In the wake of the collapse of 2008 investors are frequently choosing to make radical and rapid decisions since the urge to do something can be overwhelming at times. While our accounts have made meaningful progress in the return to the values of 2007 the remaining balance will require persistence, patience and discipline from our clients and me. In times of stress I think back to a book I purchased solely due to the title: “Tough time’s never last, tough people do” by Dr. Robert Schuller. Sometimes the boldest move an investor can make is simply be patient and allow the haze to eventually burn itself off where clarity in begin anew.
Investors who would not allow themselves to be intimidated by fear and confusion should value the fact they did not lock in their losses by cashing in and taking 3% or less in government bonds. Many investors took permanent losses in failed banks, mortgage companies and home builders, not to mention toxic mortgage backed securities, areas we largely avoided. In due time should our economy begin to pass the current soft phase those 3% bonds could turn insult into injury as the value of those bonds would be in peril should our economy surpass its current weakness but in fairness more attention needs to be devoted to government bonds later in this letter.
While I am far more optimistic about the intermediate term return potential for equities with the current high levels of investor pessimism versus the universal optimism in January, the future is far from clear. Despite the present uncertainties, the degree to which these issues are factored into the prices of the stock market is of larger importance. While I do continue to expect second half weakness for the remainder of 2010 as the inventory buildup, housing recovery begins to waver and federal stimulus wanes. We face an unusual amount and degree of non- traditional headwinds from sectors that normally provided stability like local municipalities. The decline in tax receipts from real estate have hurt many states which in turn have actually resorted to laying off employees for the first time in decades. Adding to the headwinds are the rise in government debt in relation to GDP and the corresponding rise in the clamor for Austerity. While there are a multitude of issues many of these issues are already factored into share prices and the repeated drumbeat of fear from Deflation and a Double Dip recession has begun to lose its effect for 2010.
Austerity can take many forms from the withholding of unemployment benefits, elimination of tax benefits along with tax increases to cover the cost of entitlement programs in 2011. Japan should serve as reminder to the effects of snuffing out fledgling economies as every time there economy has shown signs of life they’ve killed it. In 1997 with the Japanese economy showing promise the government raised the consumption tax by 2% which threw the economy back into recession. The Austerity-Hawks do represent a risk to the emerging economy that harken back to the Great Depression. Christina Romer Chair of the Council of Economic Advisors gave a speech in 2009 highlighting six lessons learned from the Great Depression:
1. Small Fiscal Expansion has only small effects. This would imply that Paul Krugman’s editorials in the NY Times stating the needs for Stimulus II might be spot on, as Stimulus I was not enough.
2. Monetary Policy can help heal and economy even when interest rates are at zero.
3. Beware of cutting back on stimulus too soon.
4. Financial recovery and real recovery go hand in hand.
5. The world will share the benefits or burdens of expansionary or austerity policies.
6. The Great Depression eventually ended.
Should our government fail to continue the expansionary policies as espoused by Democrats but bow to favor Austerians by talking of the reduction of debt then Deflation could continue to be a dominating trend and the value of our overvalued government bonds with feeble yields could be of great value to our portfolios.
There is in fact a study authored by Alesina and Ardagna* which analyzed the effects of 107 fiscal retrenchment/austerity plans within OECD countries (Organization of Economic Cooperation and Development) between 1970 and 2007. The authors found that only 26 of the 107 periods of fiscal restraint occurred with growth and the rest were deflationary. The 26 did share the commonality of being small open economies with weak currencies but accommodated by worldwide economic growth, not quite the situation we face today.
Investment returns relative to Deflation or Inflation
Source: Leuthold Group 6/30/10
The potential for a wide variety of outcomes from our economy might be the greatest in our lifetime. Hence equity allocations are being reduced into strength from our 70% weight of 2009 and early 2010. Chmn Bernanke appears to have a firm grasp on the risks of Deflation and has hinted that the Fed could further add stimulus to the economy with the purchase of long term government bonds with the hopes of reducing long term interest rates, which would help the housing industry. **This potential action by the Fed would drive long term government bond prices higher and thus be a counter balance to equity risks. Timing is key as it always is and as we have slowly reduced our equity exposure we have held the proceeds in cash rather than invest in bonds as by our measures there could be a better entry point for bonds down the road. If the ten-year Treasury were to move to 3.6% in yield we’d be a buyer.
