HOW OVERVALUED ARE THE MARKETS? ===>WARREN BUFFETT FINANCIAL TIMES SCREEN RESULTS

I have been reading the Financial Times of London everyday as we have gone Global with Friedrich and thus I have become a Global Analyst. The FT online version has a screener and one of the permanent screens it runs is the "Warren Buffett Screen" and when I ran it I only came up with 21 stocks globally out of 37,683 possible results.  That means that only .05% of all the global stocks pass the strict Buffett FT Screen and only one USA stock passed and that was our holding United Therapeutics (UTHR).

 Friedrich for his part came up with  a .10% score result just from the USA out of 6000 stocks.  So you can see why Buffett is going to cash as fast as he can and why Friedrich is struggling to find anything to a buy.  Eventually Friedrich will run all the countries you see listed below and many more and do a similar analysis, but I just wanted to prove to everyone just how overvalued the markets are. Again we ran these results out of 37,683 stocks and only came up with 21.  There was zero emotion or human opinion involved here so all I can say is batten down the hatches as the storm of storms is coming. This again is a result by the Financial Times of London, which is the #1 global financial newspaper.  Friedrich is 1000 times more advanced than this screen is and it will be interesting to see what happens after we are all done analyzing all the countries involved that will make up Friedrich Global. 

DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.

Follow Me On Seeking Alpha

I have not written anything here for a while as I have been very busy, as Friedrich has become very popular and business is booming.  We just released a new product called Friedrich Charts that for the first time that I know of produces quantitative charts. Here is an example:

We are also working on Friedrich Global, which will give our clients Friedrich Datafiles and Friedrich Charts from 57 stock markets on about 40,000 companies.  So if you want to read my latest stuff please follow me on Seeking Alpha by going here 

http://seekingalpha.com/author/mycroft/articles#view=regular_articles

Thank You,

Peter George Psaras (A.K.A. Mycroft)

Creator of the Friedrich Algorithm

Consumer Spending is in the Toilet

This morning I took my clients 81% to cash as retail sales are in the toilet and I had a 1% position in Michael Kors (KORS) which I bought at $44 after it fell from $100, but I overruled Friedrich on it as Michael Kors sells its handbags in Macy's(M), Nordstrom's(JWN) and Kohl's(KSS) and those companies had absolutely terrible reports (REALLY BAD!!!!) I was going to write you a few pages on what is happening in the retail environment but MISH already beat me to it and did the heavy lifting for me and wrote this amazing piece.

https://mishtalk.com/2016/05/13/retail-department-store-carnage-amazon-to-blame-mish-12-point-summation/#more-37716

Even though I was forced out of Michael Kors this morning I still have a 1% position in TJX Companies(TJX) and will hold that as they are the best run retailer in the world on Main Street. As for Amazon(AMZN), I would not put much faith in that company as they sell everything basically at cost and when you factor in shipping and overhead they are actually losing money. There are also tons of online shopping websites going up that directly compete with them like this one which was created by someone that you already know very well. 

http://mycroftmall.com

That website offers 50 million products from 46,000 merchants and costs me just $7.95 a month to run.  I have no inventory, warehousing, employees but am just a search engine that connects consumers to merchants and I get a cut when someone buys something.  The retail websites do all the heavy lifting and sell the products and ship them to the customer, so my only expense is advertising.  When someone shows up on the partner sites they can read reviews on products and thus there is a whole army of guys like me with some computer skills shooting at Amazon's business model, which will force them to sell even more below cost.  Of course this is just a hobby for me and I am done building my mall as it now automated and runs 24/7 365 days a year.  The world is being run by Algorithms like the ones I work with  and if you told someone just 20 years ago that one guy in upstate New York with zero employees, zero distribution centers, zero inventory can sell any of 50 million products from 46,000 merchants and have the whole thing automated and run by computers, they would think you were crazy but Facts are amazing things and there are many out there like me that are seizing these opportunities towards automation. 

So with consumer spending being 70% of the economy, you have to wonder how the governments consumer confidence numbers are near all time highs when retailers are showing that consumer spending is no where to be found and even discount retailers that thrived in Malls for decades are suddenly going out of business and declaring bankruptcy.  So it seems that the government may just be cooking the books and making everything sound great when it obviously is not.

A few months ago Janet Yellen made a speech saying that she did not see the USA ever going to negative interest rates but this morning it was announced that she thinks that there is a good probability that negative interest rates could show up at our shores. The main reason why I owned the US Dollar fund (UUP) for everyone is because as other countries around the world went negative interest rates, investors and traders would sell their own currency and buy US Dollars, as money flocks to where it gets the best interest.  So with the USA never going to zero interest rates I concluded that everyone would be buying the US Dollar that was based on positive interest rates.  Well Janet Yellen just blew that investing thesis full of holes this morning and we may just see negative interest rates someday in the USA.  The FED has run out of bullets and thus this is its last move.  

