Monday, January 21, 2013

1/21/13 Asset Deflation

I came across the following commentary entirely by chance, and read it with an open mind:

http://www.fool.com/investing/general/2013/01/21/a-33-year-old-lesson-on-gold.aspx

Excerpt:

Thirty-three years ago today, on Jan. 21, 1980, gold reached $850 per ounce, its all-time high on an inflation-adjusted basis. The momentum of the final spike in prices was tremendous: During the first 11 1/2 months of 1979, the price of gold had doubled to $457; over the next 36 days, it came close to doubling again (+88%). The next day, however, the price gold fell 13%; over the following years, the loss amounted to nearly two-thirds.

Today, real interest rates are also negative. On Thursday, the real yield on the 10-year TIPS (Treasury Inflation-Protected Securities) closed at -0.64%, up from their all-time low of -0.86% achieved in October (TIPS were introduced in 1997.) The world is not devoid of political risks today, nor have all fiscal and structural challenges been addressed. However, gold and silver owners, via products such as the SPDR Gold Shares (NYSEMKT: GLD ) and the iShares Silver Trust (NYSEMKT: SLV ) ought to consider that if rates continue to normalize and anything other than a disaster scenario occurs, their losses could be horrific as the precious metals revert to prices nearer their historical inflation-adjusted averages. My best guess is that gold's all-time nominal high above $1,900 from Sept. 2011 will remain unchallenged for some years -- and longer once you account for inflation.

I'm not smart enough to argue for or against based on inflation expectations.  But when (no, as) I finished the article, my thought was that gold prices will move in the direction of blog destruction.  You all know what I mean.

109 comments:

  1. David- You're a smart guy. However, the trading floors are littered with positions opened by smart guys. Sometimes it really pays off to give up when things don't go your way. Cash out, take some time off, then start again with a clear head.

    You know, I used to hit losing streaks at the tables, and notice that I would be mentally 'pinned' to the table until the tide turned. The thing is, the tide rarely turned, and I would be forced to leave when my funds ran out. After becoming aware of the emotional pinning, it was easy to recognize, and I began walking away with no questions asked each time it came up.

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  2. I see this much like the charts and trading. If you got in much lower, then why not take a little off the table? If it goes lower your risk is much reduced, your remaining position is still a safe hold, and you freed up some capital to trade something more promising.

    I'm taking my own advice. I recently sold some gold that I purchased at $500 an ounce. I'll take that kind of trade any day. I'm going to sell some silver this week I bought at an average of under $10.

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    Replies
    1. I want to add...these are physical sales. If we get a big run up I can always trade paper rather than physical. But if the pm's go higher then there will be other commodities that go higher as well. I just don't want to get caught in a downdraft and be stuck.

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  3. I just realized last week sometime apparently the media was parroting that risk of IRS refunds may be delayed due to the potential debt limit debate delays.

    Perhaps this explains gold's recent rally?

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  4. Oh, and aren't banks often on the wrong side of the trade? BOE offed all their gold just prior to gold running up and now banks are buying bullion?

    I wonder if the buyers decades ago weren't actually bank officers and today's sellers are those same guys?

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  5. Zulauf: Russia is part of the emerging-markets complex, and it is a beneficiary of higher oil prices. I expect oil prices to rise in dollar terms in the year's first half but retreat in the second half, because the world economy won't revive to the extent the optimists believe. They are using recently positive data out of China to justify a more optimistic view of the world. I don't see it. Nor do I trust Russia as a country. Putin [Russian President Vladimir Putin] blew it. He had the chance to democratize Russia and create free-market structures. Instead he went the other way and helped the oligarchs. This is bad for Russia, and the country's demographics are awful.

    We are living in a world of money-printing. Almost 40 countries are pursuing a policy of zero or negative real interest rates to spur more economic growth. We have never seen anything like this in modern history. The people will try to protect themselves against this monetary baloney. It is accelerating the debasement of paper currencies around the world. That is why I have to recommend gold again. Gold's fundamentals are strong; although some technical indicators of sentiment and momentum turned down in the summer of 2011, gold is at the very end of a cyclical correction and the gold price will be up and running again soon. Once gold surpasses $1,800 an ounce, it will run to the low- to mid-$2,000s.

