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Thread: The Stock/Investment Thread

  1. #31
    Administrator Dreadnaught's Avatar
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    So investors expect McDonalds and Google to grow, but you want to short both stocks because...they are all wrong?

    See, Wiggin I think making wildly counterintuitive bets is something I'm not doing.

  2. #32
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    Well, just buy the S&P or Dow Jones index if you think "the investors" are always right.

    Most people lack "intuition" (being right?) in complicated matters like economics... so I wouldn't say it's necessarily counter-intuitive, just "risky"...

  3. #33
    Administrator Dreadnaught's Avatar
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    Shorting stocks of healthy companies that most people have reasonable cause to believe will grow is counter-intuitive and risky.

    Care to make this interesting with hypothetical money? What kind of shorts would you go for?

  4. #34
    Quote Originally Posted by Dreadnaught View Post
    So investors expect McDonalds and Google to grow, but you want to short both stocks because...they are all wrong?

    See, Wiggin I think making wildly counterintuitive bets is something I'm not doing.
    Oh, I agree. You'll probably make money; the only question is whether you'll make as much money as you could with a more conservative strategy. Ag's strategy is very likely going to lose him money - a lot of money.

  5. #35
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    Quote Originally Posted by Dreadnaught View Post
    Care to make this interesting with hypothetical money? What kind of shorts would you go for?
    So let's say with $10,000, I would buy options to sell mcdonald's stock, google stock, gold exactly one year from now, split 3-way. If they're all higher than now I would definitely lose all my money. Straight shorts are risky by nature! (why do you think I'm just discussing hypothetical money?? j/k) The other aspect of this is that I could probably make a fortune if I do it now because the sell options will be very cheap.

    Edit:
    PS: Looked at Dread's choices again, and I'd say that Kraft would be a decent choice. It seems to follow the US economy's performance.. furthermore, increased international demand for processed food* could increase Kraft's bottom line.

    *: The Chinese and others are getting richer, meaning they will buy more processed food...
    Last edited by agamemnus; 04-22-2011 at 02:38 AM.

  6. #36
    Administrator Dreadnaught's Avatar
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    I agree the gold bet may make sense. But basically we're betting that McDonalds and Google will be worth less per share than they are within a year?

  7. #37
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    Yes...

    PS: just edited the above post... I agree with you on Kraft... looks like a good idea.

  8. #38
    Gold makes sense in that it's definitely overvalued, but predicting the bubble will pop in the next year is very dangerous. There's still a lot of inflation uncertainty and markets are still pretty jittery about various currencies and sovereign debt (outside of US Treasuries, of course). Gold will go down, but do you have a rationale for why it will do so in the next year? Monetary policy in the US is likely to remain pretty loose for at least a year, which will help to drive up gold.

    As for Kraft, that was actually one of Dread's picks I wasn't so sure about. On the one hand, they're a pretty solid business with good fundamentals. On the other, their current management has to answer for some pretty big bungles, including the Cadbury mess. They are clearly trying to expand into BRICs (well, really just BICs) but they're not there yet, and their one major purchase that was aimed at doing so was executed awfully and at far too high a cost. Also, Kraft has only recently become a full-fledged independent company after being owned by Phillip Morris for two decades. I'm not sure they are that well positioned for growth, to be honest.

  9. #39
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    Quote Originally Posted by wiggin View Post
    Gold makes sense in that it's definitely overvalued, but predicting the bubble will pop in the next year is very dangerous. There's still a lot of inflation uncertainty and markets are still pretty jittery about various currencies and sovereign debt (outside of US Treasuries, of course). Gold will go down, but do you have a rationale for why it will do so in the next year? Monetary policy in the US is likely to remain pretty loose for at least a year, which will help to drive up gold.
    Hmm, well, my rationale is that if the US keeps adding jobs then the stock market will be fairly healthy. Then you'll start seeing news on gold production reports being way higher than expected, or maybe you'll start seeing reports that the Chinese people don't actually have some insane natural "tendency" to hoard gold, and, pop. It doesn't take much to pop a bubble.