Thus the last thing you want to own in the coming environment are insurance companies and financials like banks as they simply will not be able to make money as they will need to charge customers to have the bank hold their money and will have to pay interest to customers who take out a mortgage. I never thought I would ever live to see this happen as it is the craziest and stupidest thing in economic history since the Indians sold Manhattan for $26.  The economy works because someone loans you money and you pay them interest and when you deposit that money in a bank they pay you interest, because they loan that money to someone else who pays them interest. Thus economies function properly. But now with negative interest rates, someone loans you money and they pay you interest to do so and then you deposit money in the bank but have to pay the bank interest to hold your money, because when they loan that money out to someone else the bank has to pay interest to the borrower.  

Thus the worlds Central Bankers are acting like the President of San Marcos in this Woody Allen movie:

https://www.youtube.com/watch?v=zYjlZVNFjiI

 

Thus I had no choice but to go 3% more to cash and am now 81% in cash.  I wish I had better news to tell you but we can not control what is happening in the world or the stupidity and madness that we are seeing everyday.  Cash at times is the best investment you can make as it does not go down when markets do.   Janet only mentioned this as the Fed is worried about deflation and recession and by someday having negative interest rates they are trying to spur demand which will cause inflation.  But I think this is madness as people are already maxed out on their borrowing power and have truckloads of credit card, student loan and mortgages on their backs already. By offering negative interest rates and people getting paid to borrow money the Fed is basically throwing gasoline on a fire.  It is just excessive risk and just pure madness as you can see by Japan's example whose economy is just spiraling down a rabbit hole.

 

With stocks being so overvalued on Wall Street relative to each company's Main Street actual results, we have a serious risk of implosion coming up as investors start seeing even the most profitable companies like Apple(AAPL) and Gilead Sciences (GILD) struggling to grow even having the greatest products around, simply because the world's economies are in a serious recession, but that fact is being masked by the Central Bankers of the worlds manipulation.  So I will close here and just say "CASH IS KING" !

DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.

 

Today's Market Action = What You Need To Know

On Sunday China reported its worst import/export results in almost a decade so you would expect the markets to crash on such news, but the massive fire erupting in Canada is right in the center of the largest oil producing area of Canada, thus oil supply will be cut by 1 million barrels a day until the fire is put out. But oil is not erupting because the 80 year old oil minister in Saudi Arabia retired today and his replacement has stated that Saudi Arabia will increase oil production or double down in the future and thus he plans to flood the market with oil.  Because of the China news Gold and commodities are taking it on the chin but the markets in Europe are up because of the terrible jobs report in the USA on Friday have caused interest rates in most of Europe to fall further into negative interest rate territory. Then Greece showed up in the news again today as there were riots in the streets over the taxes. My mother pays 24% tax on everything she buys at the supermarket and God help you if you try to import anything as there are even higher taxes then. Then pensioners and social security recipients have had their checks cut in half. Since Greece only exports Olive Oil and produces nothing I don't see how they are going to ever fix their situation. Everyone is praying for a wonderful tourist season but with Syria just up the street and hundreds of thousands of immigrants flooding through Greece to get to Germany, I don't think many are inspired to go to Greece this summer.

On the stock front for those of you who love shorting stocks look what happened to Lending Club today:

LendingClub Corporation (LC)

 -NYSE  Watchlist

7.10  0.25(3.65%) May 6, 4:02PM EDT

Pre-Market : 5.20  -$1.90 (-26.76%) 8:19AM EDT - Nasdaq Real Time Price

Friedrich would have had you go short on the day it went public in 2014 and this is what would have happened.

http://www.askfriedrich.com/blog-1/2016/5/9/lending-club-lc

You would have gone short at $23.01 on December 11, 2014 and today you would have seen a $5.20 handle when you logged into your account for a gain of +77.40% in about 17 months.  I do not recommend shorting but if you choose to do so remember that Friedrich is always early to the game and that you need to be a long term shorter if you choose to use the system.  Basically what Friedrich does is tell you how each stock is doing on Main Street on a stock by stock basis and LC stock was a dog with fleas, so it was only a matter of time until it crashed. Out of the 6000 stocks I analyzed with Friedrich, 42% came in short so basically the entire market will eventually crash as the pure weight of that 42% or 2,520 companies being dogs with fleas where even the fleas have fleas will eventually be too much for the markets to handle.  Remember that Friedrich is a long term barometer so whether you go long or short it takes time for Wall Street to realize what Friedrich is seeing on Main Street. 

Gilead Sciences and the Sweet Spot

This week has shown us that indeed history is repeating itself as the motto "Sell in May and Go Away" seems to be playing itself out again this year with the Dow Jones 30 Index (DIA) down -450 points since its April 20th close. My Clients are down a fraction of that as I have them 78% in cash, because my Friedrich Algorithm is having great difficulty finding anything of value to buy right now, but never the less two of our long term holdings Apple (AAPL) and Gilead Sciences (GILD) are experiencing the equivalent of the baby being thrown out with the bathwater.  I am not worried about either investment as the new iPhone 7 is coming out in the fall and then Apple will start rocking again.  Many of those who are trading in and out of Apple stock are being bi-polar investors as they have a love hate relationship with it depending on the time of the year or which part of the upgrade cycle we are in, but once the iPhone 7 comes out, I have confidence that things will return to normal. 