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    Replies
    1. hypothetical:
      i understand the supposed downside to money printing but if the US is the big boss and runs everything, including interest rates (i.e., its own bond market), etc then what's the real downside?

      Delete
    2. The biggest downside for me is that ZIRP rips the heart out of the middle class, not everyone is as akamai about trading stocks as those on this board.

      For anyone who was counting on creating income from there savings, the opportunity is nill on the fixed income side. This lack of cash flow ripples through the economy and peoples standard of living. The US is going the way of Japan 20 years ago, funny I seem to remember the US telling them it was the wrong way to go.

      Money for nothing chicks for free.

      Delete
    3. One other point, especially since you are the fundamental expert, money printing was done to save the banks from insolvency. If it were not for FASB accounting rules which still allow banks to mark to fantasy, they are still insolvent.

      Do you agree TOF?

      And when society does not allow for capital destruction by allowing failed companies to fail, we no longer live in a capitalistic society. The US has morphed into something different, a corporatocracy

      Delete
    4. honestly i have no idea how this all shakes out. was just asking a question that my wife and i were talking about after we were channel surfing and saw the BOJ open ended money printing news. i asked her what her thoughts are and that was what she said...i brought up the idea that if we were a customer of a credit card company there's no way in hell we would get anything less than like 40% interest rates on our debt....she said well if the US is the credit card company then they can charge whatever they want, which i thought was a great answer. not sure how it all pans out nor do i think it matters one bit as far as how i invest but it is curious.

      one thing is for sure, though, i'm going to have to look at energy plays at this point since the energy market is bound to perk up here soon. anyone have any good high risk plays? i am looking at GMXR, USEG, EOX, FXEN.

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    5. AREX trades at 25.75 which may be too high for you, but can move pretty good.

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    6. AREX's chart looks pretty solid. what's the catalyst for this one?

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  6. check out the similarity between the chart over the past 7 months and the chart from october 2010 to may 2011. pretty damn similar...almost to a T.

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  7. I can't speak for the rest of the world unfortunately but I don't see an economy crashing around me here, quite the opposite, and this is confusing. I realize that doesn't mean it won't or can't crash.

    I do see several empty homes still sitting with no for sale signs, I guess they get dozed in the next decade once banks have fully recovered their losses via ZIRP magic. If not dozed, these home prices have to come down? Not sure maybe they get sold in some kind of "different" deal like they're given away to war vets or something.

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  8. US similar situation as Japan? Could it be the US is actually trading places with Japan?

    I still believe Europe cannot experience anything close to robust recovery absent a much weaker euro. I doubt Germany wants a stronger euro either.

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  9. T3d,

    if gold goes to $2,300, that's a 35% return - not bad. But why do you want to buy an asset which is up over 600% in the last decade for a 35% return? Wouldn't you agree it is easier and safer to buy a stock which is down 40% or 80% over the last decade (like many still are)?

    My one hard-core gold-bug friend say you have to own gold here for the blow-off top like we had in tech in 2000 or gold in the 1980's, but that is a very difficult way to make money, trying top time blow-off tops and more often than not, it doesn't come.

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  10. Looks like DD will make good progress on filling the Oct. 23 gap down today.

    It's really still a pretty good stock here. 12 times 2013 earnings, 3.7% yield, broad product portfolio, so pretty safe, but growth is coming from the agriculture / food products, so should see steady growth and if any of the horror scenarios re the crop market play out, are well positioned to be big winners.

    Certainly not a triple your money with risk kind of stock, but I've got lots, probably too many of those.

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  11. Closed TVIX @ 5.40. After transaction costs, I net a whopping $134 on the 1000 shares. I prefer to think of it as a +2.86% gain on the trade.

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  12. TOF, for high-leverage energy plays, I'd look at the service companies.