The fear of Deflation remains very real with our current jobless recovery which may take much longer than in past cycles and extend into 2012. However, a Double Dip recession does not appear in the cards at present as was noted in our blog at www.greeninvestment.com/blog. But the risks are rising that 2011 could be trouble when higher taxes begin to have an effect.
Ultimately this economic cycle will end and just as Warren Buffet is fond of saying: “You can’t tell who’s been swimming naked until the tide goes out”, the inverse is just as true with gold dealers harp on FOX about fear and the decline of our economy while gouging customers with exorbitant fees to purchase gold. Who can say they won’t be swimming naked as well when the tide turns back in?
The methods of investment selection we employ within the RMHI Equity Model date as far back as the days of the 1930’s and The Great Depression, but with a few modern quantitative changes. Benjamin Graham and “The Intelligent Investor” created the concept of Margin of Safety which is arguably the best quantitative method of investment selection ever devised. Our focus is on balance sheets and the traditional relationships of Price to Book Value and Net Current Assets in relation to the stock price. In such uncertain times the pursuit of high growth equities could represent a serious danger without the underlying protection of the “Margin of Safety” which is defined as the value of the equity in sharp discount to Net Current Assets (NCAV). The RMHI model is based on several very Old School techniques of valuation. The Margin of Safety concept may be easier to grasp to the non-financial geek, where ownership of a share is considered a stake in the company rather than a short term trading widget as espoused by the folks of Fast Money and James Cramer.
We need our clients to understand that risk reduction does not necessarily mean returns must suffer, that is if we’re able to buy a stock cheaply….the profit is essentially made on the purchase if we can buy the shares below the Net Current Asset Valuation and remain patient for the value to be discovered. At present there are no publically available Socially Responsible Investment (SRI) funds or management companies that actively employ the Margin of Safety concept.
Margin of Safety
An example of the Margin of Safety concept authored by Benjamin Graham is the shares of Gravity Co. Ltd where the cash per share on the books minus current liabilities is actually greater than the share price.
Gravity Co. Ltd. Symbol “GRVY”: Based in South Korea, develops and publishes online games. Owns flagship Internet game Ragnarok Online.
Data as of 12/31/09 Audited by Korean member firm of Pricewaterhouse Cooper
Total Current Assets $ 71 million minus Total Current Liabilities $ 7 million = Net Current Assets $64m
Debt $ 0
Shares outstanding 27.8 million
Net Current Asset Valuation per share $2.30
Stock price as of 07/27/10 $1.50 a share
Margin of Safety 34%
Despite this absurdly cheap along with an impeccable balance sheet, is the fact that revenue for GRVY grew approximately 20% in 2009 along with positive cash flow with earnings before taxes and interest of $11 million.
Our thesis: An investor has a form of downside protection offered by the cash on the books. The stock would have to rise by 34% to simply comply with the Net Current Assets, the underlying online game and software business along with future growth are thrown in for free.
I believe at some point in the future the shares of GRVY will trade for at least the NCAV or $2.30 a share which would be just over a 50% profit. However should the company continue to execute their business plan as they have recently the shares could travel farther than $2.30 per share. In addition, potential takeover by majority owner? Softbank-controlled Japanese game publisher GungHo (Gravity’s largest licensee, increased its stake to 59% in 2008). Gravity’s below-cash valuation may entice GungHo to make an offer.
As with any company Gravity is not without its risks. The company has long delayed the sequel to its Ragnarok Online franchise which is its largest source of revenue. Hopefully, the company will release the sequel within 6 to 12 months which would sharply boost revenues and earnings.
The Ragnarok franchise will satisfy many social profiles since the game does not include any violence, adult themes or explicit graphics.
Many of our present holdings have similar balance sheet / share price relationships and a few were outstanding performers thus far in 2010: within the past two months we have had two holdings be either the target of a good old 1980’s hostile takeover: RCM Technologies or have hired investment bankers to determine how to maximize the assets of the company: Hawk Corporation.
A third company telecom services company IDT Corp. was our best performer of the quarter. Shares were purchased on average between $10 and $12 a share. What brought it to our attention was the fact that IDT had $9.63 per share in cash with emerging profitability. The cash on the books was our Margin of Safety and at present shares trade for over $18.
In addition, we’re looking at several small holdings which pass the RMHI model but also have a very unique valuation where the Net Current Assets exceed the price per share. These are equities (in addition to Gravity)that have a cushion of safety inherent due to their current assets and become very attractive for sharp price appreciation due to mergers, takeovers or return of capital to shareholders (dissolution of the corporation).
