Monday, December 29, 2014

12/29/2014 Intraday Trade

Because of a better than 2% favorable gap, the full model sold INT and bought MWW.

Sunday, December 28, 2014

12/28/2014 The Fix is in


Sector Model
XLI
0.00%
Large Portfolio
Date
Return
Days
ESI
8/4/2014
-29.28%
145
EDU
10/27/2014
-9.66%
61
PLT
11/6/2014
3.25%
51
UVV
12/2/2014
6.60%
25
JOY
12/8/2014
-5.18%
19
SWHC
12/9/2014
2.91%
18
MRVL
12/10/2014
-2.58%
17
RS
12/11/2014
-0.10%
16
INT
12/15/2014
1.15%
12
BBRY
12/24/2014
1.02%
3
(Since 5/31/2011)
S&P
Annualized
13.10%
Sector Model
Annualized
25.76%
Large Portfolio
Annualized
21.79%

 

No hard rotation, but I do have a potential rotation that could occur if there is a large enough gap on Monday.

The Sector Model has been whipsawing like crazy all week, and I’ve had a hard time keeping up.  For what it’s worth, this is what it should be:



 

My own account is off by a fraction of a percent, and I’ll be hunting for a better data source to use actual real time data instead of delayed data.

In other news, I finally fixed an error that has been plaguing me for two years on the fundamental aspect of the full model.

I won’t go into the full details, but now that I’ve corrected the analysis, it appears that the following are technical and fundamental features of a good buy point for a stock.

First, of course, the stock has to be in an industry that is in the buy zone for my model.  That means that long term breadth and volume are doing better than price – for the industry as a whole.  Volatility is also spiking to show extreme panic.

WITHIN those parameters, a stock should have high average volume, low P/E relative to the rest of the stocks in that industry, with low long term debt, good earnings growth for the past year, good sales growth for the past 10 years – and bad prospects for the year ahead.  By bad, I mean bad: book value, sales, earnings; all projections are for a lousy year.

The key seems to be to find a stock that everyone hates, which isn’t in immediate danger of going bankrupt.  At the point of maximum stink, the stock should outperform.

The first buy of these corrected parameters is BBRY.

If “maximum stink” is a good description, then BBRY fits the bill.

Sharp eyes will note that earnings are negative for this stock, and that the earnings growth and low P/E didn’t play a role.  But it made the cut anyhow, so I’ll be watching its performance going forward.

Tim

 

 

Thursday, December 25, 2014

12/25/2014 Something of greater value


Sector Model
XLF
0.00%
Large Portfolio
Date
Return
Days
ESI
8/4/2014
-28.86%
143
EDU
10/27/2014
-8.95%
59
PLT
11/6/2014
2.69%
49
UVV
12/2/2014
4.86%
23
JOY
12/8/2014
-6.13%
17
SWHC
12/9/2014
4.78%
16
MRVL
12/10/2014
-2.85%
15
RS
12/11/2014
-0.74%
14
INT
12/15/2014
1.77%
10
BBRY
12/24/2014
-1.20%
1
(Since 5/31/2011)
S&P
Annualized
13.01%
Sector Model
Annualized
25.80%
Large Portfolio
Annualized
21.73%

 

Just a quick note on positions.

The sector model has experienced a good bit of whipsawing lately.  It is currently in XLF.

The full model has added BBRY into the mix.

I hope everyone is having a splendid holiday season.  Enjoy time with family.  That’s more valuable than anything you can find in the market.

Tim

 

Wednesday, December 24, 2014

Tuesday, December 23, 2014

12/23/2014 Premarket

Sector model is now in XLF.

I was never able to trade the whipsaw, and am still in XLF also.

Saturday, December 20, 2014

12/20/2014 Energy is a Lifetime Bargain


Sector Model
XLI
0.00%
Large Portfolio
Date
Return
Days
ESI
8/4/2014
-27.67%
138
EDU
10/27/2014
-8.05%
54
PLT
11/6/2014
2.57%
44
UVV
12/2/2014
7.12%
18
FSLR
12/5/2014
-3.62%
15
JOY
12/8/2014
-8.39%
12
SWHC
12/9/2014
1.97%
11
MRVL
12/10/2014
-3.86%
10
RS
12/11/2014
-3.33%
9
INT
12/15/2014
0.68%
5
(Since 5/31/2011)
S&P
Annualized
12.89%
Sector Model
Annualized
25.34%
Large Portfolio
Annualized
21.71%

 

No rotation.