Then we have Gilead Sciences that investors are trading it as if it were just an average boring company with zero future prospects. When one plays tennis, the ideal situation you want to be in is hitting the ball in what is called the "Sweet Spot" ,which is dead center on your rackets strings. When you do that consistently you can get the most power out of every swing.  Well Gilead Sciences is a company that is hitting the sweet spot continuously, but many who invest in it have no clue that this company actually cures Hepatitis C, that's right it does not treat it, but actually CURES it!  Gilead Sciences has only cured 700,000 patients so far, so the needle has not even moved yet in terms of how profitable this company will be for years to come. Why is that? Well here are the statistics from the World Health Organization on Hepatitis-C.

Key facts

  • Hepatitis C is a liver disease caused by the hepatitis C virus: the virus can cause both acute and chronic hepatitis infection, ranging in severity from a mild illness lasting a few weeks to a serious, lifelong illness.
  • The hepatitis C virus is a bloodborne virus and the most common modes of infection are through unsafe injection practices; inadequate sterilization of medical equipment; and the transfusion of unscreened blood and blood products.
  • 130–150 million people globally have chronic hepatitis C infection.
  • A significant number of those who are chronically infected will develop liver cirrhosis or liver cancer.
  • Approximately 500 000 people die each year from hepatitis C-related liver diseases.
  • Antiviral medicines can cure approximately 90% of persons with hepatitis C infection, thereby reducing the risk of death from liver cancer and cirrhosis, but access to diagnosis and treatment is low.

So investing in Gilead Sciences is a no brainer.  Now the problems that GILD has been experiencing is because the cost of its Hep-C drug is so high and thus the medical profession and health insurers are complaining. But lets say in the future the price of the drug falls from where it is now to just $1,000 and if it were made available to everyone in the world, the potential revenue at $1000 per patient, would be $150 Billion. 

With only 700,000 out of 150,000,000 cured and with 500,000 dying from the disease every year we have some serious problems that can eventually be cured. 

"CDC officials and other public health care and medical experts voiced optimism that the Hep-C mortality trend will begin to plateau and then decline with the introduction in recent years of new wonder drugs like Gilead Science’s Sovaldi and Harvoni. Dr. Ira Jacobson, a hepatitis specialist and chair of the Department of Medicine at Mount Sinai Beth Israel hospital in New York, told The New York Times yesterday that he was optimistic “that we’re going to make a major dent in the mortality much sooner than we have without these medications.” 

Investing in very popular stocks is always a problem as you have to deal with the herd of investors who rush in on super news but panic and run for the hills when a few rough patches show up. Thus the important thing to always remember as an investor is to diversify and never put all your eggs in one basket.  That way you can buy and hold and not get hurt to bad in the short term.  I say this so you won't get burned if your fellow investors run for the hills as most investors operate out of fear and greed, so it is always important to be careful. Friedrich analyzes 6000+ USA stocks on Main Street so you will always know where you stand on Wall Street.   

DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.

History Made at this Year's Berkshire Hathaway Annual Meeting

This weekend was the Woodstock for Capitalists or the Berkshire Hathaway's (BRK-B)(BRK-A) annual meeting. Everyone got a gift this year as the annual meeting was streamed live and is available to be viewed by going here http://finance.yahoo.com/brklivestream

It is 7 hours long, but you can skip to the question and answer session where you can hear Buffett and Munger answer questions.  The first question Buffett answered is for the history books as they brought up his 1986 analysis of Owner Earnings that my entire Friedrich Algorithm is based off of and this is what Mr. Buffett wrote then:

“…we consider the owner earnings figure, not the GAAP [earnings] figure, to be the relevant item for valuation purposes-both for investors in buying stocks and for managers in buying entire businesses.”

“[Owner earnings] represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges…less ( c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume.”

At the meeting he was amazingly asked why he buys capital intensive businesses these days instead of what he did back in 1986, when he only invested in very low capital intensive businesses.  Analysts have been waiting for 30 years to get the answer to that question and Mr. Buffett made some history, as we got the answer this weekend.  He said he would love to buy such businesses, but not many are available anymore and basically that is how Mr. Buffett just told us that the markets are very overvalued relative to how Main Street is doing as high quality companies (that he also understands) are not available right now, which require low capital expenditures.  That tells us that Friedrich is right in keeping us in cash and that Warren Buffett is no longer investing like he did when he made amazing profits and returns in his stock portfolio.  Here is Berkshire Hathaway's current portfolio analyzed by our Friedrich Algorithm (click on the highlighted link that explains what the Super Six Scores mean).