Future considerations: What I’m about to write is considered financial blasphemy and the irony cannot be lost on even the most dense of investors. But I have a belief that as an investor I should look under every rock and every neglected corner of the world and not be bound solely to the U.S. market. With all the references being made to the US resembling Japan I did not just a double take but a quadruple take and shook my laptop in disbelief when in the process of running investment screens with the RMHI model I noticed a new crop of equities showing up in clusters. I won’t keep you waiting but here it is…………..what they had in common were they were Japanese stocks: Hitachi, Nippon Telegraph and Telephone, Interactive Initiative ads, Canon, Fujifilm, NTT Docomo.
Japan: The Land of the Rising Stocks
- Cheapest market valuation in the world on a Price/Book value basis at 1.2x book value which compares to over 3x book value for India and China while the US is just over 2x book value.
- The Nikkei topped out at nearly 40,000 in 1989 while today it rests just under 10000.
- The contrarian trade to Emerging Markets: In a recent Merrill Lynch survey over 60% of investment managers were overweight in their asset allocation to Emerging Markets while approximately 50% of managers surveyed revealed they were underweight Japan. Manager sentiment is frequently an inverse barometer of future performance.
- June 2010 the Wall Street Journal reported that for the first time in three years foreign investors are increasing their exposure to the Japanese stock market.
- Very little correlation to GDP growth and 7 year stock performance. For Japanese equities to perform relatively well very little growth in Japanese GDP will be required, it may just take growth regardless of the rate.
- Most major Japanese companies which took losses in 2010 are expected to produce profits in 2011 which coincides with new Japanese business reforms. 2011 earnings do not appear to be reflected in share prices as very high quality companies are selling cheaply. Hitachi sells for just 13x 2011 estimates and 1.3x book value.
- Byron Wien of Blackstone Group added Japan to his 2010 list of surprises with a prediction that the Nikkei would surpass 12,000 for a gain of over 20% based on its current value. Personally speaking a move to 11,000 seems more likely, which is still a very nice gain.
Summary: We face an unusual set of economic headwinds with a myriad of possibilities for the end result. But investors are still faced with the normal quest for retirement funds and a better life where investing in CD’s or bonds yielding 1% are not a realistic option for the investor with a long term horizon. In addition, while investor sentiment has deteriorated sharply (a very good thing going forward) we do not have the values present that existed in late 2008 and early 2009 which allowed us maximum equity exposure. Hence, I believe going forward equity positions should be reduced into market strength with our average equity allocation will be approximately 55%, ideally 30% for bonds and 15% in cash. “Ideally” is relative since the bonds class offering the best counter balance to equities would be US Treasuries in the 10-20 year range and are quite overvalued at present. Until the over-valuation is worked off we’d be better off holding cash in lieu of bonds.
As for equities, the RMHI model which identifies the best prospects for finding Value along with price appreciation potential. Top of the list in the RMHI equity model in recent weeks have been shares of major Japanese companies which have endured over 20 years of malaise and may be near a pivot point in performance going forward. As a statement of fact, the Nikkei is the most undervalued market based on price to book value in the world and investment managers worldwide are severely under allocated to Japanese shares.
Brad Pappas
August 1, 2010
RMHI is long shares of RCMT, HIT, HWK, NTT, IDT, GRVY
*Alesina and Ardagna, “Large Changes in Fiscal Policy: Taxes vs. Spending,”2009; forthcoming in Tax Policy and the Economy,available at http://www.economics.harvard.edu/faculty/alesina/recently_published_alesina
**Bullard, James of the St. Louis Federal Reserve. “Seven faces of The Peril” July 2010
As an investment manager with Rocky Mountain Humane Investing (www.greeninvestment.com) the most common question we hear from potential clients is “and advisor told me that socially responsible investing isn’t profitable” versus unscreened portfolio management. In general the advisor providing the dogmatic opinion does not offer any foundation for their opinion but this is their chance to influence the potential client especially if they cannot offer an SRI option for the investor. Unless you have a few arrows of your own in your quiver you may be quite likely shrug your shoulders and resign yourself to an unscreened portfolio versus a clean portfolio.
Probably due to the fact that I’m over 50 now with a repellent view of hyperbole and unsubstantiated opinions I have been uncomfortable with opposite view as well: socially responsible investing improves rate of return. It has been my view based upon empirical experience of managing SRI portfolios for 20 years that SRI is not a significant determinant of investment performance. SRI is a highly subjective practice where investors can have divergent opinions on industries and companies. There is not unified screening standard amongst the SRI industry, each firm or fund makes their own decisions on screening criteria. While some funds screen for only 3 or 4 issues there are other funds that screen over a dozen.
