Google

The Deipnosophist

Where the science of investing becomes an art of living

My Photo
Name:
Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

31 July 2008

Three investing sites

Three interesting websites whose focus is investing...

A hat tip to Bill Luby for the first two sites:

1) Chart Game
"The time-lapse stock trading game."

2) Inspectd
"Inspectd allows you to test your stock market skills against real historical data. We'll show you a random chart from the past, and you try to guess whether the stock rose or dropped. We'll even give you $100,000 in play money to test your skill. But beware: it's addictive!"

You bet it's addictive -- in fact, both sites are addictive -- and a tremendous help to all investors who want to understand charting. Why? Because the sites place you on the hard, right edge of a chart, and then ask, "Buy, sell, or hold?"

And for its practical application (among many reasons)...

3) FinViz.com
"Financial Visualizations: Charts, maps, quotes, stock screener, etc." I like this site for several reasons, but one crucial item is that it obviates the typical web experience of clicking on link after link that effectively carry you far away from your starting point; here, you rest your cursor on a stock that appears of interest, and a pop-up chart appears. You can then click over to learn more. Excellent!

btw, FinViz has been on this blog's sidebar for several months now, but only one reader has actually clicked on the link. 'Tis a shame, of course (readers' lack of interest), but the reality no longer surprises me.
-- David M Gordon / The Deipnosophist

Labels: , ,

30 July 2008

A quickie update re ISRG

Private requests overwhelm my email inbox to comment on the BARRON's article re Intuitive Surgical/ISRG. (Well, okay, a whopping two requests.)

I have never figured out why BARRON's does its typical hatchet jobs, which they view as investigative journalism, especially re growth stocks. But it does, so I
use articles such as this one as a mechanism to buy on short term price weakness investment opportunities I favor long term.

That said, the article is about as even-handed as BARRON's has published, without being mealy-mouthed. The author is fair, and considers what is known, and then predicts (negative) change in those factors. That is an approach I do not favor. If valuable, then where were the BARRON's articles that clamored in favor of the company and stock, especially over the past 3-4 years? BARRON's is renowned for its negativity, not for the quality of its insights.

Some specific items...

1) "Patients have less bleeding and scarring, and can get back on their feet without a long, expensive hospital stay." Really, what is the value of this truth? The demand cycle for the da Vinci comes right now from medical suppliers (hospitals, doctor groups, etc) -- what happens when prospective patients learn of the da Vinci, and seek doctors who offer that option? If you are a supplier, you had better buy now to stay ahead of the cycle, or lose patients to competitors.

I believe Intuitive Surgical, the company, lies somewhere between Points B and C of its S Curve, and even when it hits the back end of the curve, who is to say it will not grow to E rather than fall toward D, as the BARRON's author speculates? Of course, most companies fail at Point C, and enter the decline phase, but new products, new management, even new technologies put the damper on this possibility. During the transition, though, a stock still could rise to new all time highs and higher valuations, even while the rate of growth slows. A
stock advance in that environment would occur also at a slower rate of change.

2) "The volatile stock has fallen as much [~25%] twice this year already, as it changes among momentum investors' fickle hands." Oh, brother, yet another person for whom chart patterns leave him (or her) gasping for oxygen. So frightening the 25% share price decline (~$350 to $250), but which is akin to a $35 stock declining to $25. Guess what, a decline of this magnitude occurs all the time. Place the decline within context, however, and you might arrive at a meaningful notion: that the decline could continue even lower.

Such is not the case with Intuitive Surgical/ISRG. Although still mired in its base, it is a base; in fact a high level consolidation, to be precise. (Check this blog's archives, if you have interest in understanding this particular pattern.) It's all in the chart, sorry to say; a truth most investors fail to grasp, or even accept, Bill Alpert included. The two $100 declines proved to be buying opportunities, as I discussed then; at least to date.

The shelf life for this BARRON's article will expire when Intuitive Surgical/ISRG closes above $320. And when it should close above $360... Well, that ushers in the truth of the pattern, S Curves and high level consolidations.

Full Disclosure: Long Intuitive Surgical/ISRG.
-- David M Gordon / The Deipnosophist

Labels: ,

29 July 2008

"The Market's Down, Not Doomed"

From Barron's Online (via Smart Money) comes this intriguing interview...

Barron's: Let's start with the big picture.

Cooperman: We acknowledge that we were somewhat too optimistic about the year. And we basically pressed that optimism in March during the selloff when we largely took off all our hedges. We based that on an old tried-and-true — and tested — approach. We have found historically that when the S&P dropped 20%, which it did from its October peak to its March low, when the Fed and Congress were stimulating [the economy], when you are in an election year, when stocks are undervalued versus bonds and when stocks are somewhat cheaper versus their own history, you are supposed to buy. Basically, every time we went through one of these cycles, there was a vocal minority that said it was different this time. In 1970, for instance, when I was at Goldman, everyone who was negative at the bottom talked about the Penn Central bankruptcy. Thankfully for the system, after each one of those cycles, it wasn't different. The economy got itself together and we started anew. That was our view in March.

What's surprised you, subsequent to March?

Cooperman: Oil getting to $140 a barrel and the degree of weakness in housing was much more diverse, widespread and severe than anything we've seen. And the credit crunch turned out to be much more of a problem than we could have imagined. More of that problem migrated from Wall Street to Main Street than we allowed for.

Where does the market go from here?

Cooperman: The ingredients for a decent bottom are in place, but any significant upside is going to require help from two areas. No. 1, we have to see a bottoming in home prices. No. 2, we are going to have to see crude-oil prices recede. Frankly, we didn't forecast crude going to $140 a barrel, so we aren't confident forecasting that crude is going to $100. In fact, we have two energy experts, and neither believes crude is going much below $120.

