| ||Sustainability? Value?|
There was a really good point that came up on the other blog regarding my ability to predict trends in the economy.
I like my record. I have yet to see any journalist anywhere, financial expert or whatever, that has called the economy with the accuracy that I have. I haven't found any. Not even Warren Buffett.
Today Citibank surged ahead, nearly 50% gain off it's low of 97 cents. It's based on internal releases of financial reports. It's based on the plunge protection team. And it's craziness. If you look back on my blog, I was saying that Citibank was hosed over a year ago when it was trading in the 50's. Now it's new low was under a buck. Citibank, with a market cap of under 10 billion dollars, my question to ask is - what is it's debt exposure? EXACTLY.
When I did the post telling you that Citibank was hopelessly overleveraged, one gold coin would only buy about eight shares of Citibank stock. Now one gold coin would buy 1,000 shares of Citibank stock. Gold outperformed this financial DOW component stock by over 100 times.
So, having said that, how did I predict the housing crash, the market crash (both now about half of where it was in 2007). It comes down to two things, and two things only. And the questions can be answered easily. The experts get it wrong because they study charts. CHARTS INDICATE INVESTOR EMOTIONS and are not based on VALUE. Charts do not sense the two things that I highlighted above in the headline.
Technical investors (ones who rely on charts) always always always screw up because they are trying to time the top or bottom of VALUE. Value is not an instantaneous thing! It does not peak on a certain day because the true value of a company all of a sudden hit a high. Look at the stock of APPLE since the iPhone3G came out. It plummeted. Look back on this blog, you'll see I sold APPLE at 202 - the all-time high. And I said it was overvalued because I knew retail was going to crash. And APPLE is a fantastic company, with everything it takes to be valuable. Lots of cash on hand, great culture of innovation, and a company that has cornered entertainment distribution, portable electronics and computing. Stock is about 40% lower than it was off it's high. Do you think APPLE sucks as a company? Of course not. It's great. But if you owned the stock, and bought my shares at 202, you now lost a lot of value and you won't get it back. Holding onto the stock is not going to make it go up just because you want it to.
Same thing with ANY other asset. Ask yourself - two questions. SUSTAINABILITY AND VALUE. Was the climb in real estate values sustainable when a 900 sq ft house in West Los Angeles, CA was going nearly for $800,000? Did it really have value like that? No and no.
Dot Com boom - was the crazy jump up in stock sustainable? With price to earnings ratios going over 100, or infinite (because any fraction with a zero on the bottom is infinite) it just didn't have value, and the dot com boom crashed and I knew it would.
VALUE comes in two different flavors - 1) true value or 2) PERCEIVED value. It is perceived value that people buy when they buy shitty stocks (oh I better get in now while the stock is red-hot! - stupid people). And it is trying to get CASH FLOW from investing that makes people lose money. When you try to make cash flow by investing - you try to "TIME" the tops and bottoms and this never works because nobody can time and instant for a peak.
This is why investing should not be for cash profits - ever. Investing should be about growth, not cash flow. An investor should weigh SUSTAINABILITY and VALUE as the only measurements for an investment decision, knowing that investing is simply a matter of sensing where imbalances will ultimately resolve. IT IS THAT SIMPLE. It has worked for generations, and it has worked for me and it will never, ever fail.
Having said that, let's talk about the U.S. Dollar. My question is this - can the U.S. Government bailout every possible UNSUSTAINABLE business and if so, does the U.S. Dollar have TRUE value or PERCEIVED value? Hmm - what do YOU think? OK - is this trend of bailing out business after failing business sustainable? YOU ANSWER.
It is not rocket science. It's child play. Two questions. (this article is for discussion purposes only)
| ||Posted 3/11/2009 8:36 PM - 1206 Views - 14 eProps - 16 comments|
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