Though the list contains some low capital intensive businesses, a great majority or the rest of his investments are capital intensive.

So on Friedrich's 1st birthday we got confirmation that the method that Friedrich follows is the right one by the Oracle himself, but that Mr. Buffett does not use it anymore, because he has chosen to invest in lower quality investments instead, in order to just to be invested, which I and Friedrich refuse to do.  Warren Buffett also said that he sold both his European investments in two Reinsurance companies because with negative interest rates  he feels that those companies will not make money for at least a decade and that is what I am seeing as well.  Eventually negative interest rates will come here to the USA and then financial stocks will implode as they will have to pay investors to take out mortgage's and charge depositors interest to hold their money for them.  That is basically going to be a Fellini movie and I highly recommend avoiding financials in the future.

DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.

Investors Are Ignoring The Reality of Main Street

With the earnings season for this quarter in full swing, this is what the facts are showing us for the S&P 500 Index (SPY) as reported by Factset Research. (FDS)

Earnings Growth: For Q1 2016, the blended earnings decline is -9.3%. If the index reports a decline in earnings for Q1, it will mark the first time the index has seen four consecutive quarters of year-over-year declines in earnings since Q4 2008 through Q3 2009.

• Earnings Revisions: On March 31, the estimated earnings decline for Q1 2016 was -8.7%. Six sectors have lower growth rates today (compared to March 31) due to downward revisions to earnings estimates, led by the Energy and Financials sectors.

• Earnings Guidance: For Q1 2016, 94 companies have issued negative EPS guidance and 27 companies have issued positive EPS guidance. 

And for those of you who feel that Energy stocks have turned the corner, think again!

As a result of Main Street being in such bad shape the S&P 500 PE is higher than it was prior to the crash of 2008-2009.

Thus it does not take an Einstein to figure out that Main Street is in bad shape and that Wall Street is at the mercy of High Frequency Trading machines (that just work off the bid and ask spread and nothing more) that are just moving the markets anyway they want.

 

These machines have no idea what the companies that are being traded do on Main Street or even how each is doing on Main Street.  All these machines care about is if they can make a 1 penny a trade profit in a millisecond and move on to the next trade. 

So it is stupid for anyone to try to compete with these machines. Instead it would be much smarter to just concentrate 100% of one’s time in looking for Elite companies with Elite Management at the helm, that one can also buy at bargain prices and hold them for the long run. By not competing with the markets and these machines, you don’t have to experience the roller coasters from hell that these machines are generating. By not competing you just sit comfortably in cash and wait for bargains to come to you and avoid having to overpay for everything you buy when you invest in ETF's, Mutual Funds and Index funds for example. 

Smart Investing should be no different than how you operate in the rest of your life. You shop at Wal-Mart (WMT) and Amazon (AMZN) because they have the best prices or buy stuff on Ebay (EBAY) because you can get unique bargains. You also try to buy the best quality you can when buying, but also insist on the best price as well.  When you feel you are not getting a bargain you tend to not buy and you hate nothing more than getting that "ripped off feeling" when you get home and find that what you bought is not what was promised and will send it back or return it, especially when you find that what you bought is really poorly made.

Therefore it is only logical that If you operate in your investing life the same way that you do in your everyday life, you should do very well.  But also remember that the stock market is a dangerous place to operate in if you don’t have a clue what you are buying, because in the stock market one cannot return something once you purchase it, as those who sold it to you are probably high frequency trading machines and good luck trying to sell it back to them. The machines already saw you put in an order beforehand, went and bought it milliseconds before you did, so they could then sell it to you a millisecond later for a much higher price.  You can see why these machines have not had a losing trading day in years, as it’s like stealing candy from a baby.

So as you can see the stock market is not a level playing field, but is run for the benefit of trading machines who care absolutely nothing for you and your future goals and at every trade are looking to steal every penny they can from you.  Thus the smart thing to do in the end, is to avoid competing against these algorithms and just be a long term buy and hold investor in the right companies. But how can we identify these companies?

I designed the Friedrich algorithm to work on the behalf of humans (whether that be the Novice investor or a Pro) and discover bargains left in the wake of the moon craters, which are left over when these high frequency machines are done with a company.  Friedrich is designed to kick the tires on Main Street for each company and come up with a price that one can then compare to the price on Wall Street. Thus with the help of Friedrich all we do is just hunt for bargains and when none are found we do not invest, but just stay in cash and wait patiently. Patience is the hardest thing to learn, as most investors unfortunately chose to join the herd and mostly operate out of greed and fear. We do neither and just operate like a businessperson would on Main Street and only deal with Wall Street after we have had Friedrich come up with his Main Street appraisal. Thus we know what we want to pay before the stock market opens every morning, for all 6000 stocks in our Friedrich Database and only move when our Main Street bargain price shows up on Wall Street. If nothing shows up we sit patiently in cash and just wait.  That’s how Warren Buffett did it for decades, so we have a good model to work off of.