Einhorn: The market is protected on the downside by some tail winds that I will elaborate on. But the market is limited on the upside because of housing and crude prices, among other head winds. So it will trade in a range until we can make progress on crude and home prices. As for crude, most of the models indicate that every $10 price increase is worth about two-tenths of a percent of real GDP growth. So if the price goes up $40, it almost costs you a full percentage point of growth in the economy, and it probably costs between $4 and $5 in S&P earnings.

Why do you think that we're close to a bottom?

Einhorn: Because there are certain tail winds, the first of which is valuation, that protect the market. The market looks attractively priced in an absolute sense and relative to inflation, bond interest rates and to other assets.

What is your price/earnings ratio for the market?

Einhorn: We have a market earnings estimate this year of $90 and next year of anywhere from $92 to $100, and we'll refine that as the year unfolds. That's roughly 14 times this year's earnings, below the long-term average. At the same time, bond interest rates are low, return on equity is well above average and net profit margins are well above average. So the absolute multiple is below average, and corporate profitability, liquidity and balance-sheet strength in the nonfinancial sectors are well above average. Based on virtually any approach, the market is attractively priced. I think it is already discounting a substantial shortfall in consensus earnings estimates.

What other tail winds do you see?

Einhorn: We aren't expecting the economy to be robust. But at least for now, the economy's weakness isn't accelerating, as it typically does in more significant recessions. Another tail wind is that in early 2009, whoever is elected president will introduce a second fiscal stimulus package, most likely larger than the last one, to underpin the economy. Another thing to consider — and it's been overlooked — is that nonfinancial sector earnings have been above consensus. They may weaken, but so far nonfinancial S&P companies have reported a 10% improvement in earnings, year-over-year. There's also plenty of investor liquidity. There's also the Fed. Given the deleveraging going on in the financial sector and that financial stocks are trading close to their cyclical lows, it's very difficult to imagine the Fed lifting interest rates.

A friendly Fed is an important tail wind that will create excess liquidity in the system, steepen the yield curve and improve bank profitability, which at some point is necessary to begin to rebuild capital. And there is investor sentiment, which is pretty negative. Typically, when sentiment is negative, the market tends to do better.

Read the complete interview here, if you have interest.
-- David M Gordon / The Deipnosophist

Labels: , , ,

25 July 2008

Such a chore!

Pretty funny cartoon...


[click on image to enlarge]

I don't know about you, but I sure enjoy a good laugh at any time, but especially after a difficult week at the office.
-- David M Gordon / The Deipnosophist

Labels: , , ,

The Longevity Game

Talking about insurance...

Well, okay, so we were not talking about insurance. But this 'game' comes courtesy of Northwestern Mutual, and provides a guess as to the number of years that remain in your life. Watch the age prediction change, as you answer the various questions.
(The algorithm bases its guess on your answers to a sequence of actuarial-type questions.)

Other calculators on the site include questionnaires to determine your risk tolerance, and other investor profiles.
-- David M Gordon / The Deipnosophist

Labels: , , ,

24 July 2008

Confusion

No matter how much I strive for clarity -- and how often I repeat a lesson -- some readers fail to grasp a truth central to my success. When I state, for example...
"Yes, I perceive this phase of the market decline (in place since May) is probably complete, and the entire decline (bear market, whatever) that began approximately 9 months ago, in October 2007, is possibly complete. Readers of this blog have their buy lists ready, and recognize specific investment opportunities actionable in his or her time frame."

Please understand that I never perceive the market as a monolith. But what the hell could I mean, then, if I do not perceive the market as a monolith?

How about the understanding that my interest in specific investment opportunities begins and ends with the market's leaders. I have shared my denotation of this term ad nauseum, so I will not bore you again. (Please do not email me your private request; instead search the archive.) My 9 Core Opportunities begin to exercise their status as leaders via their heading higher to recovery highs, even all time highs.

It is possible that their new highs could pull higher the general market, although not necessary for their success. Not to be trite, but it is a market of stocks, not a stock market.

So where do you place your modifier?
-- David M Gordon / The Deipnosphist

Labels:

Help requested

I have whined here about my computer woes, which only grow worse. So a clarion call to all readers who might help. But, first, some specifics...

My workstation is a Dell XPS 420, new and installed since 6 months ago. It comes fully tricked out with 4Gb of RAM, its nVidia video card has the most up-to-date drivers... and, unfortunately, Windows Vista SP1. (I believe the source of all the computer's problems is the OS, but just in case...) What occurs now, and increasingly so, is that, while in the middle of some task, the monitor goes black. The CPU, though, continues to work, I just cannot see what is on the screen. (Sometimes I can see and move the cursor, which is the sole item I can see when this event occurs.) This problem has been described to me as a "system crash" -- where the OS (Vista) cannot 'communicate' with one component or another. In the attempt to isolate the cause, I thought the problem might have been Yahoo Mail (which frequently crashes the browser iterations), but no, not Yahoo Mail; I then thought it was iTunes, but no to that possibility as well.

I am tired of losing productive time, just as I tire of shutting down the computer the 'bad' way -- via depressing its 'on' button for 5 seconds -- but I have no other option. (Dell does not provide its computers with an emergency shutdown switch.) Sooner or later, these shutdowns will corrupt the hard drive... and then what?

So, my questions: How can I discover the cause of this problem? And, more important, what can I do to fix it?

And, yes, sooner or later -- most likely sooner -- I will migrate to Apple. For now, though, I appreciate any specific help, guidance, or pointers you might offer. Share them here as a comment reply, or email them to mailto:davidmgordon@gmail.com.


Thank you.
-- David M Gordon / The Deipnosophist

Labels: ,

Up, up, and away...

Remember my post, Is It Safe?