    My best high-risk, high-reward one now is ENS in Vancouver. There are an energy services company in Alberta and the Balklans. Made $0.19 per share last year and stock is at $0.53. Had record sales for first 2 quarters of this year, but losses mainly due to 1-time items. Last January, did a financing at $1.15 and warrants at $1.65 and over 40% taken by internal staff, so they all need the stock price up. Big risk is high debt, but coming down.

    I've got a few other Canadian smallcaps, but in the US, the only smaller one I have is BXE. They are a well-run junior with production growth. Produce a lot of nat gas (which may have upside) and signed an agreement with a Korean company to accelerate their oil growth today.

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  13. Good chart at Bespoke:

    http://www.bespokeinvest.com/thinkbig/2013/1/21/bespokes-sector-trading-range-charts.html

    Shows how we are quite oversold (almost 2 standard deviations above 50 day moving average), but if you look at the left side of the chart, you see we stayed in that oversold range for at least 2 months last January before correcting.

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    Replies
    1. You mean overbought, of course.

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    2. Yeah we can definitely stay overbought for a while. Some of the things I mentioned before like % of stocks over 50 DMA and the New Highs - New Lows readings spiked to very high levels suggesting to me at least that it's time to pull in the horns. I honestly can't find a ton of stuff that makes me want to get giddy...other than SNE of course which I blew :)

      Delete
  14. Obama: "An economic recovery has begun."

    He wouldn't purposely mislead us, would he.

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  15. DD - Earnings down but better than expected.

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  16. AGO - Nice, this thing just keeps on climbing......

    Apparently Moody's ratings are a good contrary indicator, what would have happened if Moody's had upgraded?

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  17. Well, I can't find any good reason for getting up early today.

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  18. Bought some stock this morning in Veolia Environmental (VE). It is a stock suggested by ObjectiveTrader as a buy for this week based on the chart pattern, but I looked into the company and like the fundamentals a lot.

    They are a French company into water, energy and environmental services. They are overleveraged, but selling assets to reduce debt. The stock has been hammerred from over $30 2 years ago and over $90 back in 2007, so lots of upside. Paying about a dollar dividend this year (Euro 70 cents) and are looking to get back to their traditional amounts which was 1.20 euros in 2008/2009. Current yield is still 8%. Also had earnings of around 2 Euros in 2006 / 2007, so if can even get back to half of that, you use current exchanges rates, put a 15 P/E on it for a stable, almost utility type company with good yield and it could easily be a $20 stock in a year or two. Get people excited about water and Europe even a bit, could be a lot higher.

    They get about 40% of revenue from water which is till a good theme and 40%$ of revenue from France who's economy should improve over the next number of years.

    Probably should have waited for a pullback, but that may not come and I am happy getting it at the current price.

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    Replies
    1. VE - Congrats, I've suggested taking a look at this one about 100 times now.

      Delete
    2. No I haven't, but now I'm seriously considering it. VE also is doing water infrastructure contracting work in China aren't they?

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    3. Yeah, they talked about some contracts there and growth opportunities.

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    4. This is one of many that moves only in gaps for some reason, I'll have to wait and see what happens for now.

      Another gap up to a new higher high seems pretty likely.

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    5. May be because it is primarily a Paris-listed stock. Was up a couple of percent in Paris yesterday, so seems like a gap up in the US, but not really.

      SNE does the same.

      Delete
  19. MLNX - A higher low today, so far. Next leg down in 6,5,4,3,2,1.......

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  20. Cold snap here, arctic air has arrived. With home furnaces blasting away, natty prices should drop rapidly.

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    Replies
    1. Still only 5 degrees Fahrenheit here at noon near Toronto.

      Dogs are looking at me wanting to go for a walk, but they have loads of fur.

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    2. Take 'em out, the clear air will do them good.

      It's 18F at Reagan airport.

      I bet the Toronto snow is a light powder, not slippery ice and slush. Fortunately we don't have any of the wet stuff on the ground currently but a frozen ground will ensure it sticks, should it arrive.