    As for Kraft, that was actually one of Dread's picks I wasn't so sure about. On the one hand, they're a pretty solid business with good fundamentals. On the other, their current management has to answer for some pretty big bungles, including the Cadbury mess. They are clearly trying to expand into BRICs (well, really just BICs) but they're not there yet, and their one major purchase that was aimed at doing so was executed awfully and at far too high a cost. Also, Kraft has only recently become a full-fledged independent company after being owned by Phillip Morris for two decades. I'm not sure they are that well positioned for growth, to be honest.
    The problems with the recent acquisitions could be why the value has been flat. Fortunes seesaw in some giant companies -- those that like to make changes, as Kraft apparently does-- all the time, though. People get fired after fiascos, or otherwise their unit gets sold or dismantled, so things can change quickly. Even dumb random purchases of international brands or distribution channels could quickly boost the bottom line with Kraft's marketing/distribution economies of scale.

  10. #40
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    OH.. Apple. Yup. Definitely short it.

  11. #41
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    Quote Originally Posted by agamemnus View Post
    OH.. Apple. Yup. Definitely short it.
    I'm thinking it will be at $500 in 3-5 years. Apple is firing on all cylinders recently.

  12. #42
    Apprehendable Apprentice Kazuha Vinland's Avatar
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    I sure should have invested in Microsoft at the beginning, then Google and then Apple. Would've brought me into Forbes.

    I'll probably start investing in companies when I get a more stable income. I've been pestering my parents to buy stock in Apple like forever now, but won't anymore, as I think they won't go up as much as they did before, and then there is always the risk of a collapse. Well, who are to threaten Apple as it is now? Not that many honestly. Google is far behind, and Microsoft in splashing around in a swamp. The lack of media attention is probably what will cost them.
    Tomorrow is like an empty canvas that extends endlessly, what should I sketch on it?

  13. #43
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    Apple is definitely still making a pretty penny, but its dominance will fade... what advantage does Apple have, besides its ridiculous patents, marketing prowess, and apparent "goodness" of its closed app system? I think most of these are set to expire soon-ish.

    ----

    There is one thing that we haven't discussed. What if the Fed starts pursuing monetary tightening? What kind of stocks or assets would benefit from this? I got notta.

  14. #44
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    Quote Originally Posted by agamemnus View Post
    Apple is definitely still making a pretty penny, but its dominance will fade... what advantage does Apple have, besides its ridiculous patents, marketing prowess, and apparent "goodness" of its closed app system? I think most of these are set to expire soon-ish.
    Don't underestimate the power of marketing. Regardless of the "facts" the average consumer still thinks the iPhone is the technologically superior product.

  15. #45
    Apprehendable Apprentice Kazuha Vinland's Avatar
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    As an owner of a Android based telephone I'm inclined to ask... isn't it? A phone is not that much about the hardware anymore, as it is about the frontier of apps available for it. Besides Angry Birds being cross-platform, the Android Market really doesn't reach to the knees of iPhone's App Store. You can argue that you do not need a billion of apps, but it's also an issue of quality. Apps for Android suck.

    I also find that Apple prioritizes far better. The battery life of iPhone 4 is great for a smartphone, and iOS is honestly lag-free compared to the rather fast, but not snappy Android Gingerbread. Combined with a stellar interface, there isn't much left to complain about except it having a premium price tag.
    Tomorrow is like an empty canvas that extends endlessly, what should I sketch on it?

  16. #46
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    Ok, so their products are better because of a more restricted system. There's no reason to believe their products will be better forever, though... is there?

  17. #47
    Administrator Dreadnaught's Avatar
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    Quote Originally Posted by agamemnus View Post
    There is one thing that we haven't discussed. What if the Fed starts pursuing monetary tightening? What kind of stocks or assets would benefit from this? I got notta.
    To avoid this becoming an Apple vs. Android ash heap, I think this is an interesting hypothetical. This seems exceedingly remote, but it is a worthwhile exercise to figure out the kinds of firms that do better with a strong dollar.

