFiXU Axel Merk praises the ECB & disses the Fed. Argues that ECB has not gone fiscal as the Fed has Nov 08, 2012
Unsteady Greek Coalition Faces More Strikes http://t.co/dxQJYzmw Suspect they make it through; Greeks don’t want 2 leave Eurozone yet $$ Nov 05, 2012
The peripheral threat to France http://t.co/0atOAKZq Many of the PIIGS r getting more competitive relative 2 France. No E-zone w/o France Nov 04, 2012

Rest of the World

Old People Versus Babies, In One Graph http://t.co/Erk2Mu8z Global demographic crisis in one very easy to manipulate graphic $$ Nov 08, 2012
Iceland Sees Mortgage Bubble Threat From Foreign Cash http://t.co/djtYZDxw The problems of capital controls start to bite $$ #nofreelunch Nov 06, 2012
Turning Trash Into Tidy Profit http://t.co/FvM32C3a Optimistic story on turning trash into durable building materials in Senegal $$ Nov 05, 2012

Sandy and Disaster

Frederick County teen wins regional science competition http://t.co/F72thGx3 The software can read a picture & tell where it is. $$ Nov 08, 2012
Sandy’s Aftermath: Samuel Pritt Develops Geolocation Software http://t.co/InnwZaGe Young friend won Siemens US Science Competition $$ Nov 08, 2012
Insurance divides haves from have-nots after Sandy http://t.co/NngZdchm Insurance is for catastrophes; scrimp on frequency, not severity $$ Nov 04, 2012
Reserved Buoyancy, Down-Flooding, and Living Off the Grid http://t.co/TXxn9f6e The value of slack in physical systems, especially boats $$ Nov 03, 2012

Market Dynamics

FIRE IN THE DISCO! http://t.co/YComOnGA @reformedbroker warns us that a recession is coming, & talks about a decline in corporate profits $$ Nov 08, 2012
Even 6.75% is too high. Looking at the Q-ratio, CAPE10, & long high quality bond yields would make 4% more realistic http://t.co/vjP0X7y1 $$ Nov 06, 2012
Lightening the Pension Load http://t.co/bi2j6cdJ Never thought I’d c terminal funding return; can b bad 4 annuitants if insurer fails $$ Nov 06, 2012
Fitting Factors Into the Formula http://t.co/35speWwR Bob Arnott& Cliff Asness discuss quantitative investing; long article worth reading $$ Nov 06, 2012
TAGP expiration will put downward pressure on short-term yields http://t.co/YgwmR2bu Once guarantee goes, much S-T $$ will look 4a home $$ Nov 06, 2012
Cash as Trash, Cash as King, and Cash as a Weapon http://t.co/fWS1TOTl In different environments & hands, cash has different properties $$ Nov 06, 2012
Wrong: Is Your Manager Skillful?or Just Lucky? http://t.co/vJu2tTrd Bill Miller neglected “margin of safety” & reaped bad results $$ Nov 05, 2012
http://t.co/VRj1k4Vg They didn’t read paper closely. Performance of anomalies diminished, not destroyed, by publishing academic research $$ Nov 05, 2012
For John Maynard Keynes, Economic Theory Was a Sideline http://t.co/IVdB6Gyc He was a better investor than he was an economist $$ Nov 05, 2012
It?s the Earnings, Stupid: ?Atrocious? Q3 Turns Josh Brown Cautious http://t.co/a2ChJKTL Time 2b cautious says @reformedbroker. Calendar? Nov 05, 2012
“All I know: The next bankruptcy cycle, whether in 2 or 3 or 4 years, is going to be one for the ages. Count on it.” http://t.co/xtHy7lqj $$ Nov 03, 2012

Policy

A New Idea of How to Fix the Ratings Agencies http://t.co/fTEECPUP by @carney | My response: http://t.co/3dWFo2Pv $$ Nov 06, 2012
Investors won?t read the fine print http://t.co/t2W8Nrk9 Even many institutional investors become overworked, lazy, etc. & don’t read $$ Nov 06, 2012
Hero of the day, CPDO edition http://t.co/wIxyPo2T I remember 2006 when @alea_ @interfluidity & I (@ Realmoney) were criticizing CPDOs $$ Nov 05, 2012
Health-Care Law Spurs Shift to Part-Time Workers http://t.co/0ui2LGvm Law of unintended consequences: How 29-hr workweek got created $$ Nov 05, 2012
10 things walk-in clinics won?t tell you http://t.co/qKPj3D3R Major factor is the loss of continuity u have w/doctor who knows u $$ Nov 05, 2012
After Bailout, Giants Allowed to Dominate the Mortgage Business http://t.co/K9HZZWDu “Is this what we saved [the financial system] for?” $$ Nov 04, 2012