      Delete
  21. I like VE too. I was looking at that one a while ago...not sure why I chose to ignore it but this is one helluva downturn over the past 6 years in that stock. A retracement to $18 or $19 certainly looks possible.

    I'm seeing a lot of these overseas stocks setting up the same way...like NIHD, PGH, SID...those are probably the plays going forward since in my opinion much of the growth in US stocks has been factored in.

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  22. Remind me again why I chose to short the strongest market (RUSSELL 2000)? Oh that's right...when it falls it falls the hardest. No one told me about the opposite of that though.

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  23. AGO - Wow, a full swing of over $1..... and a new higher high, he, he! Is a higher close out of the question?

    Crazy stuff for a boring ol' insurance stock.

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  24. TOF, AREX catalyst would be if you are correct and energy stocks are going to be picking up. Simply it’s an oily stock like NOG which both have similar chart patterns, but I will give the edge to AREX where charts are concerned.

    BB, gold it depends.

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  25. BB asks “if gold goes to $2,300, that's a 35% return - not bad. But why do you want to buy an asset which is up over 600% in the last decade for a 35% return? Wouldn't you agree it is easier and safer to buy a stock which is down 40% or 80% over the last decade (like many still are)?”
    BB, no and it depends on the circumstances. Gold seems to be emotional for both sides, but to me it’s just another asset and also an alternate currency with no liabilities attached by any gov’t.
    The first premise I will ask is with all the money printing and debt how can this end up well? This leads me to want some kind of insurance, gold. If I had gold bullion, I would not sell it as the spread to buy and sell is large. I would hedge it to reduce or more hedges if I wanted to go flat or reverse.
    The second premise is negative interest rates; this has almost always been a positive for gold. It does not mean gold cannot correct as it is now, as long as the above conditions are present gold makes sense.
    Per Zulauf, “Gold's fundamentals are strong.”
    BB asks, “Wouldn't you agree it is easier and safer to buy a stock which is down 40% or 80% over the last decade (like many still are)?”
    BB, again it depends! What you are asking is a philosophical question on how one desires to approach the market. Personally I’m agnostic on whether a 35% gain comes from a stock on its 52 week lows or highs.
    When I first started trading stocks after first trading mutual funds and struggling with stock results an experienced trader came over and asked me to show him what I have been trading via charts. He said after looking at about 20 charts you buy rock stop buying rock and buy charts with 45 degree angles up (the big blue arrow). So after that I started to focus on stocks at 52 week highs with pull backs and my results improved.
    As you dudes know there are a lot of ways to make and lose money in the market, we just have to find what works for each of us and follow that path. There is no right or wrong method other than the market giving you feedback as to the path you are on.

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    Replies
    1. Here is part of a TOF post as it is really good.

      Investing is a process of constant self improvement. It is both an art and a science. To be successful at it you have to have a good understanding of technicals, fundamentals, near term catalysts, as well as (and most importantly) your own mental makeup. Are you a risk taker? Are you short term oriented or long term and is your investing style aligned with your mental makeup? Can you take big hits and sit through them, knowing that your initial analysis was correct and that the stock will ultimately be significantly higher? Can you admit that your wrong? Can you identify the possible pitfalls of your analysis? Do you have the self discipline to cut your losses early if it looks like you're wrong? Can you dust yourself off and pick yourself up after making a mistake or a series of them? These are all very serious questions that we all need to ask ourselves if we want to be successful at investing.

      Delete
    2. T3d - Yep investing is a tough game man. there is always a struggle. I look at my own investing just over the past two months and it has been one constant mental struggle after another despite doing very well. The most important part of the game is the mental part...dealing with your lack of patience (i.e., selling too early), your self doubt (i.e., double guessing your decision if the position goes against you), and your stubbornness (unwillingness to admit you're wrong). Tough stuff man.

      Delete
    3. Oh, you mean like SNE today (the last two weeks)? I need therapy.