In it, I recommended the shares of Qualcomm/QCOM. In doing so, I said,
"... investors find a company whose growth rate matches or exceeds its PE, a PEG of 1 or less. (This calculation ignores the intellectual property lawsuit with Nokia/NOK, and which Qualcomm appears to have the upper hand.)"

In news that catches Wall Street by surprise, "Qualcomm and Nokia put an end to their patent battles - a move that could benefit both companies. Financial terms weren't disclosed, but the companies described it as a 15-year agreement that includes Nokia making an up-front payment, and paying ongoing royalties - which implies Nokia may now become a Qualcomm customer. 'This is a landmark deal,' Lehman's Timothy Luke said. 'This removes a ton of uncertainty from the industry.' He estimates Nokia should owe Qualcomm about $600M for 2008 alone." More info here.


This is the type of news event that causes a sudden, and vicious, fundamental revaluation of the affected company's shares; in this instance Qualcomm/QCOM.

Oppenheimer notes that, in a surprise move, QCOM and NOK have settled all legal disputes and have entered into a new long-term (15 years) licensing agreement. Not only does the new license include all technologies (4G) but it also sets a bar for the whole industry establishing QCOM as a co all must deal with to be a player in current 3G and future 4G technologies. The firm thinks QCOM's business model has been validated and investors' concerns are now put to bed. They note the financial terms are unknown, but as a reference point, the firm calculate's EPS upside to FY09 of mid-20 cents (at a 2% rate) to mid-50 cents(at a 4% rate). They note June-quarter results were in-line with previous mid-quarter update. While the shares would likely see a jump, they would still buy on the strength as they expect QCOM's multiples to expand over the next year with its long term growth now re-established.
Citigroup adds QCOM to their 'Top Picks Live' list following the NOK settlement. The firm estimates that the potential 2009 EPS impact of the Nokia settlement is $0.26, comprised of $0.21 in royalties (assuming 2%-3% royalties, $212 handset ASP and 122M Nokia 3G and CDMA handsets), $0.04 in reduced legal fees (assuming $100 mln less legal fees out of $300 mln total), and $0.01 in increased interest income. They note that applying a 20x-23x multiple to this incremental EPS adds $5.60 to the shares.
(Thank you to Briefing.com for these two research notes.)

In early pre-market trading, QCOM shares are bid higher ~20% to $53.75. Recall also from that earlier post, I stated "upside breakouts lie at ~$43 and, crucially, at ~$54." So here lies Qualcomm/QCOM shares, immediately beneath crucial resistance, a close above which would change the pattern materially, measurably, and obviously. Obvious, that is, to most investors who fought the bullish change for Qualcomm/QCOM shares, which is the grand design of area (congestion) patterns; the lengthier, the more confounding.

You, on the other hand, had advance knowledge, so come prepared for today's gap higher. Congratulations.


Full Disclosure: Long Qualcomm/QCOM.
-- David M Gordon / The Deipnosophist

Labels: ,

23 July 2008

The Boy Bathing

From "and so it goes" ... to "and so it ends."

Yes, I perceive this phase of the market decline (in place since May) is probably complete, and the entire decline (bear market, whatever) that began approximately 9 months ago, in October 2007, is possibly complete. Readers of this blog have their buy lists ready, and recognize specific investment opportunities actionable in his or her time frame.

I note happily that Intuitive Surgical/ISRG, one of my Core Opportunities, and the stock so many investors chose to be bearish on at prices lower than yesterday's close, is set to open higher, much higher. I mention this reality not as an I told you so, but as an opportunity for us each to study and learn from errors of perception. Investors who perceived the bearish future, Jim Cramer included (who recommended his epigones sell ISRG in mid-March at ~$275 and purchase Hologic/HOLX at ~$30 -- yikes!) and the very few investors who recognized the bullish pattern, the truth.

[click on image to enlarge]

Deutsche Bank notes ISRG reported very solid second quarter results, with better-than-expected da Vinci placements and utilization drivingupside to estimates. Growth remains robust across surgical specialties, with GYN the star performer in the quarter. As supported by higher guidance and their surgeon due diligence, Deutsche believes the outlook for Intuitive remains attractive. Accordingly, they reiterate their Buy rating and have nudged up their tgt to $365 from $360.
Merriman notes ISRG posted modest upside to revenue estimates and strong gross margins drove EPS nicely above published estimates. While management raised revenue guidance for all contributing line items, it also noted that dVH and dVP growth guidance remains unchanged, and that the upside to procedure growth stems largely from new indications. The firm continues to feel that the current environment may delay purchasing decisions; therefore, they maintain their Neutral rating.
Leerink Swann says ISRG's excellent 2Q08 results are particularly encouraging in the context of recent investor concerns over possibly tighter credit and decelerating hospital capital equipment spend. Driven by a still-expanding installed base and rapidly-growing new procedures, ISRG's 2008 procedure growth outlook has moved higher and the overall growth outlook remains exceptionally strong. They continue to recommend ISRG.
(Thank you to Briefing.com for these research notes.)
Markets, in and of themselves, do not manifest as risk, but are all about the transference of risk; the result of your assumption of risk and embrace of uncertainty is a greater return, not increased risk. Of course, that reality occurs only if the investor can perceive correctly the opportunity, and then apply correctly the principles of sound investing. Which, I admit sadly, most investors simply cannot do... and display zero interest to improve.

Full Disclosure: Long Intuitive Surgical/ISRG.
-- David M Gordon / The Deipnosophist

Labels: , , , ,

20 July 2008

Grizzly Baird

My friend and personal trainer, Rick (the Grizzly) Baird, has many personal and professional honors, which include being a former member of the US Bobsled team and running with the torch at the 2002 Salt Lake City Olympics.