Retweets

Can say that again RT @bespokeinvest: Wow, big selloff in the last couple minutes of trading. Dow down 430 points since Tuesday’s close. $$ Nov 08, 2012
Some gift RT @pdacosta: Gift that keeps on taking: France, Belgium agree to pump 5.5B euros into bailed-out Dexia http://t.co/qgq8PI6R Nov 08, 2012
RT @ReformedBroker: This Greek austerity bill is the equivalent of slapping a Kick Me sign on the Troika’s back. Gives us one day’s peac … Nov 07, 2012
Rupert goes back to sleep $$ RT @felixsalmon: RT @dansabbagh: Pearson says FT is not for sale. “This particular Bloomberg story is wrong. ” Nov 06, 2012
RT @SimoneFoxman: you’ve got to be kidding me. — Southfield Twp. voter appears to die, then asks ?Did I vote?? http://t.co/2ZwRgotp Nov 06, 2012
First of many 2 come RT @FrancesDenmark: Indiana is the first state to drop its pension return expectations below 7.0% http://t.co/ir8anqN4 Nov 06, 2012
Murdoch would b interested $$ RT @ReformedBroker: The Financial Slides RT @TheStalwart: Who will buy the FT? Maybe BI in a reverse merger? Nov 06, 2012
Bite your tongue 🙂 Janet Yellen has exceeded the Peter Principle $$ RT @fundmyfund: precious metals say = janet yellen here we come Nov 06, 2012
Easy 2 talk tough, hard 2 not repay $$ RT @munilass: So much for cities standing up to Calpers http://t.co/xWIciI4C Nov 06, 2012
marriage changes u $$ RT @moorehn Surprising: single & married women are further apart politically than men & women r http://t.co/b4adY1pc Nov 06, 2012
Probably priced in $$ RT @kyles09: isn’t the exp of TAG a negative for the big bank stocks or do you think it is already priced in? Nov 06, 2012
I was just looking forward to the end of the political season, sigh RT @jfahmy: Hillary Clinton listed as current 2016 favorite (6:1 odds). Nov 05, 2012
Dog bites man RT @TheStalwart: National Review endorses Mitt Romney http://t.co/ZBAptg8Q Nov 05, 2012
Wow $$ RT @businessinsider: New York Magazine’s Breathtaking Cover Shows Manhattan From Up In The Sky by @KimBhasin http://t.co/FaTgCqA1 Nov 03, 2012

Replies

@valuewalk Thanks. $DANOY might do what they can to improve margins, but might play badly in France. Has mgmt been s/h-friendly in past? $$ Nov 08, 2012
@Frank_McG Very cool. We homeschool — only 4 left, 1 senior, 2 freshmen & a 5th grader. My wife is having a blast. $$ Nov 08, 2012
@TheOneDave You’re welcome — you do some great stuff Nov 07, 2012
@TheOneDave Hey, Dave, don’t see where we can get the Chart… Nov 07, 2012
@amacker Floating NAV, hehe Nov 07, 2012
@TheStalwart My friend and former boss Eric Hovde would have beaten Baldwin, and handily… Nov 07, 2012
@kyles09 My actuarial conservatism, and knowing that God can do whatever he wants with me Nov 07, 2012
@carney I hear you: I’m going to write a piece where I take my “eliminate the rating agencies model” and clarify it http://t.co/x4WsWaj3 $$ Nov 06, 2012
@PragCapitalist Thanks, Cullen. I applied that idea to corporate board elections when writing 4 Realmoney, Shame it didn’t get traction $$ Nov 06, 2012
@michaelroston Yes, but there is a lot of $$ on both sides, and the phones ring. WV & PA gambling firms & Christians vs MD gambling firms Nov 06, 2012
@michaelroston However, if you live in MD all u hear about is 7, the ballot measure expanding gambling. Other measures: <crickets> $$ Nov 06, 2012
@BradErvin1 That’s what I am saying — they r taking consensus risks $$ Nov 05, 2012
@BradErvin1 But my point about the balanced funds is this: in the selection he could invest in, they r all taking the same broad risks Nov 05, 2012
@BradErvin1 57, Married, one kid at home, significant assets good job, wife w/good health, 52, he not so healthy, has saved aggressively Nov 05, 2012
@FriedrichHayek I knew that Keynes got bailed out once (or was it twice?), but he learned from his losses, & was far better at the end $$ Nov 05, 2012
@MarketIntegrity @CFAInstitute @CFAcareers @CFAevents You might want to get different logos; it makes you look like u r RT-ing yourself $$ Nov 05, 2012
@japhychron Bingo. You got it. Nov 04, 2012
@TeamHeadwaters Forgot about that.. those are some of the best limestone deposits in the world, in an area ideal 4 potato farming, right? Nov 04, 2012
@nelson3748 That seems correct, but doesn’t S. Korea have the same issues w/the Chaebol, & they r functioning ok, seemingly… Nov 04, 2012
@munilass Thanks. I put it on my wish list. We discussed mishedging in the finance markets, Soros, &c. Nice of him 2 spend time w/little me. Nov 03, 2012
@munilass What’s the title of the book? I spent about ten minutes talking with him in early 2000 at a Complexity Theory conf @ Columbia U Nov 03, 2012

Comments

I suspect that Obama ends up winning the popular vote as well, and maybe surpasses 50%, fwiw, which isn’t much… $$ Nov 07, 2012
Best thing about elections: they’re over. Second best: gridlock continues. Worst: Four more years of Bush-clone Obama. $$ Nov 07, 2012
“Stocks aren’t GDP futures, so its not a lock that they immediately fall during the recession?” ? David_Merkel http://t.co/CdH1CNuP Nov 08, 2012
Last pres election, took oldest child 2 vote. This time, took child #5 2 vote. If I live, next time will be kids 6 & 7. Time after, kid 8 $$ Nov 06, 2012
“Josh, the article is worth a read, but the Chronicle of Higher Education misreported on it. The?” ? David_Merkel http://t.co/BFGqCw04 $$ Nov 06, 2012
“People easily forget that the stocks of commodity producers are very different than buying the?” ? David_Merkel http://t.co/dDlMNxIY $$ Nov 05, 2012
Helping a client w/his 401(k). Common balanced fund risk factors chosen: Low Duration, Medium credit quality, Large Cap Blend Equities $$ Nov 05, 2012
The benchmark changes added jobs that were created at an unknown earlier point in time. If they were… http://t.co/TmRLG1vg Nov 03, 2012

Match Assets and Liabilities

Posted on 19 October 2012 by David Merkel

?Good investing stems from matching assets to the eventual need to pay cash at a future date.? True for individuals and institutions.?