Practitioners of SRI may draw attention that investors always assume a given level of risk with any equity investment but that the risk premium associated with SRI is less. Case in point the risks associated with Tobacco, Asbestos or BP and the Gulf oil disaster. However in my 20 years involved with socially responsible investing, screening stringency is often a matter of interpretation as BP was considered Best of the Lot for many years for funds that desired petrochemical exposure.
Let’s take a look at some of the academic studies that have touched upon the issue of the factors of SRI performance:
- Moskowitz Award winner, John Guerard, Jr., director of quantitative research at Vantage Global Advisors, examined the returns of Vantage’s 1,300 stock unscreened stock universe and a 950 screened universe (The screens eliminated companies that failed to pass alcohol, gambling, tobacco, environmental, military, and nuclear power). He found “that there is no significant difference between the average monthly returns of the screened and unscreened universes during the 1987-1994 period. The “unscreened 1,300 stock universe produced a 1.068 percent average monthly return during the January 1987-December 1994 period, such that a $1.00 investment grew to $2.77. A corresponding investment in the socially-screened universe would have grown to $2.74, representing a 1.057 percent average monthly return. There is no statistically significant difference in the respective returns series, and more important, there is no economically meaningful difference in the return differential.”
Guerard’s conclusions are reinforced by other works:
- “Socially Responsible Investment: Is it profitable” Dhrymes, Columbia University July 1997 June 1998.Dyrymes concluded that: “that by and large the Concerns and Strengths of the KLD index of social responsibility are not consistently significant in determining annual rates of return.”
- Socially Responsible Investment Screening Strong Empirical Evidence For Actively Managed Value Portfolios. June 2001, revised December 2001 Stone, Guerard, Gultekin, Adams.“No Significant Cost” means no statistically significant difference in risk adjusted return”. In addition, they surmise that “the conclusion of no significant cost/benefit is not just a long term average. It has remarkable short term consistency!”
In my opinion this report presents a balanced view in that they concluded that the during the time of the study 1984-1997 the stock market rewarded the growth oriented style and that the performance of SRI investments could become “brittle” if markets were to become risk averse and adopt a more Value oriented style……….a remarkably accurate presumption!
Could the performance of SRI funds which have exceeded or lagged their respective benchmarks be in part due to size (average capitalization from micro cap to large cap) and style (Value or Growth)?
Fama and French of Dartmouth University examined the annual rate of return and beta (volatility) of an unscreened universe of Growth vs. Value from 1928 to 2009 by dividing stocks into ten deciles (groups) based on book-to-market value, rebalanced annually and found that Value had the lower risk while Growth had the higher risk. In addition, they found that the highest book –to-market stocks exceeded the return of the lowest book-to-market by 21% to 8% on average. Stock valuation was as significant factor in the Fama and French study where the cheaper the equity valuation the better the return.
Market Cap size was important in the Fama and French study as well (1992). Market cap size showed a significant edge to small and micro cap equities on a monthly basis. *Monthly returns for the smallest 10% of equities were 1.47% versus 0.89% for the largest decile.
It is our contention that there are attributes that could account for performance to equities other than social profiles and that concurrently a portfolio of socially screened equities with the highest book-to-value ratios could exceed comparative benchmarks largely due to valuation metrics and capitalization size. In a case of pure cherry picking the monthly rate of return smallest market cap and lowest book value to market price was 1.63% versus .93% monthly for largest market cap and highest book value to market price.
I tested this theory using data supplied by the Social Investment Forum and Russell Index regarding the 10 year average rate of return for socially responsible mutual funds versus their respective benchmarks trends do emerge.
Data as of June 30, 2010
Benchmarks
- Russell Mid Cap Value Index was the top 10 year performer +7.55%.
- Russell Mid Cap Growth Index returned -1.99%.
- Russell 2000 Value returned +7.48%
- Russell 2000 Growth Index returned -.92%
Equity Large Cap performance (information provided by SIF)
- 4 mutual funds show positive 10-year average annual rates of return:
Calvert Social Investment Equity +0.14% (Growth)
Neuberger Berman Socially Responsive +3.18% (Value)
Walden Social Equity +1.46% (Value)
Parnassus Equity Income +4.65% (Value)
Equity Small Cap performance
- 2 mutual funds from one mutual fund company showed a positive 10-year rate of return.