In another distinction, Rick's employer, 24 Hour Fitness, has named Rick to be a Fitness Ambassador at the 2008 Olympic Games that begin in ~3 weeks in Beijing. Rick joins only twenty other esteemed trainers from 24 Hour Fitness, selected from ~5,000 fellow employees and possible candidates. After a local reporter learned the news, her station (NBC affiliate KVBC-3) interviewed Rick...


Now I know Rick fairly well, and the interviewer gives him (and colleague, Will Campbell, also named Fitness Ambassador) short shrift. Rick excels when his clients excel, so the opportunity to share his knowledge with professional athletes should help them achieve even higher levels of performance.

Congratulations, Rick! We all wish you the best, and hope you enjoy your trip to Beijing. Don't forget to snap some photos for us all to share your thrills.
-- David M Gordon / The Deipnosophist

Labels:

18 July 2008

My next vacation destination

In light of recent market events, and the results to my net worth, my next holiday is as shown below...




David's next holiday

David M Gordon / The Deipnosophist

Labels: , ,

Lions and tigers and bears, oh my!

Yeah, okay, so Google/GOOG shares 'plummet' -- at least seemingly.

You can read a pretty fair explanation of Wall's Street's reception of Google's earnings report here. To Blodget's thoughts I would add that Google's practice has been not to play the mug's game of 'guidance'. This decision cuts both ways for any stock, up and down, but providing guidance also cuts both ways. I prefer Google continue their practice of no guidance.

Any way you slice it, with the exception of the 'whisper' game, Google's earnings report is phenomenal. Sure the Law of Big Numbers begins to catch up to Google, and other questions arise as a result of this earnings report... But, then, when does an investor ever not have questions and concerns that cause he or she to pause before taking action, if at all? Truth is that, for Google/GOOG, as with all growth stocks, a declining p is heading towards a (still) rising e, and within its t continuum. (P = price, e = eanings, and t = time.)

The continuum for Google's shares continues as well, despite the noticeable decline today. Price oscillations of ~10% occur regularly for all stocks, although Google's -$50 somehow seems more horrific than a $50 stock declining $5. No, the decline today amounts to intra-trend volatility -- mere noise, not a signal! -- despite its scary nature.

From my perspective, Google/GOOG still qualifies as a buy. Although not quite yet.

Full Disclosure: Long Google/GOOG.
-- David M Gordon / The Deipnosophist

Labels: ,

16 July 2008

Everywhere a conspiracy

The quest to blame anything and everything that seems random or senseless on a conspiracy by nameless or faceless others, fascinates me. And, quite honestly, I chuckle. When you stop and think about the level of secrecy and, especially, competency such an effort would require... well, you too would chuckle.

Okay, secrecy might be a possibility, but competency? How could such an effort ever achieve that level of competency? Ineptitude and entropy reign at every company or entity that clusters people together to work toward a common objective in spite of the best intentions; two examples would be our government's efforts in the wake of Hurricane Katrina, and the war in Iraq (which should have been a cakewalk). H
eck, just think of your office. So how is it we could somehow muster the necessary team effort for our worst, basest endeavours? We are human, after all.

Consider the purported conspiracy among Big Oil to withhold any new technologies from market availability that would threaten their stranglehold on energy solutions. Sure, I understand that this type of rumor arises when I recall the Red Car in Los Angeles. In the end, though, capitalism puts the lie to corporate conspiracies because the spoils of battle go to a winning technology, especially a revolutionary technology.

This company video shares yet another astounding, exciting, and fascinating possibility of opportunity found. Necessity being the mother of invention, and all that.

Your comments welcomed.

-- David M Gordon / The Deipnosophist

Labels: , ,

13 July 2008

The New Era

If ever there was an epoch that looked bleak from every angle, it is now. The onslaught of information that comes from the instantaneous dissemination of news leaves us all reeling in its wake. Add what passes for analysis, and we all are led largely astray from cause and effect. This past Friday night, for example, while I enjoyed the company of my fellow movie club attendees, I also failed to dissuade several people that many of the problems that plague us all share a common causative factor, and that factor is not the high price of oil. (Which, btw, serves handily as the scapegoat du jour for those people who believe they grasp the big picture.)

Everyone can name the items that plague the markets, and the economy. One reader, Tom B, took the time to list a handful of them (in a private message): "... most banks are insolvent, the US auto industry could turn out to be in its death throes, the good times on Wall Street are coming to an end, we have neglected to maintain our nation's critical capital assets, the United States government itself has an unmanageable number of trillions in unfunded liabilities ... and we now have an economy with significant misallocations of capital and human resources."

The thing of it is... is that Tom's list, as dire as it is, is incomplete; it covers only financial and economic matters. Let us not forget the possibility of Peak Oil (a topic I will cover soon in a book review), global warming (which breaks down as two core issues: Does it exist? Does man contribute to its existence?), looming shortages of (potable) water, electricity, and food. Weaving its way above, below, through, and beyond is the matter of socio-politics. Really, just how thin is the veneer of civilization? The possibility exists that we could discover soon, too soon.

No one has a better grasp on socio-politics than George Friedman's firm, Stratfor. In a special arrangement for you, Stratfor has allowed me to share the especially fascinating, and possibly seminal, essay below...













July 9, 2008

The New Era
By Peter Zeihan


As students of geopolitics, we at Stratfor tend not to get overexcited when this or that plan for regional peace is tabled. Many of the world's conflicts are geographic in nature, and changes in government or policy only rarely supersede the hard topography that we see as the dominant sculptor of the international system. Island states tend to exist in tension with their continental neighbors. Two countries linked by flat arable land will struggle until one emerges dominant. Land-based empires will clash with maritime cultures, and so on.

