Seeking Alpha by Adding Beta

Bye-bye/Alvida 2011. It was a gut-wrenching year with so many Geo-political events all across the board and associated stock market moves. What started as a promising year with DOW reaching yearly high by late Apr turned out to be whimper by end of year with S&P barely moving at all. Someone who had gone into hibernation may not even notice the dramatic stock market movements (like 250 points moves on so many days). Personally my stock market returns were dismal (basically all 2010 gains were wiped out in 2011). Unfortunately my weekly/bi-weekly picks also did not do very well. So with that dismal track-record, I ought to change my stock picking/investing strategy. Let's start with some macro predictions. 2012 being election year, first some election predictions: Mitt Romney will wrap up Republication nomination by Mar 2012. Democrats would lose control of senate by margin of about 2-4. Republicans would lose seats in house reducing their majority to single-digits/teens. M...

Year 2011 is coming to an end. What started as promising year both on economic front as well as Geo-political front with Arab Spring is ending with recession clouds and European "Fall". What a mess our elected politicians have made in managing affairs of their countries. Everywhere you look, politicians are failing in delivering what they were supposed to deliver. Enough said about European circus - every few weeks they meet, make lot of promises after long meetings and then go their own ways without implementing these promises. Already 4 countries have changed their Prime Minister(s) (Ireland, Spain, Italy and Greece). Next round could be France US is in gridlock which is likely going to be intensified in election year 2012. So nothing would happen on economic front other than political posturing. Obama started as great promise but coming up way short than what his Presidency could have been. India is stuck in non-stop corruption/Lokpal/Anna's fast. This has started ...

Another week of European drama - only difference from last week that center stage moved from Athens to Rome. The economic crisis cost one more powerful prime minister his job (don't feel sorry for Silvio Berlusconi  since he had 3 years to fix Italy's problems)  With crisis finally moving from PIG (Portugal, Ireland, Greece) to PIIGS (with addition of Italy and Spain), Euro has reached cross-roads. Both Italy and Spain are "too big to fail and too big to bail". This means both these countries need to fix their problems on their own with some support from ECB. Germany/France cannot bail Italy/Spain otherwise they risk getting engulfed by crisis themselves. Already France is at brink of losing its prized AAA rating. European politicians are at least taking steps by installing technocrats like Mario Monti in Italy as prime minister. Since he is short-term prime minister, he has nothing to lose. He should convert crisis into opportunity and forcefully move in freei...

Watching last weeks events in Greece, I was curious to find out origins of following three words and to my amusement all of these three words have Greek origins. Democracy -  δημοκρατία  – ( dēmokratía ) "rule of the people Drama -  Classical Greek :  δρᾶμα ,  drama Tragedy -  ( Ancient Greek :  τραγῳδία ,  tragōidia , " the - goat - song " [1] ) is a form of  art  based on human  suffering  that offers its audience pleasure No wonder these three words represent what is happening in Greece in particular and in Europe in larger context. It all started when Greece joined Eurozone in 2001 by falsifying its government debts and lost control of its financial destiny. While people of Greece benefited in last 10 years by joining the Euro club, they started living lavishly without paying proper dues which comes with this membership. Finally in started catching up with them in 2009 and continue to muddle thru one crisis after anoth...

Finally Qaddafi is dead! In Arabian world, 2011 would go as historic year. What started as Arab Spring movement would most likely end rule of 4-5 dictators who have been ruling various countries from 30-40 years. On economic front, European mess continues and that keeps world stock markets on roller-coaster ride. Oct is turning out to be much better than Aug/Sept but wait till European leaders miss the opportunity on this weekend again. Markets are hopeful that finally Europe would put some credible plan to resolve its mess. But most likely people are going to be dis-appointed with the news coming out on Monday and markets would sea-saw again! So be very careful with your investments. Right now its better to be in cash or cash-generating investments. This is where I would recommend considering some high-yielding mREITs. These stocks are risky investments but due to their yields, they at least provide some kind of cushion against downside. Here are some names: AGNC: $27 Yield: 19% CI...