Ariel Appreciation +6.16% (Value)
Ariel Fund +5.62% (Value)
Disclaimer: While the sample size of SRI fund performance is very small. I gleaned data from only the profitable SRI funds for the last 10 years. The SIF forum does not show fund performance information for funds that have closed, merged or liquidated. It would be a safe presumption IMO that funds that no longer exist were weak performers since money will flock to where it’s treated best. Plus, hedge fund performance data was not available on the SIF site.
The results do fall in line with substantial academic works (Fama and French, Lakonishok) and it is possible that SRI performance should be viewed thru the lens of Value/Growth and Market Cap size.
A logical question that must be asked upon reading this might be: “If small market cap and low valuations are the sweet spot for investing, then why are there so few funds or managers focusing on this strategy?” Not to be obvious…………ok, well lets be obvious: The small cap / low price to BV tends to be the focus of many private portfolio managers since our small size allows us the dexterity to invest in companies that are simply too small for billion dollar mutual funds. Successful funds tend to outgrow the size/valuation strategy espoused by Graham as assets become larger and the investment selection becomes narrower. But this topic should best be explored at a later date.
No holdings mentioned
Brad Pappas
President of Rocky Mountain Humane Investing
Allenspark, Colorado
970-222-2592
www.greeninvestment.com
While we may be unabashed in our enthusiasm for Socially Responsible Investing (SRI) that does not mean we look at Green stocks with rose colored glasses. In truth we devote more time and attention, plus number crunching to make sure the holding is justified and meets our financial criteria.
Case in point is Gaiam Corp. (GAIA)
Company description: “Gaiam, Inc., a lifestyle media company, provides a selection of information, media, products, and services to customers focusing on personal development, wellness, ecological lifestyles, and responsible media. The company engages in content creation, product development and sourcing, customer service, and distribution. It operates in three segments: Direct to Consumer, Business, and Solar segment. The Direct to Consumer segment provides an opportunity to launch and support new media releases; a sounding board for new product testing; promotional opportunities; a growing subscription base; and customer feedback and the lifestyles of health and sustainability industry?s focus and future. This segment offers content through direct response television, catalogs, e-commerce, and subscription community services. The Business segment provides content to businesses, retailers, international licenses, corporate accounts, and media outlets. The Solar segment offers turnkey services, including the design, procurement, installation, grid connection, monitoring, maintenance, and referrals for third-party financing of solar energy systems. This segment also sells renewable energy products and sustainable living resources; and offers residential and small commercial solar energy integration services. Gaiam, Inc. sells its products in the United States, Canada, Mexico, Japan, and the United Kingdom. The company was founded in 1988 and is headquartered in Louisville, Colorado.”
Current Price $6.61
NCAV $2.88
Intrinsic/Discounted Cash Flow Value $10.67
Price to Book: 1.0
Book Value $6.45
Cash per share : $2.07
LT Debt $0
Market Cap $156 million
Piotroski score: 7 out of 9 (which is good)
Altman score 5.7 (little chance of bankruptcy)
GAIA is a small cap retail stock focused on the lifestyle/yoga market/alternative energy in Colorado. The stock has pulled back along with the market albeit at a faster pace for the past two months and in our opinion is nearing a very attractive valuation as it begins to touch Book Value along with minimal expectations.
The company has met or exceeded analyst expectations for the past year and current and 2011 estimates have been firm. However this stock is thinly traded and there is only one analyst following the stock.
Back in late 2007 and 2008 when the consumer was empowered the stock traded in the high $20’s and topped at $30. The company posted a loss of (.08) for 2008 The stock does seem to be volatile long term and has a bust / boom personality as it trades in sympathy with the economy. We don’t envision that the US consumer is completely on its back:
“socially acceptable deleveraging needn’t entail the pesky inconvienence of forgoing consumption.”
Revenue growth does appear to be making an improvement with sales improving 14.8% year to year.
A comparison to competitor Lululemon Athletica (LULU) shows the contrast between the much loved LULU and the loathed GAIA. Eco-cache has a cost in terms of potential return:
Current Price $38
NCAV $2.38
Intrinsic/Discounted Cash Flow Value $12.5
Price to Book: 10.4
Book Value $3.79
Cash per share : $2.45
LT Debt $0
Market Cap $2.7 billion
Piotroski score 7
Altman Z 44 (excellent)
To be a successful investor frequently means to cut against the grain of popularity and think in terms of buying a business cheaply. LULU is an excellent example of the price you pay for “Glamour” to own what is currently in fashion and popular. No doubt there are many unhappy GAIA shareholders at present but we believe there will be a Reversion to Mean Valuation which in our definition would be appreciation above DCF valuation ($10+), a level GAIA sustained during the economic expansion of 2003 to 2007. In addition, GAIA is a candidate for tax loss selling within the next 3 to 5 months which could be the catalyst to drive the price lower.