So I said yesterday.? A few people said to me that I needed to expand on that, and so now I expand.

The most common error in mismatching investment horizons is borrowing short to own long assets.? We institutionalize this in the banking sector, though I believe it is a policy error to do so.? Deposits should finance working capital, and not fixed capital.? Long-term assets should be financed by long-dated loans or equity.

When you borrow on a short-term basis, where the terms are not locked-in, to buy a long dated asset, you take the risk that financing terms could move against you, changing that you can no longer hold the asset.? This happens in asset bubbles, particularly toward the end.

It happens because it is the cheapest type of finance in the short-run, but often the most costly in the long run.? Someone who pays up, and locks in lending terms for the life of the asset has far more predictability.

This is one reason why I try to analyze lending terms when analyzing manias.? Typically, manias occur when enough people are willing to buy and finance a lot of it short term.

But, the opposite sometimes happens.? There are some that will borrow long to invest short.? We saw that in 2009-10, when companies were borrowing long to insure liquidity.? Maybe you can consider it an insurance premium to make sure you stay alive as a company.

I have two other examples, both from the third insurance company that I worked for.? In the middle of my time there, the company hired a consultant to analyze the investment policy of the company.? The analyst had a big name, and he found that the company as a whole was mismatched short by two years.

If you are a well-run life insurer, you are either matched or as much as two years long.? (I think a one-year gap between assets and liabilities is optimal, and so does Pimco.)? It was a free lunch to lengthen the portfolio ? returns increase, and risks decrease.

Sadly, or happily, depending on how you view it, in the annuity line of business that I was running two years later, after the first annuity withdrawal study was complete (one year ahead of the Society of Actuaries study, which mimicked my approach), I realized that the long-term guaranteed rates were significant, and I realized that the asset portfolio should be lengthened to reflect that.

I remember the investment department questioning me regarding putting 20% of annuity assets into 30-year bonds, and I said, ?They hedge us against the long term guarantees.?? They bought in, and it was another example where there was a free lunch ? increase in income, decrease in cash flow risk.

On Investment Policy

This is why my most important question for investors is ?When do you need the cash??? There is a gradation of approaches for maximizing returns with reasonable certainty in investing, and the approaches vary as the time horizon expands.

To all investors: try to match your investment strategy to the time that you need the money.

Book Review: How To Really Ruin Your Financial Life and Portfolio

Posted on 13 October 201213 October 2012 by David Merkel

Before I start, a thanks to all of my readers who have voted on my reviews. Note: if you have voted on many of my reviews favorably, further votes won’t help.? Amazon limits the effects of fans.? Onto the book:

For those unfamiliar with Ben Stein, he has done a series of books on “How to Ruin…” for example: How to Ruin Your Life and How to Ruin Your Financial Life. I have not read either of those two books, but after a glance at the table of contents of each book, I can say that what he wrote there is right, even if it is short.

If you can avoid making wrong moves, right moves will occur on average.

But… most of this is simple commonsense stuff reported from a negative angle.? If you have read the personal finance category at my blog, you would know what he has written and far more, and it is free.

There is no bad advice in this book, if you understand that it is offering you bad advice.? By telling you you to do stupid things, it incites you to do what is right.

Quibbles

The book is not worth $12 to those with a reasonable understanding of the markets.? It is worth a lot to the uninformed who think they know something but don’t.? This is a book you give; it is not a book that you buy.

Who would benefit from this book: ? This is the sort of book that you give as a gift to your clueless brother-in-law.? It has value there, to raise the awareness of those who are destroying their financial lives.? If you want to, you can buy it here: How To Really Ruin Your Financial Life and Portfolio.

Full disclosure: The publisher sent me a hard copy of the book, without my asking.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Sorted Weekly Tweets

Posted on 12 October 2012 by David Merkel

Hoisington Capital Management

. @paulnovell It will be public in a few days — they e-mail it out to friends & clients b4 posting it here: http://t.co/pZ4jJrQ1 $$ Oct 12, 2012
Prior tweets courtesy of Van R. Hoisington & Lacy H. Hunt, Ph.D. Whole thing will be posted here http://t.co/pZ4jJrQ1 in a few days $$ Oct 12, 2012
@wanderinggull Which? I don’t know. What was meant to produce “ever closer union” seems to be producing the opposite. Nobel = Pollyanna Oct 12, 2012
Until the excessive debt issues r addressed, the multiyear trend in inflation, & thus the long Treasury bond yields will remain downward $$ Oct 12, 2012
“During all of the Fed actions since 2008 the velocity of money has plummeted and now stands at a five decade low” Hoisington & Hunt Oct 12, 2012
A jump in daily essentials has a more profound negative impact on living standards in economies with lower levels of real per capita income. Oct 12, 2012
How the Fed expects economic traction from higher stock prices when rising commodity prices r curtailing real income & spending is puzzling Oct 12, 2012
These three studies show that the impact of wealth on spending is miniscule?indeed, ?nearly not observable.? Hoisington Oct 12, 2012
“Fed Chair Ben Bernanke and other Fed advocates believe the ?wealth effect? of QE3 will bring life to the economy.” Hoisington Oct 12, 2012
Prior Tweet a quotes Hoisington & “unintended consequence of these Federal Reserve actions, however, is to actually slow economic activity” Oct 12, 2012
QE3 is a tacit admission by the Fed that earlier efforts failed, but this action will also fail to bring about stronger economic growth. $$ Oct 12, 2012