In closing let me remind everyone what success in the stock market really looks like.

For Those Thinking About Investing in Oil Stocks ==> Think Again

One of the best oil related stocks out there just announced this:

http://seekingalpha.com/news/3172372-national-oilwell-varco-slash-dividend-amid-falling-revenue 

Main Street is Screaming LOUD AND CLEAR but the warnings are falling on deaf ears as all people care about is a dividend yield.  I would not put any clients money in oil stocks even if my life depended on it. 

National Oilwell Varco  (NOV) supplies all the parts and machines for the Oil Industry and if they are slowly dying then no one is making money in Oil and a serious implosion could be on the way.  Just because a stock has fallen in price does not make it cheap. A perfect example of that is ticker SUNE from $33 to where it is today https://finance.yahoo.com/q?uhb=uhb2&fr=uh3_finance_vert_gs&type=2button&s=sune 

Why is Sun Edison falling so hard? Well Solar power only makes money when oil is over $80 a barrel as they can sell their solar power, but who is going to invest in solar power when natural gas is at historic lows.  The Saudi's and OPEC are not only crushing the US Shale oil industry but are also crushing the Solar, Wind and other alternative energy industries at the same time. 

You have been warned ====> Buyer Beware!!!

Trouble on the Horizon?

We have been producing our Friedrich Datafiles at a feverish pace these days and the results that our algorithm are showing is that things on Main Street are really bad and outside of the US are even worse. But what is really scary is how overvalued everything is on Wall Street and that you can count the number of stocks that are bargains on just one hand, out of the thousands analyzed.  Of course we cannot control what is happening in the markets or the world but I am finding things to be even more overvalued right now than they were in 2007-2008, just before the markets fell -59%.  Why are they so overvalued? Well business is deteriorating on Main Street while portfolio managers at hedge funds, mutual funds as well as stock brokerage firms are holding their noses, ignoring the facts and just keep buying. This buying behavior reminds me of the old Enron/WorldCom days where investing was done with very little analysis at all and investors just wanted to get in as they felt that “you gotta be in it to win it”. Wall Street history is littered with bad behavior like this as investors, whether they be novices or pros are just ignoring the facts and are just operating in Herd behavior.

Want some facts? 

Here is an excellent article written on Seeking Alpha that will explain a lot on what is really happening:

http://seekingalpha.com/article/3963497-will-earnings-season-crush-market?isDirectRoadblock=false&app=1&uprof=44

CEO's at companies are compounding the issue as they are buying back their stocks at "ANY PRICE" on borrowed money. I actually classify these actions as unethical behavior as these Management teams actually know how bad things are for their own company’s on Main Street and are still buying back their company’s shares knowing quite well that they are overvalued relative to their Main Street valuations. Excessive greed has overtaken logic and common sense among what are supposedly very educated people.  But once Ethics are replaced by outright greed and only looking out for number one (so they can vest their stock options) we have the clear makings of a train wreck coming. I don’t know the actual date of the wreck but things are spiraling out of control and all we need is one major negative catalyst to hit and Wall Street will absolutely panic.

The really amazing thing is that those mentioned above have been taking these insane risks for the last 16 years for very little reward and in the end have very little to show for it.

The following are the average yearly gains per year since January 1, 2000 for the following:

Dow Jones Industrial Average = 2.99% (DIA)

New York Stock Exchange Index = 2.59% 

S&P 500 Index = 2.39% (SPY)

Nasdaq Index = 1.19% (QQQ)

These same investors that “panic sold” the markets in January and early February to only buy everything they sold back in February and March are exhibiting reckless decision making.  What they are doing is not investing, but is a form of insanity and that is why I always say the inmates are running the asylum on Wall Street. 

Albert Einstein once said that ~ Insanity = doing the same thing over and over again and expecting different results.

Thus after reading the above you can see why we have become totally agnostic to Wall Street and devote 99.9% of  our time to just analyzing companies on Main Street.  We are fully in the capital preservation camp right now and are waiting for a major correction. Also the blackout period where CEO’s cannot buy back stocks for 5 weeks has begun and I am sure once the terrible earnings results hit the wires (that I am expecting for the great majority of companies) actually show up, there will be no backstop till the end of May and thus high frequency computers and Hedge Funds will take full advantage of the poor results and trash many stocks.  We on our part will be in a position to take full advantage of this nightmare that is coming as we do only one thing and that is buy stocks at bargain prices and wait patiently for them to show up. We don’t join the herd but instead try to take advantage of the moon craters that these high frequency computers leave in their wake.  We own a powerful portfolio of stocks that we bought at attractive prices and in the end we should do very well. But again with my average client being 74 years old I am very restricted in what I can buy in terms of risk. One cannot invest for a 74-year-old, the same way one can for a 30-year-old, so I need to be very careful and avoid losses in the portfolio at all times.