    I suspect retail operations with significant domestic business would benefit from the purchasing power the most (EG WalMart, though they are pursuing an aggressive international expansion).

  18. #48
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    Ugh, the dollar is getting massacred again today. By the time the Fed gets to decision time, they'd be idiots not to offer some kind of hope... stability is important. Then again...

    Edit: wait, what? Now the dollar is rebounding?

    Edit 2: looks like it all has to do with investor uncertainty about the upcoming Fed decision. Gold is still higher, though.

    Quote Originally Posted by By Herbert Lash
    NEW YORK, April 25 (Reuters) - A sell-off in silver on
    Monday helped the U.S. dollar to rebound and oil prices to fall
    while Wall Street fell on discouraging corporate forecasts.
    http://www.reuters.com/article/2011/...20802120110425

  19. #49
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    Which is why looking at day-to-day trends is sorta pointless.

  20. #50
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    Anyone have any experience with online trading with something besides ING Sharebuilder?

  21. #51
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    I've used Ameritrade. A long time ago. Just be careful what you're doing. Make sure you're doing a buy if you want a buy, etc. If it is before or after the closing bell, make sure it is an after/pre-market trade instead of a normal trade. (where you would just queue up to the start of the bell)

  22. #52
    Quote Originally Posted by Dreadnaught View Post
    To avoid this becoming an Apple vs. Android ash heap, I think this is an interesting hypothetical. This seems exceedingly remote, but it is a worthwhile exercise to figure out the kinds of firms that do better with a strong dollar.

    I suspect retail operations with significant domestic business would benefit from the purchasing power the most (EG WalMart, though they are pursuing an aggressive international expansion).
    I think there's a lot more to this than exchange rates, Dread, though obviously exporters will be hurt by a stronger dollar.

    The bigger question is whether early monetary tightening will put a crimp on the recovery, which would hurt a lot of companies across the board, especially those relying on domestic consumer spending. Essentially, monetary tightening too soon will hurt company investment/expansion/borrowing, which reduces the recovery in unemployment and other indicators, which will reduce projected consumer spending.

    Also, there's the usual tradeoff between interest rates and overall stock prices, as above a certain level people start to flock to the increasing returns of bonds or other interest rate-linked instruments rather than sticking in riskier stocks. Since we're at the zero bound and the Fed still has a lot of QE to unwind, though, I doubt this will be a significant issue until stocks get frothier or interest rates rise quite a bit.

    There's some other interesting effects possible as well. Honestly, using the fed funds rate to control exchange rates is a really bad idea - the dollar fluctuates on the basis of a lot of other factors, including perception of the Fed's behavior (i.e. people might dump dollars if they think a Fed rate rise means they're afraid of a wage-price spiral in core inflation, which is counterintuitive to how it should actually work). The fed funds rate roughly controls inflation, and has significant effects on nominal GDP and employment. The dollar is a whole lot more complex.

  23. #53
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    The main thing that impacts short-term prices is that US-listed companies with significant international business report their earnings in US dollars. And they park those earnings outside of the US.

    So when a company like GE grows its international business, parks the money in Ireland and and the dollar loses value relative to the Euro, the dollar-denominated earnings increase.

  24. #54
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    Not tightening also hurts the economy, (since incomes barely go up with a loose monetary policy and high unemployment) by increasing the dollar price of oil. It is based a lot on perception, and everyone atm perceives the dollar to be a sinking ship. The Fed needs to promote stability if it wants US economic growth, which means stopping wild currency swings.... not a good record there though...

  25. #55
    Senior Member GGT's Avatar
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    Fed's dual mandate is looking increasingly....counterproductive.

    New thread in D & D about central banks' monetary policy, aggie. If you care to comment.

  26. #56
    Quote Originally Posted by Dreadnaught View Post
    The main thing that impacts short-term prices is that US-listed companies with significant international business report their earnings in US dollars. And they park those earnings outside of the US.