Please Follow

#FF @japhychron @danprimack @treehcapital @insidermonkey @vitaliyk @herbgreenberg @tracyalloway @nancefinance @marykissel @diana_olick $$ Oct 13, 2012
Please follow Cato Scholar and JHU professor that I learned a lot from: @steve_hanke Oct 10, 2012

Market Dynamics

As an aside, there’s kind of a rule of thumb for Bermuda insurers on buybacks: >1.3x tangible book: special dividends. <1.3x TB buybacks $$ Oct 12, 2012
The Buyback Epidemic http://t.co/l9SvTwZM @reformedbroker notes that buybacks make less sense, the higher valuations get. I concur $$ Oct 12, 2012
New Regime http://t.co/L2JaQC2J @reformedbroker notes a sea change in the markets. I’ve been heading that way; still thinking about it $$ Oct 12, 2012
CNBC: Jim Rogers vs. Marc Faber (FULL) 10/04/2012 http://t.co/b5sEOEZb Faber & Rogers on the same segment? What a hoot! $$ $GLD $SPY $TLT Oct 12, 2012
Bubble-Era Financing Returns as Profits Falter http://t.co/yhxBEFxq Pay-in-kind bonds return, very nice. 2 years of rally left at most $$ Oct 11, 2012
Wrong: Bullish Sign for Stocks: Leverage Is Up http://t.co/1Qvcdkh9 What matters more is whether leverage will rise in the future $$ Oct 09, 2012

Rest of the World

Zhang Weiying: China’s Anti-Keynesian Insurgent http://t.co/TGNGlo9e Fascinating tale of an Austrian economist surviving in China $$ Oct 13, 2012
Hollande Robbed of Growth Engine as Companies Cut Investment http://t.co/ZGdrllIG Logical 2 invest less when EU & France r a mess $$ Oct 12, 2012
EU Wins Nobel Peace Prize http://t.co/VoTaN3ZK Nobel committee finally “jumps the shark.” The EU is unstable; a war waiting 2 happen $$ Oct 12, 2012
Spanish Bonds Risk Forced Selling as Rating Approaches Junk http://t.co/yO8XWNl4 The Rating agencies r flawed, but on credit they r honest Oct 12, 2012
IMF?s Blanchard: Healing From Crisis Could Take Decades http://t.co/NXYmLjU3 Crisis won’t b healed until total debt levels normalize $$ Oct 11, 2012
IMF Sees ?Alarmingly High? Risk of Deeper Global Slump http://t.co/B7Dg9Ah9 A stopped clock is right twice/day, $ the IMF is right now $$ Oct 09, 2012
Iran Low on Options as Hyperinflation Concerns Spark Gold Dash http://t.co/rYqDjinO Hyperinflations spawn currency substitutions: gold, $$ Oct 09, 2012
Chavez Win Called by BofA Sparks Selloff as Barclays Flops http://t.co/DNPxpVzO Sad that Chavez won, but the bonds reflected a loss $$ Oct 09, 2012
Why a U.S. buyout firm is investing in Greece http://t.co/26oB31e9 ht: @danprimack – Companies w/global markets insensitive 2 local probs $$ Oct 08, 2012
Sicily, a Portrait of Italian Dysfunction http://t.co/w3dn2JFe Core Europe is to Italy as Italy is to Sicily. $$ gone & hard work starts Oct 08, 2012
Cheapest Chinese Stocks Since ?97 Not Enough to Signal Rally http://t.co/rTEm2MNF Noneconomic actors compete & drive down future profit $$ Oct 08, 2012
The Iran Hyperinflation Fact Sheet http://t.co/bitjVaqn From my former professor @ JHU, Steve Hanke. Financial sanctions r biting in Iran $$ Oct 07, 2012

US Real Estate

OCC Forced JPMorgan, Wells Fargo to Write Down Home-Equity Loans http://t.co/qxXjXBoS FD: + $WFC – ’bout time. Recoveries poor on HEL $$ Oct 12, 2012
California Leading U.S. Out of Housing Bust http://t.co/oEaOG4nf I would be wary of “dead cat” bounces here $$ Oct 12, 2012
Tech Firms Become Real- Estate Trusts http://t.co/GrHU2bo5 Tech firms that own a lot of real estate take advantage of becoming REITs $$ Oct 11, 2012
Not New York Towers Rise With Embrace of Yield http://t.co/3MKpRdVi When vacancy rates r this high, ordinarily rents fall. Y not now? $$ Oct 08, 2012

Agriculture

Milk-Cow Drought Culling Accelerates as Prices Jump http://t.co/WvHEturP Anything involved in animal husbandry is having tough time now $$ Oct 11, 2012
Midwest Drought Claims Poultry Producer http://t.co/9K4cL3Gx Many firms involved in the meat biz r having a rough time now. $$ Oct 11, 2012