Petit vs. Grand Geopolitic

But the grand geopolitic — the framework which rules the interactions of regions with one another — is not the only rule in play. There is also the petit geopolitic that occurs among minor players within a region. Think of the grand geopolitic as the rise and fall of massive powers — the onslaught of the Golden Horde, the imperial clash between England and France, the U.S.-Soviet Cold War. By contrast, think of the petit geopolitic as the smaller powers that swim alongside or within the larger trends — Serbia versus Croatia, Vietnam versus Cambodia, Nicaragua versus Honduras. The same geographic rules apply, just on a smaller scale, with the added complexity of the grand geopolitic as backdrop.

The Middle East is a region rife with petit geopolitics. Since the failure of the Ottoman Empire, the region has not hosted an indigenous grand player. Instead, the region serves as a battleground for extra-regional grand powers, all attempting to grind down the local (petit) players to better achieve their own aims. Normally, Stratfor looks at the region in that light: an endless parade of small players and local noise in an environment where most trends worth watching are those implanted and shaped by outside forces. No peace deals are easy, but in the Middle East they require agreement not just from local powers, but also from those grand players beyond the region. The result is, well, the Middle East we all know.

All the more notable, then, that a peace deal — and a locally crafted one at that — has moved from the realm of the improbable to not merely the possible, but perhaps even the imminent.

Israel and Syria are looking to bury the hatchet, somewhere in the Golan Heights most likely, and they are
doing so for their own reasons. Israel has secured deals with Egypt and Jordan already, and the Palestinians — by splitting internally — have defeated themselves as a strategic threat. A deal with Syria would make Israel the most secure it has been in millennia.

Syria, poor and ruled by its insecure Alawite minority, needs a basis of legitimacy that resonates with the dominant Sunni population better than its current game plan: issuing a shrill shriek whenever the name "Israel" is mentioned. The Alawites believe there is no guarantee of support better than cash, and their largest and most reliable source of cash is in Lebanon. Getting Lebanon requires an end to Damascus' regional isolation, and the agreement of Israel.

The outline of the deal, then, is surprisingly simple: Israel gains military security from a peace deal in exchange for supporting Syrian primacy in Lebanon. The only local loser would be the entity that poses an economic challenge (in Lebanon) to Syria, and a military challenge (in Lebanon) to Israel — to wit, Hezbollah.

Hezbollah, understandably, is more than a little perturbed by the prospect of this tightening noose. Syria is redirecting the flow of Sunni militants from Iraq to Lebanon, likely for use against Hezbollah. Damascus also is working with the exiled leadership of the Palestinian group Hamas as a gesture of goodwill to Israel. The French — looking for a post-de Gaulle diplomatic victory — are re-engaging the Syrians and, to get Damascus on board, are dangling everything from aid and trade deals with Europe to that long-sought stamp of international approval. Oil-rich Sunni Arab states, sensing an opportunity to weaken Shiite Hezbollah, are flooding petrodollars in bribes — that is, investments — into Syria to underwrite a deal with Israel.

While the deal is not yet a fait accompli, the pieces are falling into place quite rapidly. Normally we would not be so optimistic, but the hard decisions — on Israel surrendering the Golan Heights and Syria laying preparations for cutting Hezbollah down to size — have already been made. On July 11 the leaders of Israel and Syria will be attending the same event in Paris, and if the French know anything about flair, a handshake may well be on the agenda.

It isn't exactly pretty — and certainly isn't tidy — but peace really does appear to be breaking out in the Middle East.

A Spoiler-Free Environment

Remember, the deal must please not just the petit players, but the grand ones as well. At this point, those with any interest in disrupting the flow of events normally would step in and do what they could to rock the boat. That, however, is not happening this time around. All of the normal cast members in the Middle Eastern drama are either unwilling to play that game at present, or are otherwise occupied.

The country with the most to lose is
Iran. A Syria at formal peace with Israel is a Syria that has minimal need for an alliance with Iran, as well as a Syria that has every interest in destroying Hezbollah's military capabilities. (Never forget that while Hezbollah is Syrian-operated, it is Iranian-founded and -funded.) But using Hezbollah to scupper the Israeli-Syrian talks would come with a cost, and we are not simply highlighting a possible military confrontation between Israel and Iran.

Iran is involved in negotiations far more complex and profound than anything that currently occupies Israel and Syria. Tehran and Washington are attempting to forge an understanding about the future of Iraq. The United States wants an Iraq sufficiently strong to restore the balance of power in the Persian Gulf and thus prevent any Iranian military incursion into the oil fields of the Arabian Peninsula. Iran wants an Iraq that is sufficiently weak that it will never again be able to launch an attack on Persia. Such unflinching national interests are proving difficult to reconcile, but do not confuse "difficult" with "impossible" — the positions are not mutually exclusive. After all, while both want influence, neither demands domination.

Remarkable progress has been made during the past six months. The two sides have cooperated in bringing down violence in Iraq, now at its lowest level since the aftermath of the 2003 invasion itself. Washington and Tehran also have attacked the problems of rogue Shiite militias from both ends, most notably with the neutering of Muqtada al-Sadr and his militia, the Medhi Army. Meanwhile, that ever-enlarging pot of Sunni Arab oil money has been just as active in Baghdad in drawing various groups to the table as it has been in Damascus. Thus, while the U.S.-Iranian understanding is not final, formal or imminent, it is taking shape with remarkable speed. There are many ways it still could be derailed, but none would be so effective as Iran using Hezbollah to launch another war with Israel.

China and Russia both would like to see the Middle East off balance — if not on fire in the case of Russia — although it is hardly because they enjoy the bloodshed. Currently, the United States has the bulk of its ground forces loaded down with Afghan and Iraqi operations. So long as that remains the case — so long as Iran and the United States do not have a meeting of the minds — the United States lacks the military capability to deploy any large-scale ground forces anywhere else in the world. In the past, Moscow and Beijing have used weapons sales or energy deals to bolster Iran's position, thus delaying any embryonic deal with Washington.