      Delete
    4. dude - i was all in on that sucker and traded it in partially for TZA...argh! here's to it retesting $11.5 and the market pulling back hard :)

      Delete
    5. Yeah. Sometimes it's not how you deal with a loss or drawdown, sometimes it's how you deal with a blown opportunity. F _ _ _.

      Delete
    6. I see it maybe retesting down to $12 - 12.40, but I'm afraid $11.50 is wishful thinking.

      BUT weirder things have happened. They announced their Xpedia pad to compete with apple and Samsung. Seems to have juiced the stock. I'll bet Jesse is laughing all the way to the bank.

      "But they don't have anything going".

      Delete
  26. The fate was inexorably pushing down SIL, until it gapped down this morning to just hit my sell stop at $21.75, below its solid 3-month support level at $22. I am sure that this support was broken now only because I finally decided to buy SIL. However, seeing SIL above $22 now, I re-entered my 1000 shares at $22.14 without any thoughts. I believe that THIS is the safest trade -- once the support gets broken, all the weak hands get shaken out, and the price quickly reverses to the upside. Let's see...

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  27. JNJ - Kinda looks like this one wants to roll over.

    ReplyDelete
  28. David Tepper on Bloomberg today saying you can't be long enough equities this year. Worth a watch as he has had a good read for the market the last couple of years it seems. In particular, he likes US equities and thinks the US is on the cusp of greatness.

    ReplyDelete
    Replies
    1. get me a "strategist" not named Hussman or Zulauf that is bearish!

      Delete
    2. Who would be bearish while making new highs? Carnac?

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    3. i'll admit i had to google carnac.

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    4. He likes C, especially its foreign assets, thinks C could go up 50%

      http://www.bloomberg.com/video/david-tepper-is-bullish-on-the-markets-gbAbgiiiTyqf7RBdLJWh7w.html

      best starting at 3 mins in

      Delete
    5. In a word "liquidity" by cenral banks.

      Delete
  29. Tried and true method for periodically cleaning your fireplace chimney:

    "Good thing for cleaning a chimney is an old large Tom Cat lowered down by the tail and slowly retrieved. Heavy mitts can be good as cat is sometimes a bit hard to get started down the flue. Black cats preferred."

    ReplyDelete
    Replies
    1. I use a chimney brush. As the vets say, "claws beat skin".

      Delete
    2. "claws beat skin"

      It's advisable to allow chimney temperatures to reach ambient prior to utilizing this mechanism.

      Delete
  30. AGO - lots of value here, even after the rise. I assume we are seeing buying on the uncertainty around the Moody's downgrade coming off the table. Wasn't the best result, but that doesn't always matter for stocks.

    Could be some good potential upside here as they appear to be winning both their lawsuits with the banks (Flagstar) and the municipalities (Stockton).

    ReplyDelete
  31. Interesting idea for transports?

    http://bloom.bg/WTdKHQ

    ReplyDelete
    Replies
    1. I'm all in on the Hindenburg IPO.

      Delete
    2. Would such an IPO smolder in a tight congestion zone prior to catching fire or simply burst directly into flame?

      Delete
    3. Like a lot of IPO's I think it bursts into flames.

      Funny how, when that happens, that the cash isn't incinerated....

      Delete
  32. full stochastics reading on the S&P hit 99.76 out of a total of 100. range goes from 0 to 100.

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    Replies
    1. we either gradually grind higher or we drop harder than people expect here.

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    2. that reading is the weekly chart btw. i prefer looking at that for the bigger picture sometimes.

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  33. The first lawyer?

    Carson was the best.
    http://www.youtube.com/watch?v=Ih6LxwdwvlA

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  34. Real estate outperformed the previous seven years last year, what were the bear camp and news media telling us while this was happening?

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  35. Currency wars....as per this AM's discussion.
    http://www.bloomberg.com/news/2013-01-21/-strong-dollar-is-lie-told-in-new-currency-war.html

    ReplyDelete
    Replies
    1. Accelerating money flow, WWWooooooo HHHooooooooo!!!

      Delete
  36. All in TZA at $11.34. Why the eff not? 1,500 is a foregone conclusion. that's reason enuf for me.