Other

I’m not much of an #Orioles fan, but don’t you have to love a team of nobodies who can challenge the highly paid #Yankees? $$ Oct 12, 2012
The UN has declared today as the International Day of the Girl Child http://t.co/L0nS6wtd Sex selection abortion kills the most girls $$ Oct 11, 2012
If Only T. Boone Pickens Had Died http://t.co/tpXYGeCV Score: TB Pickens 0, Wealthy donors 0, Oklahoma State Univ. 0, Life Actuaries 1 $$ Oct 08, 2012
Musk?s SpaceX Launches Craft for Space Station Deliveries http://t.co/Z3MH68Ud Space age begins as governments r less of a factor $$ Oct 08, 2012
California Facing $5 Gasoline Stirs Brown to Relax Rules http://t.co/uQUPOz8f There is a pain point 4 everyone, just found 4 CA gas $5 $$ Oct 08, 2012

Comments

“Good post, Josh. You have identified many of the best. No one of us covers it all; it’s a strong list” ? David_Merkel http://t.co/3Qg6WWZk Oct 10, 2012
At this rate, growing tobacco should be prohibited. Oh, wait, we tried that with alcohol. Never mind. $$? http://t.co/hU9nI6l2 Oct 09, 2012

On Angela

@PavChyt @matinastevis Her *former* husband. She kept the name b/c it was good politics. She did not keep him. Oct 08, 2012
@PavChyt @MatinaStevis I received the name Merkel at birth. Angela got it from her 1st husband. At least people r spelling it right now $$ Oct 08, 2012

Retweets

RT @MuniCredit: Citi Muni Presentation: http://t.co/ONrQe9gA #muniland h/t: @bondgirl Oct 12, 2012
I appreciate retweets RT @LSilverspar: Not enough for the value of your posts. If you value the retweets, I will do so far more often. $$ Oct 12, 2012
My week on twitter: 22 retweets received, 22 new followers, 16 mentions. Via: http://t.co/SPrAWil0 Oct 11, 2012
RT @danprimack: Every time people get all worked up over a national presidential poll, I wonder if the electoral college was eliminated … Oct 08, 2012
True of many notable CEOs w/earnings 2 smooth RT @rcwhalen: GE’s Jack Welch Knows All About Cooking the Books http://t.co/5vJeRux6 $$ Oct 08, 2012
RT @Convertbond: “Markets are increasingly distorted by Central Banks, attempts to squeeze drops of growth from overindebted developed w … Oct 07, 2012
Shock! $$ RT @BarbarianCap: Revised Greek GDP figures show recession deeper than thought http://t.co/FCspv2gU. > data released friday night Oct 06, 2012

The Future Belongs to Those with Patience

Posted on 18 August 201221 August 2012 by David Merkel

I’ve finished the book “Bailout” and will review it next week.? I am in the midst of the book “The Crisis of Crowding,” and will likely review it next week.? What I write this evening is a bit of an experiment, and preparatory to what I write on “The Crisis of Crowding.”

Here’s the issue: I spend more time on liability issues than most investors.? How is an investment financed?? For those that have access to RealMoney, these old articles of mine explain the issues very well:

Managing Liability Affects Stocks, Pt. 1
Separating Weak Holders From the Strong
Get to Know the Holders? Hands, Part 1
Get to Know the Holders? Hands, Part 2

In hindsight, I wish we could have had consistent titles for the articles.? The broad idea is this: how much risk might the holder of the asset be taking on depending on how he finances the asset?? The asset in question is a long duration asset, like a house or a factory.? Consider the spectrum:

I own the asset “free and clear.”? I have other unencumbered assets to deal with uncertainties.
I own the asset “free and clear.”
I have a significant amount of equity invested in the asset, and the rest is borrowed on fixed terms.
I have a normal amount of equity invested in the asset, and the rest is borrowed on fixed terms.
I have a modest amount of equity invested in the asset, and the rest is borrowed on fixed terms.? I had to pay a higher interest rate to do this.
I have a modest amount of equity invested in the asset, and the rest is borrowed on floating rate terms.
I have no equity invested in the asset, and the financing is borrowed on floating rate terms.

As you go down the spectrum, the odds of loss go up that the owner of the asset might ever lose control of the asset.? As financing shifts toward the end of the spectrum, the odds of a bubble go up, as cheap financing allows marginal buyers to buy more of the asset in question.

Now this can be framed more generally: what are the likelihood of outcomes on the assets that I buy versus the fixed commitments needed to support my purchase, or the internals of the asset (i.e. too much internal debt).? The rate needed to support the purchase could be the rate needed to support a happy retirement.

And there is the problem.? When needs are fixed and outcomes are variable, it can be quite a trouble, particularly when asset prices have been rising because of increased buying power from debt arrangements.? Almost all systems would be relatively stable without debt.? Even the dot-com bubble had its slug of debt from internal trade financing, and the need to pay taxes s a result of the options received.

When a large number of people are relying on decent-sized short-term asset price gains in order to do well, that is a recipe for disaster.? Note: at the same time, that don’t need to make money, and have financial flexibility, don’t care to invest, because asset prices are too high compared to the cash flows that they are likely to throw off.? They invest in cash-like equivalents, carefully researched ideas that look weird, biding their time, looking dumb as the mania proceeds.