The Sector Model is limping back upward, but a bad data feed at the beginning of the month kept it in XLB instead of XLF for most of the market collapse.  Hence, the recovery started from too low:



Still outperforming the S&P, but I’m looking for a better data source than the free Yahoo feed.

The switch to XLI happened after the close on Friday, so I’ll be watching the gaps on Monday.

So much for jumping in and out of sectors.

One sector, however, has reached a good lifetime buy point: energy.  One example is XOM.



The stock fell to two standard deviations below the long term regression line and bounced.  That regression line shows a typical appreciation of 37% per year, and is about 30% below that line.  If it were to advance by 60% to 70% in the next year, it would merely reach an average value point.

One always has to watch fundamentals in an individual stock, of course.  Simply buying XLE would get around that fundamental step, and would allow for other kinds of energy to take the place of oil one day.

In other words, if one had a stash of money to park – forever – then XLE should be a good place to do so.

I may take a position in the sector myself and just hold it long term.

In any case, energy is at a generational low, and hasn’t been this good a buy other than October 1994 and July 2010.

Tim

 

 

 

 

 

Thursday, December 18, 2014

12/18/2014 Two Global Warming Periods Compared

The following chart compares the current 20,000 year period of global warming with the previous one 133,000 years ago:


I've used the date range for the present cycle, and the red "Current Temp" line terminates at the year 2000.  The cycle for 133,000 years ago is compared to today's dates.  The temperatures listed are relative to today's temperatures.

The "solar" lines are the solar obliquity I mentioned in the previous post, carried forward to compensate for the delay between solar warming and the effects on Earth's climate.

A few observations to add to yesterday's post:

1) The previous interglacial cycle was warmer than this one.
2) The previous interglacial cycle had a sudden (last gasp) spike of global warming starting around where we are today, and today's current concerns would fall in line with normal behavior.
3) Sometime in the next 2,000-4,000 years the Earth should begin to cool.
4) 2,000 years from now the Earth should be about the temperature it is today.
5) All of this is normal.
6) None of this is avoidable.

In summary:

I have no objection to modern concerns about global warming.  What I DO think is a bunch of "hot air" is the idea that this is abnormal.  We are entirely within normal behavior.

I have no objection to green energy.  What I DO think is a bunch of "hot air" is the idea that we can produce green energy faster than science can make it efficient.

I have no objection to environmental concerns.  What I DO think is a bunch of "hot air" is the idea that we can absolutely control the environment.

We should CARE for the environment as its servants.

We cannot CONTROL the environment as its masters.

We are well developed animals.

We are not gods.

Tim

Wednesday, December 17, 2014

12/17/2014 What would Climate Change look like?


In my February 20, 2014 post on this subject I showed the present spike of global warming in the context of the current Milankovitch cycle.  That post showed that we are on a long term declining temperature trend-line that started from the Holocene maximum.  That Holocene maximum between 9,000 and 5,000 years ago was the warmest period in modern human history.  Since that time we have had a Late Bronze Age global warming spike, a Roman global warming spike, a medieval global warming spike, and a modern industrial global warming spike.  Each of those successive spikes has been lower than the previous one, and all have been lower than the Holocene maximum.

To look at that cooling trend in more detail, please read the February 20, 2014 post.

 

In this post I want to overlay the current cycle with the previous cyclical thaw we experienced about 133,000 years ago. 

The series of ice ages the earth has experienced in the past 3 million years shows a range of global ocean temperature of 4.7 degrees Celsius, with a corresponding range of surface air temperature of 24.5 degrees Celsius (“Bintanja and van de Wal 2008 Global Temperature, Sea Level, and Ice Volume Reconstructions”).

That range of difference dwarfs the current concern of a potential rise of 1.5 degrees.

So why the concern now?