But such impediments are not being seeded now.

Rising inflation in China has turned the traditional question of the country's shaky financial system
on its head. Mass employment in China is made possible not by a sound economic structure, but by de facto subsidization via ultra-cheap loans. But such massive availability of credit has artificially spiked demand, for 1.3 billion people no less, creating an inflation nightmare that is difficult to solve. Cut the loans to rein in demand and inflation, and you cut business and with it employment. Chinese governments have been toppled by less. Beijing is desperate to keep one step ahead of either an inflationary spiral or a credit meltdown — and wants nothing more than for the Olympics to go off as hitch-free as possible. Tinkering with the Middle East is the furthest thing from Beijing's preoccupied mind.

Meanwhile, Russia is still growing through its leadership "transition," with the
Kremlin power clans still going for each other's throats. Their war for control of the defense and energy industries still rages, their war for control of the justice and legal systems is only now beginning to rage, and their efforts to curtail the powers of some of Russia's more independent-minded republics such as Tatarstan has not yet begun to rage. Between a much-needed resettling, and some smacking of out-of-control egos, Russia still needs weeks (or months?) to get its own house in order. The Kremlin can still make small gestures — Russian Prime Minister Vladimir Putin chatted briefly by phone July 7 with Iranian President Mahmoud Ahmadinejad on the topic of the nuclear power plant that Russia is building for Iran at Bushehr — but for the most part, the Middle East will have to wait for another day.

But by the time Beijing or Moscow have the freedom of movement to do anything, the Middle East may well be as "solved" as it can be.

The New Era

For those of us at Stratfor who have become rather inured to the agonies of the Middle East, such a sustained stream of constructive, positive news is somewhat unnerving. One gets the feeling that if the progress could hold up for just a touch longer, not only would there be an Israeli-Syrian deal and a U.S.-Iranian understanding, the world itself would change. Those of us here who are old enough to remember haven't sensed such a fateful moment since the weeks before the tearing down of the Berlin Wall in 1989. And — odd though it may sound — we have been waiting for just such a moment for some time. Certainly since before 9/11.

Stratfor views the world as working in cycles. Powers or coalitions of powers form and do battle across the world. Their struggles define the eras through which humanity evolves, and those struggles tend to end in a military conflict that lays the groundwork for the next era. The Germans defeated Imperial France in the Franco-Prussian War in 1871, giving rise to the German era. That era lasted until a coalition of powers crushed Germany in World Wars I and II. That victorious coalition split into the two sides of the Cold War until the West triumphed in 1989.

New eras do not form spontaneously. There is a brief — historically speaking — period between the sweeping away of the rules of the old era and the installation of the rules of the new. These interregnums tend to be very dangerous affairs, as the victorious powers attempt to entrench their victory as new powers rise to the fore — and as many petit powers, suddenly out from under the thumb of any grand power, try to carve out a niche for themselves.

The post-World War I interregnum witnessed the complete upending of Asian and European security structures. The post-World War II interregnum brought about the Korean War as China's rise slammed into America's efforts to entrench its power. The post-Cold War interregnum produced Yugoslav wars, a variety of conflicts in the former Soviet Union (most notably in Chechnya), the rise of al Qaeda, the jihadist conflict and the Iraq war.

All these conflicts are now well past their critical phases, and in most cases are already sewn up. All of the pieces of Yugoslavia are on the road to EU membership. Russia's borderlands — while hardly bastions of glee — have settled. Terrorism may be very much alive, but al Qaeda as a strategic threat is very much not. Even the Iraq war is winding to a conclusion. Put simply, the Cold War interregnum is coming to a close and a new era is dawning.


© Copyright 2008 Strategic Forecasting Inc. All rights reserved.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

It really would be something if this historically pernicious problem were to trouble the world no longer. But what if the "New Era" is worse than the old one...?

So it goes.
-- David M Gordon / The Deipnosophist

Labels: ,

12 July 2008

The David M Gordon Phenomenon

"What began as a colorful Internet fluke has blossomed into..."

Go here for more information.

David M Gordon / The Deipnosophist (and...)

Labels: , , ,

11 July 2008

For every hill, a valley; for every valley, a hill

What does it mean, if all I ever see are investment opportunities? Perhaps that I am a dunderhead, if my perceptions of investment opportunities failed to consider general mark dynamics. Or, perhaps, the question resolves into the ages-old paradox of viewing life, and its inherent opportunities, as a glass half-full rather than half-empty.

Investment opportunities abound, now more than ever. And yet it would qualify as folly, if I were to fail to consider general market dynamics. So I do. I check my specific investment opportunities vs its group and sector strength or weakness: Does the group and sector strength or weakness ratify my perception of potential reward in this or that opportunity? If not, and even if it is, does my favored investment opportunity manifest as a leader or laggard within its group and sector?

Could the weakness in the financial sector overstate the weakness of the general markets? Probably, as that sector had a predominant position in the market averages and indices (not indexes!); at least until recently. So I also compare and contrast stock vs group and sector, group vs group, sector vs sector, and all vs the general market averages and indices. This affords me the opportunity to find stocks that diverge positively vs general market weakness. (And vice-versa.) These positive divergences form the first rays of light in the otherwise pitch-black night of the markets' ferocious decline. Area patterns reveal whether accumulation or distribution occurs, and the likely direction of the next major move. Chart patterns cluster, sometimes unbelievably so.

But area patterns help in another way as well; if you know area patterns, you have an inkling of the directional trend and thus no fear of market dynamics. And a set of expectations as to how the pattern could develop next. You see breakdowns from big tops in the daily charts? Open your perspective to the weekly or monthly chart basis, and see if the ugliness remains. Did a stock run to new all time highs, but it has since been cut in half in a beeline move lower? With area patterns, you can look forward to the bounce towards a possible and potential double top, as the stock builds a larger top. Or base. Again, your perspective and perception are paramount.