When those that are inflexible expect a lot, and those that are flexible expect nothing, that is the peak of the market.? There is no one left to buy the speculative assets in question, and things will mean-revert.

Prices of the speculative assets start to fall, and things cascade in ways that few would expect, because as prices fallvarious liabilities are called into question.? And, if the liabilities are called into question, so are those who funded the liabilities, because they are less certain of receiving the cash flows that they expected.? This process continues until only those with modest or no borrowings is left standing, or the government intervenes to protect her chosen.

[Note: all liabilities are assets of someone else, and net in aggregate to zero.? That is even true of the duration of liabilities; aggregate liability durations net to zero as well.? Liabilities are an important sideshow in a world driven by assets.]

The bottom comes when those that are inflexible expect nothing or worse, and those that are flexible expect that will make decent money as they wait.? This is a trite saying, but as a friend of mine once said, “The tritest sayings in life are true,” here is the saying, “Patience is a virtue.”? In investing, good things flow over time to those who are willing to invest during crisis, and sit back during the latter parts of a boom.? Bad things come to those that chase the market, investing when things are hot, and divesting when things are not.

Asset returns are not what the financial planners tell you.? Asset returns are lumpy.? They are feast and famine, with more feast than famine, but with enough famine scare a lot of people away.? The good returns come when most are scared, and think the market is rigged.? The bad returns come after a period of prosperity, and those that don’t understand the market start investing, because it seems to be free money.? As I often say, the lure of seemingly free money brings out the worst in people. (Someone please send the memo to Ben Bernanke.)

Those who are patient in investing earn most of the rewards over the long haul.? Others may clip gains at the edges, but real wealth stems from owning the best assets when few want to invest, and being patient when opportunities are few.

Now, if everyone knew this and acted like this, the market would get really dull, and would grow at the rate of book value, like private businesses do.? But not everyone is patient and provident.? Moral tendencies vary.? In the long run, those that insist on returns in the short run don’t get them, while those those that wait for returns in the long run do.

-==-=–==–=-=-=-=-=-=-=-=-=

I’m planning on writing a summary post on the crisis, to explain what drove the crisis, and what did not.? The framework that I have given here will instruct that process.

Book Review: Moods and Markets

Posted on 11 August 201213 August 2012 by David Merkel

To my readers: this is the second time I have written this review. When I pushed the “publish” button earlier this evening, WordPress ate the document. That’s never happened before, so I did not have a backup. As a result, this review is entirely different than the prior one, and I did it using DragonDictate, so it may sound a little more colloquial than other reviews of mine. Let me know what you think, and if you like my reviews please vote them up at Amazon. As always, whether you agree or not, thanks for being a reader of mine.

This book is about the questions every investor wants answers to:

Why do I tend to get into and out of the market at the wrong times?
Why are professionals prone to the exact same problems?
Why do financial crises happen?
Is there a way to approximately measure where we are in the overall market cycle?

The author has a theory that he calls “Horizon Preference.” Think of it this way: when the market is near bottom, market players have very short time horizons for investment. They hide in cash. More than that, they choose very generic investments; they stay close to home and keep things simple. Fear drives them back to what they know always works in the very short run, which means any opportunity for gain is lost.

At such a time, only the most risk tolerant and experienced remain holding risky assets. Valuations are low. The party is over, the young have left, and the old guys are cleaning up the room. If you look in a financial newspaper, or out on the web, the headlines you read are pervasively negative. But at a true bottom, you’ll see that things have stopped getting worse.

Then optimism begins. It’s a fitful at first. It is two steps forward and one step back, before it becomes three steps forward and one step back, before it becomes an unrelentingly good trend. But as this happens, moods, headlines, move from disbelief, to doubt, to wonder, to optimism, and to greed. As this happens, market players expand their horizons. They are willing to take on new risks, with new instruments, and in new places. They are willing to pay remarkably higher prices for risky assets. This happens with individual investors, professional investors, bankers make loans, regulators, accountants who have to make the numbers for management, etc.

At the top everything is wondrous. Nothing can go wrong. At the top, the attitude is “We are going to make a lot of money.??It?s as if money is free, and anyone can make it in the markets now. Everyone can be rich, just invest in the market. All of the neophytes are playing in the market. The experienced professionals who have seen a few market cycles have begun to edge out of the market, if not raise significant cash. Risk control is derided as a way of losing money. Real heavy hitters don’t need risk control.

All of the discretionary cash is applied to the markets. Various forms of leverage are applied to personal investments, real estate, and business investments. Because everyone knows things are going to go well, they figure they may as well play it to the hilt.

But at the top, things stop getting better. Then pessimism begins.? It’s a fitful at first. It is two steps back and one step forward, before it becomes three steps back and one step forward, before it becomes an unrelentingly bad trend.? Sadly, during the phase of pessimism, things move down about twice as fast as they went up. It’s frightening, and it should be. Bear markets tend to persist until the bad ideas and investments of the up cycle are liquidated, unless the government steps in to arrest the fall.

The planning horizons of businessmen and investors shrink, as do valuations, until we hit the bottom, and the cycle starts again.