    So when a company like GE grows its international business, parks the money in Ireland and and the dollar loses value relative to the Euro, the dollar-denominated earnings increase.
    I understand that, Dread, but oddly enough increasing the fed funds rate does not necessarily the trade-weighted value of the dollar will rise. I know that's counter to traditional economics theory and I don't doubt that the long-run effect is to make the dollar more valuable. But in the short term, an increasing rate might do the exact opposite. For one, tighter monetary policy might signal a perceived improvement in the global economy, which might cause people to dump dollars to reverse the previous 'flight to safety'. For another, it might be perceived as a warning sign on inflation, which could also cause people to dump dollars. (Alternatively, markets might welcome the news as a sign of a proactive fed and downwardly revise inflation expectations.) Then there's the effect of dollar-buying strategies by exporting countries being unwound as the spread between their interest rates and the fed funds rate starts to shrink, taking pressure off their exporters.

    The point is that the dollar's role as a reserve currency makes its exchange rate far more complex than a simple 'looser monetary policy increases the money supply' and vice versa.

    Quote Originally Posted by agamemnus View Post
    Not tightening also hurts the economy, (since incomes barely go up with a loose monetary policy and high unemployment) by increasing the dollar price of oil. It is based a lot on perception, and everyone atm perceives the dollar to be a sinking ship. The Fed needs to promote stability if it wants US economic growth, which means stopping wild currency swings.... not a good record there though...
    Are you serious? You think a loose monetary policy hurts the economy compared to a tight monetary policy? Obviously high oil prices are bad for an economy, but premature tightening is a far worse idea.

    I think you exaggerate how much people are worried the dollar is a 'sinking ship'. Inflation expectations are rock-solid, and while it's likely the trade-weighted value of the dollar is likely to drop quite a bit, that's because of a long-overdue rebalancing in global trade flows and not some runaway devaluing of the currency.

  27. #57
    Senior Member GGT's Avatar
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    Why do you keep asking people if they're serious, wiggin? You think half the time we're just posting for shits and giggles, or what?

    Everyone is questioning monetary policy, that's why I started another thread, in which you posted. You can't really treat posters like they're ignorant or misguided, when academics and analysts also show the same differences in opinion.

  28. #58
    Administrator Dreadnaught's Avatar
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    Quote Originally Posted by wiggin View Post
    I understand that, Dread, but oddly enough increasing the fed funds rate does not necessarily the trade-weighted value of the dollar will rise. I know that's counter to traditional economics theory and I don't doubt that the long-run effect is to make the dollar more valuable. But in the short term, an increasing rate might do the exact opposite. For one, tighter monetary policy might signal a perceived improvement in the global economy, which might cause people to dump dollars to reverse the previous 'flight to safety'. For another, it might be perceived as a warning sign on inflation, which could also cause people to dump dollars. (Alternatively, markets might welcome the news as a sign of a proactive fed and downwardly revise inflation expectations.) Then there's the effect of dollar-buying strategies by exporting countries being unwound as the spread between their interest rates and the fed funds rate starts to shrink, taking pressure off their exporters.

    The point is that the dollar's role as a reserve currency makes its exchange rate far more complex than a simple 'looser monetary policy increases the money supply' and vice versa.
    Yes, but that's a whole separate subject from what I posted about, which was how dollar fluctuations impact US companies.

  29. #59
    Senior Member GGT's Avatar
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    Only congress can confront China's currency manipulations, if that's what you meant.

  30. #60
    Quote Originally Posted by Dreadnaught View Post
    Yes, but that's a whole separate subject from what I posted about, which was how dollar fluctuations impact US companies.
    As I understood it, you were actually commenting on ag's question about how stocks would be affected by monetary tightening by the Fed, with the assumption it would lead to a stronger dollar. All I'm saying is that it's not so clear.

    Obviously a stronger dollar generally translates into problems for exporters.

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