Saturday, November 19, 2011

No wonder people are angry in this country...

According to last night's 60 Minutes report:

“The people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.”

“Congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.”

Simply amazing... Occupy Congress, any one?


Sunday, June 26, 2011

Sunday, May 15, 2011

Saturday, April 16, 2011




Saturday, March 26, 2011

Saturday, March 19, 2011

Saturday, February 19, 2011


The ultimate goal is to avoid the big disasters like 2001 and 2008 even if you whipsaw a few times along the path. If you can just do that, you will be outperforming over 90% of all money managers and mutual funds.

The Wall Street journal has a story on this tortoise that beat the hares. A quite amazing story - in August of this year the fund received more inflows than it did in its first 25 years combined

We have had holdings in PRPFX for quite some time and, during the past buy cycle (since 6/3/09), it was the only fund/ETF that never reacted much to market pullbacks and consequently never caused a whip-saw signal.

This fund lends itself perfectly to trend tracking but the name is a bit of a misnomer. While indeed it held up better than most during the 2008 massacre, you would have been better off selling it as per our trend tracking exit strategy. Nevertheless, it comes as close as I have ever found a fund to be “permanent.”

Prior to the above story, I had just finished by own back testing to see how PRPFX might have performed during the “lost decade” (12/31/1999 to 12/31/2009), during which the S&P 500 and just about any other fund showed negative returns.

Here is the testing methodology I used:

1. Buy PRPFX on 12/31/1999

2. Hold it until a 7% trailing sell stop on close takes you out of the market.

3. Re-invest as soon as the price has risen again by 3% above the price you were stopped out at
    or buy when the 50 day MA crosses above the 200 day MA for one week and the 200 day MA 
    is moving up. This will more than double the profit shown below. This works good for Stocks, ETFs
    and Mutual Funds.

4. If you get stopped out again, use the same reinvestment process

Using this simplified approach, PRPFX would have gained (including dividends) +125.18% for the “lost” decade. As comparison, the S&P 500 (as represented by SPY lost 10.32% (including dividends).

Here’s the important part. Because of PRPFX’s lack of volatility, you only would have been stopped out “four times” in 10 years. While this does not represent true trend tracking, it nevertheless demonstrates that the tortoise can beat the hare.

I tested a variation of the above by allocating 50% to PRPFX and 50% to a bond fund (VBMFX) and applied the same principles over the same period. This combination returned a total of +93.88%. While PRPFX again had 4 buy/sell signals, the bond fund had none.

Again, this is merely meant to be a demonstration and not any guarantee that similar performances can be repeated in the future. However, it clearly shows that you don’t have to be in the hottest fund or latest ETF to outperform the S&P 500 or just about any other fund.

The key to this success was clearly the fact the major downturns were avoided, which to my way of thinking is the number one portfolio wrecking ball. Moderate upside along with bear market avoidance will give you better odds at long-term success.

If you happen to have invested in a sharply rising fund/ETF, which now follows the market reversal back down just as quickly, you may witness a 20% gain turn into a 2% profit as the trend line gets crossed to the downside. That’s were implementing a 7% sell stop has its advantages, since it would have locked in a gain of some 13%.

Saturday, January 22, 2011


Wednesday, January 19, 2011

Muni Bond Market Collapsing? 

Teeka Tiwari

If you've been watching the Municipal Bond Market recently, then you know it's been in a free-fall.
Last week, the interest rate on 30-year top rated municipal debt rose above 5 percent for the first time in about two years.
I'll get more into that in a minute, but first a quick primer for the uninitiated ...
Municipal Bonds -- also known as "Munis" or "Muni bonds" -- are debt obligations issued by a city, local government, or agency. The key advantage of Municipal Bonds is that if you are a resident of the state issuing the bond, then the interest that you receive could be triple tax free. This means you would definitely pay no Federal, and potentially pay no State and Local tax, upon the interest that you receive. Because of these tax savings, the yield on a municipal bond is usually lower than that of a taxable bond.
Very often you'll see Munis quoted with two interest rates. The first is the coupon, which is the actual rate of interest paid by the municipality. The second is the taxable equivalent yield.
The taxable equivalent yield assumes that you are in a 28% tax bracket, and it shows you how much interest a taxable bond would have to pay in order to be of an equivalent yield on a triple tax free Muni bond.

Trouble Brewing Ahead
Remember how I said that the rate on Munis is usually lower than the rate on taxable bonds? Well, what's especially troubling right now is that we are seeing rates on Munis actually climb above the rates of taxable bonds!
This is a very clear sign that something is seriously amiss within the municipal market, and that the smart money is beginning to price in some serious doubts about the states' abilities to tap the bond market for fresh cash.
The biggest fundamental funding problem that states and municipalities have is that they have no ability to print their own money. Unlike the Federal government, there are only a finite number of dollars floating around that they can tap into.
So, if they run a budget deficit, they can only bridge that budget gap by either cutting services, defaulting on debt, or raising taxes.
Therefore, I have no doubt that all of us will experience a hiking of sales taxes, state income taxes, and property taxes. Remember: State and local governments have no ability to "extend and pretend" the way the Federal government is doing right now.
The only other way out is if a state economy as a whole experiences a dramatic and prolonged period of strong economic growth. As the businesses and the residents of the state and local municipalities make more money, then of course the tax receipts also increase. But while the U.S. economy is improving, we are nowhere near normalized growth yet, let alone this kind of high growth environment.
But none of these issues are new news. The municipalities that make up each state have been in trouble since the end of 2007 -- so what's spooking the muni market right now?

Under Funded Pension Liabilities!
Besides spending far more than they've been taking in, municipalities all over the country are facing pension shortfalls on the order of 2.5 trillion dollars! To put that number into perspective, you should know that the ENTIRE muni market is 3 trillion dollars!
The problem is that many of these state and local pension funds were accounted for using a projected 8% rate of return. During the 1982 - 2000 bull market, 8% seemed like a breeze. In today's environment, if you can run big money at 8% using strictly investment grade investments, you are heralded as an investing god.
Long story short: Their entire pension funding models and projections are shot. They'll either have to slash and burn services, raise taxes, or default. Illinois has already embraced tax increases by hiking personal income tax from 3% to 5% and bumping up business income tax from 7.3% to 9.5%.
These morons in the Illinois state legislature are killing the goose that lays the golden egg rather than making the hard choices to cut spending. Matt Murphy, a senator from the Chicago suburbs, pithily summed it up when he said, "You think you're stabilizing the budget, but you're not. You're bankrupting our state."
Amen, Matt Murphy!

For those of you looking to trade the volatility that's sure to rock the Municapal bond space, you may want to take a look at the iShares S&P National Municipal Bond Fund, symbol MU

Saturday, January 1, 2011


Why are many companies that don't really need to moving to China? If a company
manufactures anything that requires rare earths China is the place to set up shop. China
now controls 97% of rare earths throughout the world. If you want to buy it you pay thru
the nose or better yet the wallet. Rare earth company stocks are booming. China is the
reason. They have been cutting back on the amount they have been selling. Look at the
performance of these stocks:  GengSheng Minerals Inc (CHGS), Avalon Rare Metals Inc (AVL),
General Moly Inc (GMO), Rare Element Resources Ltd (REE), and REMX (the Market Vectors
Rare Earth ETF itself).$REE