What I have described to you is the basic framework of the book. The author then applies that framework to the housing bubble, the possible higher education bubble, changes to accounting frameworks as rising preferences change, and where we are today in the markets. He gives a tour of the various phenomena inside corporations that take place at different points in the cycle. Optimism breeds complexity, lack of risk management, concept stocks, big projects, and a lot of credit. Pessimism breeds simplicity, renewed risk management, and bankruptcies.

This book will give you a feel for what part of the market cycle we’re in, and how you can profit from it. It is not math intensive; the book has no equations. There are a lot of graphs, but they are simple to understand.

Quibbles

In one sense, this book is about the credit cycle, and how it affects all risky assets. But it is couched in the language of how moods change of market participants, which then drives the market. My view of the matter is slightly different. I see market players making estimates of their future well-being, and as that estimate changes, so do their moods change, and the prices of risky assets. I don’t think this is a big difference from what the author is saying, so I heartily endorse this book.

Who would benefit from this book:?? Inexperienced investors would definitely benefit from this book. Experienced investors who are having a hard time with the unpredictability of the market of late would also benefit.? If you want to, you can buy it here: Moods and Markets: A New Way to Invest in Good Times and in Bad (Minyanville Media).

Full disclosure:?I got this book in a weird way. I don’t know the author, but we have a mutual friend, and he suggested to the publisher that he send me a copy of the book. That’s how I got it.

Limitations of Credit Default Swap Spreads

Posted on 2 August 2012 by David Merkel

Once I was talking to my boss at Provident Mutual about exotic options, like barrier, knock-out, and knock-in options.? As I described them to him his reactions were:

Why would I want to take that risk?
But when describing the other side of the trade, he would say “That’s an attractive proposition.”

And vice-versa.? He was a bright guy, but I don’t think his opinions were very different from what most people would think who have a moderate knowledge of the markets.? Asymmetric payoffs are typically favored by those that can earn a lot, even if the odds are small.

The same is true of Credit Default Swaps [CDS].? There are a lot of players that want to speculate on the demise of companies, hoping for a big payout, even if the odds are small, partly because the amount they pay to gamble on the risk is also small.

The markets for single company CDS are thin because there are few natural counterparties that want to nakedly go long credit risk. Those wanting to nakedly short credit risk therefore have to pay a premium to do so, usually higher than the credit spread inherent on a corporate bond of the same maturity.

And if one or two hedge funds want to do it “in size,” guess what? The dealers in the CDS market will back off considerably, and make them pay through the nose. No dealer wants to take the risk that an informed trader knows something he doesn’t.? They will raise the levels that one would have to pay to bet on the risk so high that some others might be willing to take the other side of the trade.

Now some investment journalists naively think that there is a strong correlation between CDS prices and probability of default.? The CDS market is a thin market, for reasons mentioned above.? Before I would say that there is a “creditor panic” going on, I would look at the corporate bonds of the company in question, and see if the yield spreads are “blowing out.”

Typically, the CDS market is quick to react, but with a lot of false signals.? The corporate bond market is slow to react, and sometimes misses problems.? The stock market is in-between, which is why I would look at the stocks of the companies when I was a corporate bond manager.

So, when I read articles like these:

I say to myself, “What is happening in the corporate bond market? Is it panicking?”? The CDS markets say this:

But when I look at the corporate bond market for the same names, I see no panic. Here is the yield for a similar maturity HPQ bond:

And for a similar maturity DELL bond:

and for a similar maturity Xerox [XRX] bond:

Finally, for a similar maturity Lexmark [LXK] bond:

Aside from the Lexmark bond, there is no hint of trouble.? Lexmark is a small company, with two small bond deals, and as such is more volatile. Still, there is no real panic there.? Panic means the prices of the bonds is below $80, and these bonds still trade over $100.

In most cases, you could short the corporate bonds, and offer credit protection through CDS, and make risk free profits.

There is no panic going on in the technology company bond market, aside from Lexmark, of those names that have been mentioned.

It’s hard to spook the bond market for a liquid bond issuer; it is easy to spook the CDS market.? That’s why I don’t trust? appeals to rising CDS spreads if the bond market does not validate them.? Big markets do not need small markets for validation; rather, small markets need big markets for validation.

An Appeal to Journalists

When talking about default, you need to spend more time on the bond market and less time on the CDS market.? Yes, the CDS market tends to lead the bond market, but this relationship has a lot of noise, and offers a lot of false positives.? Far better to look at the bond market.? When the bonds of any company drop below $80 per $100 of par, there is trouble, and usually a juicy story, with considerable concern as to whether the company can survive.

The CDS market is driven by speculators who are probably right more often than wrong, but not by a large margin.? Avoid using that market to write stories, because it only lends to sensationalism, and does not reveal imminent trouble, unless the bond market agrees.

Final note: it is easy to go over to FINRA TRACE and get the bond yield data, even easier then getting CDS data if you don’t have a Bloomberg terminal.

Forget Your Cost Basis

Posted on 31 July 2012 by David Merkel

All good investment decision-making is forward looking.? Whether you are buying or selling, it doesn’t matter where prices have been in the past.

Now, that said, price and volume charts may occasionally indicate where there is support or resistance.? That might be worthy of consideration in the short-run.? When I was an institutional bond manager, competing against few others, but larger others, that was more important.? Not sure it is so important when competitors are smaller.

My main concern is that investors focus forward.? Use your best data. and estimate future advantage.? Be aware of mean reversion, so don’t let mere changes in price affect your opinion.? Always aim for the best possible future return.