Steve jobs passed away today morning. World lost a visionary and one of the most loved human being. Steve Jobs made America and all of us as Americans proud. Many of us (including kids) felt that he was a close and dear friend even if none of us ever met him in person. With his genius creativity, he made people happy through his products like MAC, ipod, iphone and iPad at Apple, movies like Toy Story and Finding Nemo @ Pixar. Many kids in far flung countries know and love America only because of products like iphone and ipods. He was Thomas Edison and Henry Ford of our generation ! We will miss you Steve. May your soul rest in peace ! /Shyam

Many folks have heard about "Marshall" Plan which helped rebuild Europe after WWII which completely destroyed Europe. For a small history lesson, check out details of Marshall Plan . Europe is on brink of financial disaster again with fears of cascading defaults if Greece is allowed to go under. And that would not only bring down Europe but potential of another great recession across world. It would be 2008/2009 all over again. So what would make Europe hold together and not bring world economy to its knee ? That's where we can learn from post WWII history. During the four years that the plan was operational, US $13 billion in economic and technical assistance was given to help the recovery of the European countries that had joined in the  Organization for European Economic Co-operation . This $13 billion was in the context of a U.S. GDP of $258 billion in 1948, and was on top of $12 billion in American aid to Europe between the end of the war and the start of the Plan th...

Ten year anniversary of 9/11 is upon us. Ten years back on 9/11, America and to some extent world changed forever! For first ever time, America understood real meaning of terrorism. Till that day, it was always something which happens in Kashmir or middle-east.  While that day was unfortunate, what followed with two wars (one unnecessary one in Iraq) changed America. For many, it was lost decade (and still counting). I was just looking at S&P performance over these 10 years. It has gone up by meagre 3.5% in 10 years. There goes your buy and hold strategy which all pundits recommended. 10 year is a long time for someone to hold onto their investments and in return getting only 3.5% in capital appreciation. As we enter into 2nd decade of post 9/11 America, what should policymakers and most importantly we as American citizens do ? First and most important thing - get out of Iraq and Afghanistan by ending both wars. That should save enough money to invest in domestic infrastructu...

Last week there were many downgrades to US GDP growth with many economists lowering their GDP forecasts to 1% growth. With such a slow growth, there are always dangers of economy slipping back into recession. Markets being 6 months in advance are definitely hinting and to some extent pricing 40-50% chance of this happening. This summer's events and market reaction was almost exact replica of 2010 summer with some extra spice added due to debt limit drama played out in Washington DC. This is why next week's Bernanke speech in Jackson Hole is so important. Last year, in same speech he gave an indication of QE-2 which saved markets and to some extent economy. Would he repeat his performance next week ? Given charged political atmosphere and Fed's bloated balance sheet, this is unlikely. Fed had already given promise of keeping rates low for another two years. However this did not help much at least in short term. So what medicines are left to treat sick patient (aka economy) ...

Last Sunday no one would have thought that we are going to see market history in the week. This is only week where DOW moved 400+ points up or down in 4 consecutive days. Even during 2008 crisis, this did not happen. Despite such large moves, week ended with DOW down only by 1.7%. So if you were awake and cut from news, you are good since no one likes (except day-traders and option players) so much volatility. Few more notable things happened last week: Apple became new company to claim the title of Most Valuable Company in World. It had that crown for two days and then again lost to Exxon which has this honor since 2005. In coming weeks it would be interesting to see this duel fight out. Let's see who wins - ipad or oil by end of 2011. My prediction is Apple ending year as most valuable company. Even though S&P downgraded USA debt, debt markets mostly ignored the downgrade and instead rushed to buy USA debt at record low yields. 10 year treasury yield went down below 2.15% ...