Going forward, Wall Street will realize that they have excessively overpaid for stocks relative to the state of each companies financials on Main Street and then a major correction will occur. In the end it’s all about Math and 1+1 is always equal to 2 but in this case Wall Street 1 + Main Street -1 = 0, which will cause panic and then it will be Wall Street -1 + Main Street -1 = -2.  When that happens our Friedrich Algorithm will step in and shoot fish in a barrel and with his large Cash Position +1 + Wall Street panic +1 = +2.  So by being patient, following logic and common sense we are positioned to take advantage of anything that shows up while operating with low risk, which I must do with my average client being 74 years old.  

A Client Question I Answered on the Oil Industry's Future

Client Question:

"I read about Bin Salmin's decision to sell part of Aramco and change how the kingdom earns money. That new strategy does not line up with any production reduction. In fact, it would suggest the opposite viz., that they have decided to NOT work for market share and just sell as much oil as they can and as fast as they can. So, what's our oil strategy now?  Do you still think there'll be a production reduction?"

My Answer: Opinion

Nothing has changed in the oil patch on Main Street to suggest we are not going to $15 a barrel. In fact US oil storage capacity has actually reached capacity and the industry is now forced to store oil in pipelines and ship tankers.  I am convinced (just my opinion: no proof) that the Saudi's and OPEC are working together with investment bankers to destroy the US Shale oil industry and then use their sovereign wealth funds to buy them all up for pennies on the dollar.  I paid $1.91 a gallon yesterday, so the gas/refinery industry is telling us that they are flooded with supplies.  North Dakota is a ghost town, the banks are forced to seize assets at what will be ever increasing rates and the last thing they want to hold are shale oil rigs. So what do they do? They sell them to Investment Banks who are front men for the OPEC cartel.  Why would OPEC keep flooding the markets with cheap oil and force the prices down when they could just stop production and oil would be $90 a barrel?  They not only want to put US Shale out of business but they actually want to buy up all the assets and then permanently shut them down.  It is a brilliant move and they have a sympathetic President in the White House as OBAMA hates shale and is working on behalf of his environmentalist donors, that got him elected. 

Thus all US oil is dead money and will be so for another decade or so.  With IRAN going to flood the markets with their billion barrels that cost them $3 a barrel to produce, the US oil industry will go the way of the US TV Production Industry.  I just bought a 48 inch TV from Best Buy for $329 as it is made in Asia. I paid $3200 for the same size TV in 2000. So in 16 years the prices fell 90%.  Its just the way the world works.  So I would look elsewhere than oil as the US industry in just going to be a major ghost town for as far as the eye can see and if Hillary gets in then there will be no Keystone as well.  What the environmentalists don't see though is cheap oil is equal to cheap gas, which means more driving and people buying more monster trucks and SUV's, so more pollution. Higher gas prices cause people to conserve and invest in Solar and alternatives like wind etc...No one will waste their time doing so when their monthly utility bills are under $100 and they can fill up their tanks at $20. So in the end OPEC with this move is destroying the US Shale oil industry and the Alternative industry all in one shot. A really brilliant move I must say on OPEC's part and the above is just my opinion based on logic and common sense.

How To Be a Long Term Investor in a High Frequency World

Wall Street so far in 2016 has had some insane swings both up and down that have been breaking all historical records as the inmates are truly running the asylum this year and are totally off their Meds while doing it.  The main culprit causing this madness are the hi-frequency algorithms that are just trading off the bid and ask spreads and now account for 90% of the volume on a daily basis.  Thus it is insanity to try to follow the daily movements of the markets as there is no way you can compete on a daily basis with these machines as they don't care if stocks go up or go down and have no idea what the underlying companies do that they are trading 1000 times a second.  All they care about is if they can make a penny a trade profit for each of those 1000 trades they make a second.  By doing so they make $10 a second in profit (1000 trades) $600 a minute, $36,000 an hour and that comes out to $270,000 a day in profit.  So as you can see these algorithms in total are trading about $90 billion in volume a day so each firm can make around $270,000 profit a day. That's a pretty penny but the damage it causes to the markets are intense as we get these wild swings. Anyways these algorithms operate in milliseconds and there is no way to compete against them. The average day trader who tries, on average ends up losing 90% of their assets within three years of starting operations, as there is no way a human can compete against this madness. 

To combat this though you have to become a long term buy and holder investor and pretty much pay little attention to what the markets are doing on any given day or week. All you need to do is just read the news on your holdings and that's about it. But you must firstly have a tool that allows you to get the best analysis possible on Main Street. We don't compete with high frequency algorithms on a daily basis but instead have our own Algorithm Friedrich that high frequency computer algorithms can't compete against as all they concentrate is on the bid and ask spread, while Friedrich concentrates 99.9% on Main Street.  

Thus while high frequency algorithms are buying and selling 1000 times a second we are buying and holding until Friedrich tells us to sell, which could be 5 years from now or never. Thus Friedrich emulates the strategy of Warren Buffett in a sense as that is how I designed him, but is extremely high tech.   