In sum, GAIA represents good value at present however the company’s volatility requires an even greater discount to intrinsic value/DCF than the current price offers, but we’re near those values. A move in price below $6 might just be the opportunity for longer term investors comfortable with the risk of a consumer cyclical company with a very Green edge.
No positions
Brad Pappas
A company we spoke of last week, Hawk Corporation HWK is surging on news that it has hired advisors to investigate possibilitity of increasing shareholder value which would include the potential sale of the company. Hawk is a diversified industrial goods company that also makes alternative energy fuel cells. It should be noted that Mario Gabelli of GAMCO Investors owns 13% of the shares.
Hawk becomes the second holding of ours that is “in play” in the past month. RCM Technologies RCMT is the target of a hostile takeover from CDI corp. This does take some of the bitter taste away from a miserable market.
Hawk Corp.
Market Cap $212 million
Book Value $9.68
Cash per share $10.13
Debt to Equity 1.0
Price to Sales 1.1
ROA 6%
ROE 11%
IBES est: 2010 $1.57
2011 $2.11
I’ve run a quick DCF calculation to get a feel for the value of HWK in a sale: Using 2010 eps of $1.50 with a 3% growth rate and a discount rate of 5% the value could approach $40 per share. The problem with Hawk is that its eps are very volatile but there is the fact of having a great deal of cash on hand. To be continued………………
Regarding the economy: The ISM manufacturing composite index feel to 56.2 (a number above 50 is pretty good) indicating a slower rate of expansion. ISM characterized the current expansion as “solidly entrenched”. While many including myself expected a slowing of the expansion in the second half of the year, the rate of the deceleration has been surprising. While the herd is screaming “double dip recession” the data does not support the mob.
From morning commentary of MKM Partners Mike Darda:
“To recess or not to recess, that is the question. Either way, we believe the stock market has essentially discounted a double-dip scenario, with our NIPA-based model showing a gap between equity earnings yields and corporate bond rates that rivals anything seen in nearly six decades. Even using a 10-year moving average for earnings (which implies a 12.4% decline in corporate profits from current levels), the S&P 500 has fallen to valuation levels below those seen at the market lows in October 2002, October 1990 and December 1987.
We would be more concerned if the credit markets were in worse shape. Yes, corporate spreads have widened, but all of the action has been in (declining) Treasury rates; corporate bond yields have been flat, unlike the situation in 2007-08. Three-month dollar-LIBOR has been in a flat to down trajectory since late May. Two-year swap spreads at 37 basis points suggest that both the VIX and corporate spreads have overshot significantly to the upside (implying that equities are overshooting to the downside).
The catalyst for today’s slide appears to be the upward move in first-time jobless claims and the miss on the June ISM Manufacturing Index, although both were consistent with a continuing, albeit slower, expansion.”
BP
Long HWK, RCMT
Both the US stock market and Treasury market are seeing non-confirmations in the most recent moves lower.
US stock market:
Advance / Decline line is not confirming the move lower as the average stock is not falling with the market indices.
New Lows: The number of new lows continues to shrink when compared to the two other times we’ve been this low in the past month.
VIX: The VIX which is a measure of volatility which peaked in this cycle at 45 in May closed yesterday at 34.
Sentimentrader.com’s Intermediate Term model has moved to excessive pessimism once again. Generally a good time to increase long exposure.
In the Treasury market:
Investor Sentiment is at the highest since December 2008, not one of the better times to be buying bonds. Plus we have to be concerned with the thought of worldwide investment managers buying US Treasuries to look good for their clients in light of the decline in Euro bonds, otherwise known as “Window Dressing”.
Lastly, the decline in US Treasury yields is not confirmed by the bonds of other G-7 nations.
The Tesla IPO has gained a great deal of attention but it has to be time to ring the register. There will be other times to buy this if it can deliver something other than losses. I just read the battery for the car costs $30,000 and does not work in cold weather. Well, that pretty much kills the potential for a Tesla at 8000 feet in Colorado.
No positions