Finally the inevitable happened on Friday 8/5 when S&P lowered USA credit rating from AAA to AA+. This is almost history (which no one should be proud of) since it is happening first time in 70 years. Last year when folks elected bunch of tea-party members, no one imagined that tea-party would make history in wrong way.  This is what we get when bunch of politicians have single minded agenda just to make president's life miserable and not letting him govern the country. They don't care of state of people or for that matter country ! Markets just have guessed that this is what something going to happen and hence they gave an indication on Thursday and early Friday when DOW almost touched 11000 - 10% correction in less than two weeks. I am sure all of us lost quite a bit of money (I did lose significant amounts). This was worst week since first week of March 2009. That says it all. We still need to watch out reaction to S&P decision of lowering credit rating next week. ...

It has been few weeks since I got chance to write my blog. Lot has happened since I wrote about summer blues market was going thru. I was busy taking kids around. Just came back from Alaska cruise vacation - got nice break ! Markets have gone nowhere in last few weeks. It went up due to some optimism on earnings reports and came down hard last week due to all drama in Washington. I am sure markets did not wish for kind of grid-lock they saw last week. Be careful what you wish for ! Tea-party politicians were acting all crazy not even listening to their own GOP leadership. No wonder their un-popularity has gone from 22% last year to 47% this year. GOP leadership should learn from last week's events and be careful whom they put on ballot in 2012. After hectic back-door negotiations, finally Washington has come to an agreement on debt-limit and spending cuts. At this time, any deal is good deal since it would save AAA rating for US debt. Futures are reacting positively and we shou...

Recent economic indicators have clearly shown that economy is going thru soft patch and markets are following economy. This is almost exact replica of last year when it went thru similar phase during summer months. There are various reasons for this soft patch: Impact of disruption in supply-chain due to 3/11 Japan Earthquake European debt problem in general and Greece's issues in particular Continued impasse in Washington regarding how to handle US's raising of debt limit which is causing rating companies to put USA on possible downgrade path Continued slowness in hiring - May month's employment report was much worse than expected with unemployment rate inching up to 9.1% Upcoming end of Fed's QE II Now the question is - are these temporary or more bad news is yet to come ? Have markets priced all bad news ? Is DOW heading below 12000 and S&P towards 1250 ? We will have to find out answers to these questions in Jun and it would most likely depend on how cor...

Welcome to sequel of Internet Bubble - Part II. The way Netscape IPO created first Internet Bubble when its shares jumped from $28 (IPO price) to $75 on first day in 1995, we can see almost similar bubble time reaction to Last week's Linked IPO. The shares were issued at $45 which itself was very high given that just six months back they were at $20 in private market. On first day, it went all the way to $122 before settling down at $94 giving its valuation equal to 40 times of its last year's sales. Is this another bubble around "social networking" companies or what ? Given this action around LNKD, I won't be surprised to see Facebook as first company having $100 Billion valuation on day of its IPO which would be sometime in 2012. Groupon may have around $15-20 Billion valuation on first day. Are these valuations sustainable. At least folks buying on first day think so since similar concerns were raised in 2004 when Google went IPO. But eventually Google not onl...

Last Sunday US Navy Seals killed Obama by going deep into Pakistan and finishing the job in 40 minutes. Since 9/11, all world was waiting for this event which took nearly 10 years and hundreds of billions of $$ if you include cost of two wars. Finally it took some good intelligence work by CIA, bravery of few good men, not trusting supposed "partner" (Pakistan) in this war on terror and most importantly decision to go forward with raid by President Obama. Well done Mr. President ! World is much safer and better place without Bin Laden. Market reaction was usual - initial euphoria on killing of Laden news gave away with nervousness due to heights markets have reached and uncertainty going forward. The sell-off gained momentum especially on Thursday with rout it commodities market with many of them down by double-digit %. So is commodity bubble busted ? In short term, it looks like. It all depends on how US economy holds up in 2nd quarter and Chinese actions on slowing down i...