This all is confusing, I am sure. But the attempt to learn rewards itself. You few readers who congregate here should each pat your own back for making the attempt; you might lose portfolio value today, but the lessons you learn will enable you to side-step them in the future. The markets, like the mountain, might be uneven, with tricky footing and frightening drops here and there, but the topology of each generally is uphill.
-- David M Gordon / The Deipnosophist

Labels: ,

10 July 2008

Google to report results

Google/GOOG to announce Q2 2008 Financial Results

Google/GOOG will hold its quarterly conference call to discuss second quarter 2008 financial results on Thursday, July 17, 2008 at 1:30pm PDT (4:30pm EDT). Connect early, a minimum of 15-20 minutes prior to the call's inception, if you want to listen in, or participate.

Alternatively, the live webcast of Google's earnings conference call can be accessed
here. The webcast version of the conference call will be available via the same link following the conference call.

Full Disclosure: Long Google/GOOG.
-- David M Gordon / The Deipnosophist

Labels: ,

09 July 2008

Black Fridays, black Wednesdays, black everyday... black markets! Part 2

"The difference between school and life? In school, you're taught a lesson and then given a test. In life, you're given a test that teaches you a lesson."
-- Tom Bodett

Okay, first things first. Does Allan (AllAllan) trade willy-nilly?

"Willy-nilly trading," at least as I define the term, is not a function of the total number of trades in a compressed time frame, but trading (buys and sales) that has no methodology, no plan, no roadmap of how to arrive there from here. Allan has a methodology, and a plan, which he shares with his blog's readers. Allan also enjoys investment success.

The sole 'right' way is what works for you -- where you equals your temperment as investor, your tolerance for risk, your objective ("To make money!" lacks meaning), your time frame. Pair the (read: your) time frame with the appropriate periodicity within the market, and you have the initial rung on the ladder of investment success.


Allan's and my approach to investing success are not as dissimilar as appearances lead the casual observer to believe. The largest difference between our methdologies is time frame; Allan's time frame is briefer than mine. This is due largely to my desire to accomplish, if not achieve, other things with my life other than sit chained to a computer watching Mexican jumping beans, er, stocks, gyrate. (Which does not translate as Allan's raison d'être; far from that.) Paradoxically, Allan's less lengthy time frame will generate more signals with fewer bars on the charts, whereas my time frame will require more bars to generate fewer signals. But we each find consistent success thanks largely to the lessons we each endured at Wall Street University. (See again the quote that begins this post.)

Please do not interpret my comment above that I am somehow right, and Allan somehow wrong. Consider the third investor whose time frame is years, even decades; over the course of one decade, he or she will have a mere 120 monthly bars that could generate a signal. I receive that number of bars within weeks or even days, Allan within days or even hours. The core truth? To each his own, but to thine own self, remain true.

Thanks to several private email messages, I realize, albeit belatedly, that I was insufficiently clear (in part 1) about one crucial item, so I will spell out the lesson.

Chart action betrays whether investors should pay heed to the concerns du jour; if patterns and trends merely reflect a trending market (for example, the decline of the past ~8 months) but do not highlight something more dire, then treat the decline as a garden variety correction or bear market, and not the End of Days. This concept of investing derives from the Cuban Missle Crisis (yes, 46 years ago) when investors sold everything amid prevalent fears the end of the world was nigh... Until someone, who proved more wise than wiseass, suggested,

"Why not invest? If the world ends, then we all are dead anyway, so it matters not at all if you are wiped out financially. And if things work out (as they did), stocks could rally." (As they did, big time.)
Despite my inclination to the dark side, chart patterns today fail to betray the End of Days to be upon us (again), just as was the situation 46 years ago. And many, many other times when fears rooted deeply in investors' psyches. I suspect that the markets, and we all, will muddle through as we always have. Consider that the markets made new reaction (bear market lows) on Monday of this week, while Apple/AAPL, suggested in part 1, is nowhere near its low, but instead lurks ~10% beneath its all time high. (Set ~8 months ago when this bout of general market weakness began.)


I heed my Investment Rules; many of my creation, others culled from various resources over the years and decades. I include them in no particular order, which is in keeping with the reality of the markets themselves.


dmg's Investment Rules

1) Capital preservation should precede capital appreciation
2) Markets discount the future
3) Embrace uncertainty
4) Allow yourself to be wrong
5) Exercise patience
6) Remain flexible, yet disciplined, at all times
7) Always expect the market to do the unexpected
8) Attempt to trade (invest) with the periodicity’s trend, not against it
9) Never place a lid on how much money you can make, but always have a floor on how much you can lose
10) Let profits run; limit losses to a pre-determined price and/or percentage decline
11) Never become overly-enthusiastic despite current trends (lose objectivity)
12) Never become overly-pessimistic despite current trends (lose objectivity)
13) Consider the use of a risk-management discipline to address systemic risk
14) Do not over-trade
15) Do not take extreme positions
16) Trade evenly – do not "double-up to catch-up"
17) Seek strong stocks to purchase during periods of weakness
18) Seek extraordinarily strong stocks to sell during periods of strength
19) Lighten your commitments in a down-trending market, or in a market that appears “toppy” after an extended advance or rapid advance. It is always important to preserve your capital
20) Never own stocks in a down market on margin
21) For the minority to make money in the short-term, the majority must be wrong
22) Study your weaknesses
23) Learn from your mistakes
24) Act according to your convictions; learn to trust your doubts, as well as your expectations
25) In a primary uptrend, numerous resistance-levels are often overcome; resistance is just a temporary hurdle en route to higher prices
26) In a primary downtrend, many support levels are usually broken, and support proves to be a mere way station prior to lower prices
27) Never look back (in a wishful manner);
it can easily distort one's current, and future, judgements
28) Strong stocks and strong markets open down, and close up
29) Weak stocks and weak markets open up, and close down
30) Never confuse a stock's momentum with its earnings momentum
31) Growth investors buy up vs value investors who buy down. Know which category fits your temperment.