How do I know that High Frequency Traders are controlling the direction of the market and have it do what they want? 

Well Caterpillar (CAT) came out with a report the other day and said they would miss estimates by a ton next quarter, which should have crashed the stock by -20%, as analysts need to reduce their numbers dramatically.  Well the exact opposite happened as high frequency traders decided to crush the short sellers and force them to cover and Caterpillar actually is doing amazing on Wall Street even though it is getting crushed on Main Street.  

How do I know that Friedrich works so well? Well I designed it to take advantage of the moon craters that these High Frequency traders leave in their wake.  So instead of getting rid of high frequency traders I now welcome them as their destructive behavior actually creates bargains for us like we saw with our Recent Purchase (RHP), which we bought cheap after it was hammered and now is skyrocketing because its Management is elite and the company is a virtual monopoly.  

About a month ago I tested a Chinese ADR to see if Friedrich works just as well internationally as it does in the USA.  

As you can see it is a Chinese Auto Dealership and the stock was $67.73 and fell to $16.09 but it actually scored a "6" on Friedrich in early February and was selling at $18.23.  Thus Friedrich recommended it to be a strong buy and just a month later it is now up +53.54% .

The Friedrich Datafile for BITA that I created today as you can see it is no longer a "6" but is a "4" now but still has a long way to run.  In that Datafile you will also see that we added a new row called "Super Three Sell Criteria" right under the Super Six rows.  We are still in Beta testing, which I will spend the weekend doing, but come Monday all future lists will also tell everyone when to "SELL" .  

How well does it work? Well just look at the Datafile for BITA in your attachment folder and you will see that in 2014 it triggered an automatic sell at $88.18.  Thus that Sell trigger would have had you sell when the Wall Street price was $89.11 and you would have not only got out at the top but would have avoided seeing the stock price of BITA being attacked by High Frequency Traders, who brought it down to $16.09.  Thus you would have avoided losing -81.94% in just a year and then would have gotten a Super Six Buy Signal at $18.23 and been up +53.54% in just a month.   So just as Donald Trump says that he loves his protesters , we now love High Frequency Traders as they compliment our own more powerful Algorithm Friedrich as they create opportunities for him. Such results can not be expected to happen everytime, but in backtesting it I could see some wonderful results.  Hopefully after beta testing the Super Three Sell Criteria we will be able to launch on Monday and have all Datafiles include it from now on.  Thus in our constant effort to make Friedrich as user friendly, for the pro as well as the novice investor alike, we thus have Friedrich basically giving you an opinion on when to BUY and then when to SELL and when we expand internationally and are fully automated on that end as well, Friedrich will be an all seeing monster, with the ability to tell investors from all over the world when to buy and when to sell and more importantly when to stay in cash when markets are overvalued. Thus we have "Extreme Capital Appreciation through Extreme Capital Preservation".  

Thus as you can see having Friedrich in my hands, I no longer try to predict what the market will do but just concentrate all my attention on Main Street and in waiting for buy signals from Friedrich.  It is my belief that if Main Street is in serious trouble, eventually it will show up on Wall Street. I find that the Federal Reserve, the Bureaucrats & corporate CEO's are all lying all the time and are cooking the books. Want Proof? This is what came out from the SEC this week.  

For those of you who have been with me for some time, you know that I have been screaming from the rooftops about how Non-GAAP reporting results in very bad behavior by management, analysts and the press as the Pro-Forma reporting is actually fiction and even Warren Buffett wrote about it in his latest Annual Letter to Shareholders as his biggest concern.

"Wall Street analysts often play their part in this charade, too, parroting the phony, compensation-ignoring ‘earnings' figures fed them by managements," Buffett said. "Maybe the offending analysts don't know any better. Or maybe they fear losing ‘access' to management. Or maybe they are cynical, telling themselves that since everyone else is playing the game, why shouldn't they go along with it. Whatever their reasoning, these analysts are guilty of propagating misleading numbers that can deceive investors." ~ Warren Buffett  

Thus I am happy that the SEC will finally address this corruption. Friedrich is already GAAP ready, so you will actually see what a company is actually doing on Main Street when you use any of our Friedrich Datafiles as it is "AS IS" reporting.

The markets have come back in the last couple of weeks as the following game is being played by management and by Hedge Funds taking advantage of the following phenomenon:

There is such a thing on Wall Street called a "black out period" where for 5 weeks during earnings season companies and management can not buy their stock back, so the crash of January was caused by this black out. Well when the black out was lifted CEO's went hand over fist to buy back stock borrowing at extreme levels to do so.  This forced the shorters to cover and the rest is history as even oil shorters covered as well and that is why oil has rocketed as well.  

So for about 20 weeks of the year companies can not buy back their stock and for 32 weeks they can.  This of course causes the wild market swings that we saw this year as in January there was the black out going on and thus there was no backstop to stop the selling. Then when the black out stopped in February every CEO and their mother went and bought their stocks borrowing insane levels of money and putting each firms balance sheets in serious trouble. The reason Friedrich can not find anything to buy is because the debt on Main Street is insane and the price on Wall Street are so overvalued as no one does any research anymore and people are just buying and selling without any clue what they are doing.