It has been while since I wrote my blog. Got busy ! Now that April has wrapped up and May is about to start, time to be cautious. Markets has been on a tear crossing 12800 (DOW), Nasdaq is at 10 year high. So is it time to "Sell in May and Enjoy the gains in Summer Time ? " I think so. Best period for stock markets (Nov to Apr) ended today. There may be another 5% upside remaining for 2011 and most likely this would come towards end of year. In between there are quite a few headwinds markets are facing. Here are few of them to list: Noise around US debt limit. In two weeks, Congress needs to act on raising debt limit and given drama around budget, there would be quite a bit of drama before debt limit is raised. Markets don't like drama ! Talks of Greek debt restructuring ! Greek debt is trading at yields not seen even during last May when Greece was about to default. End of QE II - while Fed had given better news than markets were expecting, QEII is ending in June....

Apr 2, 2011 would be an historic day for for India. It comes very close to other historic days in modern India's history. After all on this day, India won Cricket World Cup 2011 after 28 years - first time they won in 1983. That win changed cricket in India as well as in cricket world. On Apr 2 around 11 pm IST, another such historic moment came when India's captain MS Dhoni hit a big SIX and won world cup for India (against SriLanka). That was ultimate moment for 1.2 billion Indians across the world. This must be biggest sporting celebration in world EVER. Even Soccer World Cup win would not create such a celebration (till either China or India start winning it:-) In India, Cricket is more than religion, culture or anything we can think about. It cuts across all levels of religion, state, caste, economic status, culture, where they reside (India or abroad) and binds 1.2 billion people. None other can unite Indians the way cricket does. That's why Apr 2nd win was such a...

For last one week Japan has been fighting with three calamities - biggest earthquake in recorded history followed by tsunami followed by nuclear plant possible meltdown. Japanese people have shown a great resolve, calm and solidarity with each other in these difficult times. We all world citizens are with Japanese people in their difficult times. While Japanese people are showing great resolve, Japanese politicians and Tokyo Electric Company are failing them by not able to get control on nuclear reactor fiasco. This is typical due to slow response to crisis by government and corporates. I hope they do not repeat the mistakes of real estate bubble crisis from which Japan is still recovering after 2 decades. Japan's government had a chance to rise to the occasion and handle their "Katrina" and "9/11" moments. The response till now seems to be below expectations. This triple whammy along with troubles in Middle-East and European debt was too much for markets to h...

Almost every-thing I mentioned in subject of this blog is giving strong indications that inflation is coming. Oil has crossed $100, Gold is back above $1400, Gas is almost nearing $4 and Silver is at all-time high. Some of these are due to un-rest in Middle-east while most of it due to strong growth and demand across world. Are central banks behind the curve in raising interest rates ? They were behind the curve in cutting them in 2007 and now it looks like they may be behind the curve in raising them. I don't blame Bernanke since he would rather have little bit of inflation provided growth than fear of deflation and double-dip. Last week, DOW had multiple moves over 100 points indicating that markets are uncertain about its direction. DOW is stuck between 12000 and 12500 and S&P between 1300 and 1350. Most likely Q1 results or something significant in Libya would help in breaking it out of this range. In all the Mid-east news, people forgot about trouble in Europe especiall...

Nasdaq is at 10 year high. Almost all "pundits" on markets are way too optimistic. It's almost feel like 1995-1996 when Fed Chairman at that time Alan Greenspan famously quoted about "Irrational Exuberance" in markets. It was another matter than markets keep on drinking the "new Internet age" cool-aid for another 3 and 1/2 years before bubble burst. Greenspan was 3 years earlier in his prediction. One of the reason was his own policies at fed which caused this bubble. IMO we are seeing similar signs of "Irrational Exuberance" in markets at least for last few weeks. However it is not clear if this would go on for another month, year or week. To be frank, at this time, I cannot predict short-term move by markets. Markets can be insane longer than one think (both on upside and downside) ! Here are the reasons I feel markets are due for correction: Geo-political risks in Middle-east which could cause oil to jump European debt problem - two (I...