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    Replies
    1. avg is around 11.5 i believe...not really sure.

      Delete
  37. Check out this screener that I've used for a while to look for oversold/overbought stocks. I've never seen this much of a skew between overbought/oversold:

    Overbought - 944 stocks:
    http://www.marketinout.com/stock-screener/stocks.php?screen=rsi14_between_70_and_100&picker=rsi&technicals=1009

    Oversold - 26 stocks:
    http://www.marketinout.com/stock-screener/stocks.php?screen=rsi14_between_0_and_30&picker=rsi&technicals=1003

    ReplyDelete
    Replies
    1. wow...yet another 600+ spike today:
      http://stockcharts.com/h-sc/ui?s=$NYHL&p=D&yr=1&mn=6&dy=0&id=p96847627951

      Delete
    2. I seem to recall, a couple of days ago, a smart trading saying:

      This is the best way to choose a spot to short in my opinion. Wait for the reversal day and then a subsequent rally on weaker strength to test to old highs. It's good to start shorting on this subsequent rally since you have an obvious stop out point: if you give it 1 to 2% above the old highs you should be able to provide yourself with a low risk entry.

      Delete
    3. like a sharp stick in the eye!

      Delete
  38. MLNX - Only lost $2 today, not too bad for an obvious P&D.

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  39. Arex long at close, missed SID

    CSX, NORFOLK SOUTHERN, GOOG IBM, all beat

    ReplyDelete
    Replies
    1. NSC beat eh, I really wasn't anticipating that. Must investigate comments to discover how that was achieved......

      Delete
    2. just looked at it quickly...they did $1.30 per share...estimates were for 1.19. Ninety days ago it was for $1.33. PY was $1.42.

      IBM: $5.39 vs $5.25 (no change in estimates and about 10% higher than PY). GOOG was basically in line with about 10% higher than last year

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    3. Yeah, not really a beat in the sense of lowered expectation.

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    4. Doesn't seem too bad though considering 5.2x15 is 78, although it can't be said the trend is positive.

      Delete
  40. Another school shooting today, this time in Texas.

    http://news.yahoo.com/blogs/lookout/shooting-texas-college-campus-reports-191439016.html

    Seems like the shooters are trying to help Obama get the pressure he needs to get his gun law through.

    ReplyDelete
    Replies
    1. Meanwhile high-tech assault weapons sporting huge magazines are all the rage b/c this bizarre trend of mindless shootings(unlikely to stop anytime soon) combined with ATF foreign armament program(likely still in full swing) threaten to disrupt future supply.

      Delete
  41. So much for immediate reprisal on the premise of inauguration reaction.

    Perhaps the lack of a sell off is simply fraudsters going out of their way to return the favor for overlooking an opportunity to prosecute?

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  42. Reopened TVIX 1000 shares (actually, only 930 shares filled) @ 4.93.

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  43. I had a 'hunch' about GOOG. Almost bought in prior to close. ---- it.

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  44. EGAN - What the heck is this thing, it's jumping.

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    Replies
    1. f*ck! another one that was on my list last week that i forgot about.

      Delete
  45. Semiconductors and Moore's law - This is an example of the kind of breakthrough I expect may(must?) eventually come from the semiconductor industry, we can bet INTC and others have been working diligently on the possibility of implementing this kind of technology into production.:

    " DNA-Mediated Assembly of Colloidal(nano) Materials

    The use of engineered, single-stranded DNA molecules to direct the self-assembly of nano- and microscale particles is a powerful approach for making interesting ordered structures. The underlying idea is that single-stranded DNA oligomer brushes grafted onto spherical (or other) particles induce an interparticle attraction by the process of DNA hybridization (see figure below). A key advantage of this method is the possibility of producing highly specific and tunable interactions among mixed populations of particles, thereby forming multi-component structures that are difficult to achieve with other assembly methods (binary examples are shown in the Figure below)."

    http://sinnoresearchgroup.org/?page_id=750

    ReplyDelete