Two words: methane hydrates.  If the oceans warmed sufficiently beyond that 1.5 degree threshold, ocean floor methane could be released into the atmosphere and pose a far greater threat than CO2 alone.

These are unlikely to create any kind of runaway effect unless we exceed the ranges given in the Bintanja dataset, which means we are probably safe within the limits of another 8 degrees of annual global air surface temperature and 2 degrees of deep ocean temperature (Celsius).  The 1.5 degree threshold is an attempt to give ourselves room for error and still be safe.

In light of these reasonable concerns, it would be helpful to compare our current interglacial climate to the previous cycle 133,000 years ago, to see if we are veering from the normal ranges we would have if there were no industrial activity:

 


 


Air Temp, Ocean Temp, and Sea Levels are plotted as the ratio of their present values in relation to their maximum value in the Bintanja dataset.

Eastern Thaw and Western Thaw are the inverse ratios of Bintanja’s Eurasian and North American ice volumes.  They are flat at the top because it’s hard to dig under a glacier to find out how far it retreated 133,000 years ago.  Essentially, whatever time frame you are in will always show maximum exposed retreat.  In other words, it’s not a helpful metric by itself.

Climate is the aggregate of these ratios during the current cycle.

The Solar+9400 line measures orbital obliquity as plotted by a handy Milankovitch cycle calculator online.  Global climate spikes tend to trail obliquity by 9400 years, and I shifted the obliquity line to compensate.

I integrated both cycles based on the timing of the maximum Ocean Temp in the Bintanja dataset for each cycle.  In the current cycle that maximum was reached about 800 years ago, which links to the previous maximum 133,000 years ago.

The most obvious takeaway is that we are still within a normal range.

Another takeaway is that even a sudden spike of two degrees in air temperature (as shown for the previous cycle) would not be enough to create runaway greenhouse effects.  In fact, we are over 7 degrees Celsius below the limit of the 3 million year range, 2 degrees below the maximum of the previous cycle, and half a degree below our own cycle’s Holocene maximum. 

The final takeaway, then, is that when plotting the pattern of the previous cycle over our own, we see the “normal” projection of a long slide into another ice age over the course of the next ten thousand years.  Nothing alarming right away, of course.  The world should look about the same as now for another two thousand years.

In other words, we have another two thousand years to work out the mechanics of human caused global warming.  If we can figure out how to do it, we may be able to mitigate some of the effects of the next ice age.

The amount of energy required to compensate for the diminished sunlight the earth will experience in its orbital variations is daunting, and it is far more likely that we’ll use what energy we can find to move south as our hometowns get colder than Siberia for 100,000 years.  Just like last time, ice sheets will grow thousands of feet high and engulf our continent all the way to Long Island New York.  The lock of water in polar ice caps will create desert conditions in much of the rest of the world. 

Right now we are concerned that warming oceans will rise by thirty feet and submerge some of our cities.  Now imagine all of Russia and Canada, and most of Europe and the northern United States and China buried under a mile of ice.

Instead of arguing which threat we face, we should plan for the fact that both are likely to happen.

We need to plan our cities now, and our civilizations later, with an understanding that climate changes with a long term regularity as unstoppable and as certain as summer and winter each year.  We can’t stop it, but we can adapt to it.

Adaptation is the reason we didn’t go extinct in the last ice age.

With all that said, however, I’m a strong advocate for clean energy.  We should treat our environment far better than we ever have in the past.  The earth is our home, and the only home we have at the moment.  But to think that we can slow the rise of the seas, or halt the advance of a continent of ice is sheer hubris.  Do we really think we can deny the earth its climate change?  Those who think so are the true climate deniers.

Still, we have time.  These things happen so slowly that two thousand years will show almost no change at all.  Technology will have gone green long before then, and perhaps we will be on our way to terraforming Mars or reaching further out into space.  The future is a long time, after all.  But we are far more likely to survive into that future if we adapt to climate change, rather than vainly try to stop it from happening.  Controlling the weather or the seasons would be infinitely simpler than stopping the oceans or the ice caps from rising.

Be good stewards of the planet?  Yes.

Be gods over the weather?  Hardly.

Tim