There are not too many historic moments one get to see in their lifetimes. One of such moment came this week when Egyptian President Hosni Mubarak resigned after 30 years of rule ! Congratulations to all of Egyptians for this historic moment ! 2/11 would have same kind of profound significance in Egyptian history as 9/11 has on American history. I was glad to see the peaceful revolution of 18 days and final outcome. There was every possibility that outcome at Tahrir Square could have been similar to another Square starting with "T" 22 years ago. But Egyptian Military had displayed great level of maturity and sensibility in handling this revolution. We all hope that they continue to display this going forward and take this moment to make some real changes which could lead to overall reforms not only in Egypt but also in Middle-East. Markets continue to show great level of resilience despite so much turmoil and un-certainities in Middle-East. Even though oil went above $90 ...

Congratulations Green Bay Packers and Aaron Rodgers for winning 4th Super Bowl and 13th NFL championship. It was well deserved win over Steelers. In every aspect, Packers played a superior game and deserved to win. Congratulations to Aaron Rodgers who was major force in this win - being a Cal alum, it was a great pride that another Cal Alum has gone into history books with his performance. I was just checking how DOW performed when Packers won Superbowl in 1967, 1968 and 1997. Each of those years, DOW was up by about 10% or more. This is good news for 2011 (if you believe in such co-relation). If we go with this co-relation, we should see DOW go up by 10 plus % in 2011. It is already up by 5% so another 5 plus % in 11 months is not that difficult. Markets have big tail-winds behind them. Despite revolt in Egypt, markets are quite resilient and taking news coming out of Egypt in stride. In fact, Energy stocks are on rise in last two weeks giving a big boost to all indices. On simila...

I watched President Obama's 2nd State of Union speech of members of congress. Overall it was good speech. Nothing spectacular but good confidence building speech. President tried to define this generation's  "Sputnik" moment but did not get same level of excitement which he must have expected. His overall focus on jobs, clean energy, education and tax reforms was indicative of his priorities for next two years. No more big policy initiatives like health-care bill. Being pragmatist, he took voters message and changed the course of his presidency. After watching him, I am pretty confident that he would win 2nd term ! Fed as expected announced to keep QEII on and interest rates low for extended period. No surprise there. With an acknowledgment to recovery gaining momentum and commodity prices rising, it is opening the door for first interest rate hike towards end of year. If GDP growth for last quarter and next two quarters come close to 3.5%, I won't be surprised ...

JP Morgan started the earnings season with a big bang - it earned over $17 Billion in 2010 ($4.8 Billion in Q4 itself). This is just after 2 years when many of these banks were teetering on verge of vanishing or falling under government control. This bodes well for earnings due from other banks in next two weeks. What are the catalysts for this earnings boost  which is expected to be over 30% compared to Q42009 across banking sector ? Here are my thoughts: Say thanks to Ben for keeping interest rates at historically low rates for extended period. When banks can borrow below 1% and give loans anywhere between 4-10%, that's big spread giving major boost to earnings. This "golden" period would continue for another 2-3 quarters since Ben (Bernanke) has promised to keep rates low till unemployment shows significant progress (read below 8%) Banks have become very picky when issuing loans or mortgages. The amount of documentations they are requesting during refinance has sw...

Happy new year to all my readers ! It is your feedback (as comments as well as in person) kept me going with my almost weekly blog. It helps me personally to articulate my thoughts and also make personal investment decisions - thanks to all of you ! Year 2010 is over. It's time to reflect on past year and get ready for new year. Let's start with how my recommendations in 2010 did. If you are regular reader of my blog, along with my commentary on markets, politics, economics and occasionally on other events (like World Cup), I have made stock recommendations in almost every post with target buy prices. Assuming one does around $1000 investment in those recommendations at target buy prices, the portfolio would have returned approx. 17.77% for year 2010. Though it is not as stellar as last year's performance of 80%  , it still beat S&P by 5%. Not bad considering till Nov, it was lagging S&P by couple of percentage points. Here are top 3 winners and losers of l...