Yes, there are more Rules than the 31 above, but this list is a good beginning. Too, I considered putting flesh on the bones of each Rule; that thought proved ephemeral, though, as I decided in favor of your questions, comments, and shared insights. (Which qualifies as a good method to guage your interest to learn, and to improve your investment results.) Nonetheless, please print my Investment Rules, and keep them close at hand.

This post will continue with Part 3, which will include (possibly annotated) charts of Apple/AAPL, and other investment opportunities.

Full Disclosure: Long Apple/AAPL.
-- David M Gordon / The Deipnosophist

Labels: , ,

03 July 2008

Black Fridays, black Wednesdays, black everyday... black markets!

The great thing is to last and get your work done and see and hear and learn and understand; and write when there is something that you know; and not before; and not too damned much after.
-- Ernest Hemingway


The market's health the past 8 months reminds me that I should reiterate my investing methodology. First, though, a review of the markets...

Based on closing prices for Monday, 30 June, the S&P 500/SPX posted its worst first six month return since 2002, and its third worst first six-months (negative) rate of return since 1965, down 12.83%. Okay, the numbers reflect what has occurred, but how about going forward...? Market history shows that "... 5 of the 10 worst first-half returns were followed by 2nd half performances that landed them on the list of the 10 worst performers as well. When the S&P 500 was on the worst 1st half and worst 2nd half performance lists, the average performance in the 2nd half of the year was another 9.9% loss. Years of positive performance do exist; most notably during 1970 and 1982. (When the S&P posted gains of more than 25% during the 2nd half of the year to finish the year in positive territory.)" (© Dorsey Wright Analytics)

Compare and contrast the interpretation above with this notional sub-set, "In the second halves of all presidential election years over the past 110 years, the Dow has gained an average of 9.7%. In the second halves of all other years, in contrast, the Dow's second-half gain has been 2.7%, or barely more than a quarter as much." (© Mark Hulbert)

Throughout stock market history, there always have been prevailing concerns that worry most investors; concerns that, in turn, cause a massive shift to one or the other side of the ledger. While the then-prevalent concerns exacerbate a trend, they rarely cause a trend to occur -- unless the collective action by the preponderance of investors betrays an element of real, or perceived, exogenous risk. (Risk due to factors outside market dynamics.)

Whether investors buy or sell, they discount the future (albeit the consensual perception of that presumed future, which is why the market is so often wrong), so this moment, every moment -- right here, right now -- is the where and when and what and how that separates the true long term investor from the poseur. A concentration of focus on a diminishing spot (the asymptote I mentioned in a previous post) helps to end the extant trend sooner rather than later. Of course, a quicker ending worsens the ferocity of the trend; a melt-up or melt-down. Which is where the market finds itself today; no question the current market environment is ugly, likely to worsen before it improves.

[Graphic courtesy of Investors Business Daily]

No analytical methodology brought to bear (sorry, could not resist!) upon the market is perfect; not fundamental analysis, not technical analysis. And while company fundamentals have an important impact on security prices, the market reacts to company fundamentals in different ways at different times. A stock's price reacts 80% of the time to market and sector-related catalysts, with corporate fundamentals and valuation metrics a distant third and fourth. Nonetheless chart action tells all. Chart action reveals the markets' changing dynamics on a real time basis; the collective consciousness of all investors across all time frames.

A reader writes,
"The issue seems to be uncertainty (fear) and how you deal with it in the context of the 'market'..."

During the periodic bouts of weakness in the general markets, I seek the markets' leaders -- which I do in all market environments. A leader is a company whose product or service is a leader in its industry, and whose stock is a leader in the market. Of course, even the leaders will be thrashed about but rarely trashed, and, as a class, they always will come out from hiding before the markets' sun shines again.

I consult market action, and, during periods of market weakness, seek positive divergences. And vice-versa: negative divergences during periods of market strength. My indicators help to guide my portfolios to the inherent opportunities within the market's stronger-acting groups and sectors. Right now, for example (and obviously), the financials sector of the S&P 500/SPX continues to weigh heavily on the overall index, which reality could change at any moment, so I monitor closely for portents of bullish change.

Speaking of positive divergences, a NB: Whereas the DOW Industrials, S&P 500, and NASDAQ Composite (almost) sell today at a lower low than their March 2008 low, Apple/AAPL sells at a price substantially higher than its March 2008 low. Things (always) change, but this positive divergence showcases Apple/AAPL's relative strength and status as a market leader. The ability to perceive long term investments is far easier than long term investing, for obvious reasons, but one is the doubt, uncertainty, and fear that preys on investors' long term intentions and certitude.

Remember the core objective: building wealth, not trading willy-nilly. You and I seek the best of the best of all available investment opportunities, the creme de la creme, and then (strive to) hold on. Sometimes errors occur, whether by analysis or application (even by me), but those positions are sold, and the cash becomes available for the presumptive new winner.

The markets close (3 hours) early today (Thusday), remain shuttered tomorrow (Friday) for the holiday, and do not re-open until Monday. Thank goodness for small favors! Use the holiday weekend to regain your sense of proportion, catch your breath, and, oh yeah, have fun.

This post will continue with Part 2.

Full Disclosure: Long Apple/AAPL.
-- David M Gordon / The Deipnosophist

Labels: , ,

who's online