We win and lose constantly in the market.? Don’t let past successes delude you, they may be historical accidents. Instead, focus forward to try to see what opportunities and threats are in front of you.

There were two hard things I had to learn when I was a corporate bond manager: 1) learning to sell lower than my original sell. 2) Learning to buy higher than my original buy.? That meant I had to forget my original cost basis, and try to estimate the best forward value that I could.

That is a tough place to be, but it is rational.? Always look forward, and estimate where you will have the best outcomes going forward.? You will get superior results from doing that.

The SEC Should Make Illegal the Advertising of Stocks

Posted on 19 July 2012 by David Merkel

First, the promoted penny stock scorecard:

Ticker	Date of Article	Price @ Article	Price @ 7/18/12	Decline	Annualized
GTXO	5/27/2008	2.45	0.03	-99.0%	-66.9%
BONZ	10/22/2009	0.35	0.02	-94.0%	-64.2%
BONU	10/22/2009	0.89	0.12	-86.5%	-51.9%
UTOG	3/30/2011	1.55	0.07	-95.5%	-90.7%
OBJE	4/29/2011	2.90	0.03	-98.9%	-97.5%
LSTG	10/5/2011	1.12	0.13	-88.2%	-93.4%
AERN	10/5/2011	0.0770	0.0009	-98.8%	-99.7%
IRYS	3/15/2012	0.261	0.110	-57.9%	-92.0%
NVMN	3/22/2012	1.47	1.44	-2.0%	-6.2%
STVF	3/28/2012	3.24	0.42	-87.0%	-99.9%
CRCL	5/1/2012	2.22	0.625	-71.8%	-99.7%
ORYN	5/30/2012	0.93	0.46	-50.5%	-99.5%
BRFH	5/30/2012	1.16	0.69	-40.5%	-97.9%
LUXR	6/12/2012	1.59	0.265	-83.3%	-99.999999%
IMSC	7/9/2012	1.50	1.13	-24.7%	-99.998982%
DIDG	7/18/2012	0.65	???	???	???

I added an “annualized” field to try to equalize the results over the length of time I have been tracking them.? Helps to highlight how horrible the last six stocks have been.? Big price falls in less than four months.? Most of those have had negative net worth, negative earnings, little revenue, and often have changed industries to the “next hot idea.”

What was hot three years ago?? Mining companies.? Well, not really.? That mostly popped in 2007-8.? But inexperienced investors, those that might buy the promotion for a penny stock, are always late to the game.? Regency Resources IPO’ed in April 2009 for a nickel a share, and has lost money ever since.? No revenue, negative earnings, negative revenues — no action.

They owned two bodies of land where they expected to find gold.? But in a letter to the SEC, the management wrote:

Neither of our officers and directors has visited either La Trinidad Claim or the Mara Claim.??In response to this comment the following has been added to the risk factor disclosure as shown on page 8 in the Form 10-KA and page 15 in the Form 10-QA.

?Neither of our two directors has visited La Trinidad or Mara claims.

Our two directors have not visited our two mineral claims, being La Trinidad and the Mara claims.??Therefore, they have no personal knowledge of the mineralization on each of the claims, the terrain and the possibilities of hazards during exploration activities.??They have had to rely upon the advice and opinions of the geologists working on each of the claims.?

For such a tiny company, quite an admission.? Really, the company wasn’t doing much of anything, so they decided to switch businesses to Internet Television, and rename themselves Digital Development Group.? They did this a little more than two months ago.? A more recent press release is here.

So now, when I receive the glossy mailer that says something to the effect of, “Here is the Miracle Company that has a miracle technology that will lead to it being bought out by Google, Facebook, or Microsoft for $2-3 billion dollars,” I say ridiculous.? If I had such a technology, I would grow it myself, with no help from others, or maybe with the aid of a few angel investors.? After all, the company has little in the way of liquid assets at present.? How will it achieve its great aims?

The simple answer is that it won’t, and the stock price will follow the same decay pattern as the above sham companies.? Look at this disclaimer from the tout (done in 5 point type):

IMPORTANT NOTICE AND DISCLAIMER: This is paid advertisement by Eric Dany and/or Eric Dany?s Stock Prospector (collectively, “EDSP”). EDSP has received twenty three thousand dollars from Belmont Group Ltd. in compensation for this advertisement and related market materials to enhance public awareness of Digital Development Group Corp (hereafter DIDG). EDSP also expects to receive new subscriber revenue the amount which is unknown at this time as a result of this advertising effort. EDSP does not perform any due diligence on the stocks and companies discussed herein EDSP relies on generally available public information and representations made by DIDG. EDSP does not purport to provide an analysis of any company’s financial position, operations, or prospects and this is not to be construed as a recommendation by EDSP or an offer to sell or solicitation to buy or sell any security. DIDG, the company featured in this issue, appears as paid advertising. Belmont Group Ltd. has paid eight hundred and fifty thousand dollars for the dissemination of this info to enhance public awareness for DIDG.

On Judgment Day, I do not want to be Eric Dany.? To write glowingly of a lousy stock and say that it is an aggressive buy, in big type, and then in tiny type say that none of this is research — it is all advertising, is the legal fiction hiding the lying.

The SEC should bar these practices, and make illegal the advertising of stocks.? Research is one thing, there are some regulations there, but the rank promotion of stocks is ridiculous.? When I started writing about this, I never dreamed that the results would be so bad, but they are that bad.