With the Federal Reserve bank lying to us that Main Street is doing great a few months back, Friedrich knew they were lying as he sees what results each company is reporting on Main Street and was not believing a word of it. Well just this week the Federal Reserve came out and said that the economy was not doing as well as they previously thought so they did not raise rates.  Now when someone tells you that things are bad, do you rush out and buy stocks or do you logically hold off and use caution? Well Hedge Funds took the "bad news as good news" and bought anything that was not tied down. Unfortunately this bad behavior is starting to catch up with the Hedge Fund industry as 979 Hedge funds closed operations in 2015 and 864 closed in 2014. This is all because these Hedge Fund portfolio managers basically do zero analysis as a group and just take massive risks with their clients money. Bill Ackman who is the poster boy for terrible analysis and high risk is down -26.4% this year on top of the -20.5% that he lost in 2015. When his main holding VRX fell -56% in one day earlier in the week, he lost -$764 million of his clients money in just one day!  So as you can see Hedge Funds are closing down as their clients are losing tons of money due to their doing little if any analysis and being totally reckless with their clients assets.  In just two years 1,843 Hedge Funds closed down operations and those were flat years. Imagine what will happen when the trap door opens and the markets finally get hit? 

As for the government the numbers by the Fed are cooked as well, and this is mainly because of Obamacare, as many people can not work more than 29 hours at one job otherwise the business owner will need to pay into the system. For example if I were to decide to go work 5 jobs at 8 hours a week in each, I would be counted five times in the governments jobs report. So those forced to work two to three jobs so their employers don't pay Obamacare tax are the reason the unemployment rate is only 5%. So as you can see with everyone cooking the books at extreme levels you can see that this will end badly one day. But investors have no clue what they were doing because you would imagine with Donald Trump and Hillary Clinton looking like they will compete against each other for the Presidency, both are going to cause massive changes to the international business environment by using tariffs and going after the drug industry. But instead of being concerned about all this and selling stocks investors are just piling in because their neighbor is and thus we have HERD MENTALITY!

DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.

Friedrich Automation Launched Today

I am very pleased to announce that through the amazing work of our computer Genius Jeff that Friedrich is now fully automated, as of today, and I am no longer a hindrance to Friedrich in that he does all the calculations, creates all the Datafiles, generates all the lists and identifies which are "5's", "6's" and Shorts and even color codes everything. Here is the first example of a Friedrich automated list creation.

You will also see this from now on when you research your Friedrich Google My Drive and find a Short play, that the following springs up.

 

So I will now move to the background and let Friedrich do his thing and will have more time to deal with Clients, research "6's" when they show up and write articles.  Hopefully over time we will now generate 700 new files a week at a minimum and build the Friedrich Google My Drive to the point where it contains all 6000 stocks listed on the US Markets.  Once that is done we will start working on Friedrich Global and hope to have it finished before January 2017 and generate 100,000 + Datafiles from almost 100 countries around the world with ten years of historical data for each one. That of course will require about 20 million data entries and will require Friedrich to make 517.6 billion calculations to complete the task. If I were to analyze each one of those 100,000 companies by hand with a paper, pencil and calculator it would take me exactly 8,333 years to achieve.  Basically with Friedrich our two man organization can now do the equivalent work of  what 100,000 professional equity analysts can do in a month.  Friedrich was launched 320 days ago and I want to thank everyone for their suggestions in how to make him more User Friendly as you can now see all those suggestions are now implemented in our final format. Friedrich is not even a year old but took me 30 years to create, but he is now complete and automated.  

Going forward we will just wait for Friedrich to generate some "6's" for us to buy as he now gives us the freedom to be totally agnostic to what the markets are doing and just buy what he sees as bargains and sell what he says to sell. A bargain is a bargain whether you are in a bear market or a bull market and an overvalued stock is overvalued whether you are in a bull market or bear market as well. Thus our task is simply to buy bargains when they show up and then hold them until Friedrich tells us to sell them.

Therefore all investing we do in the future will be 100% free from emotion and based 100% on math. The math will come 99.9% from the analysis of the business on Main Street and the only time we will need to use Wall Street, is to see what the current price the markets are offering at the moment.  So when we buy we do so with a minimum 5 year holding period in mind and only sell when Friedrich tells us too. But once "Friedrich Global" is launched we will no longer be limited to just US stocks but will have the opportunity to buy super stocks from all over the world.  Well there you have it, the results of 31 years of hard work is now complete and totally automated.  Now to the next 30 years of marketing Friedrich to the world and combating the Den of Thieves that have been controlling the markets for centuries and to leveling the playing field for every investor, whether they be a Pro or a Newbie.  There is a new kid in town and his name is Friedrich and the paradigm shift is coming!  ;-)

DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.