Dan on November 18th, 2015

In September the financial world was on pins and needles as to whether or not the Fed would raise rates by a quarter of a percent.  In the end, the Fed did not take the much anticipated step of increasing the benchmark rate due to global risks.  At the time, the Chinese economy and stock market was plummeting, so the Fed backed off due to this uncertainty.

Now the market is starting to buzz about a rate hike in December.  Minutes from the October Fed meeting have traders thinking the Fed will do a December rate hike.  The latest job report tells us that the job market is at full employment.    We are nearing perhaps the best of all possible economic worlds, yet I think the Fed will still leave rates at historic lows so as to not risk slowing growth.

Why?  A couple reasons.  The latest Retail Sales numbers show the consumer is not spending all this supposed wealth:



Second, despite the massive fiscal stimulus modeled after the US strategy, Japan – the worlds third largest economy – fell into recession:



(source:  http://www.tradingeconomics.com/japan/gdp-growth)

So even though China appears to have stabilized, I think these new economic data points will be enough for the Fed to not do anything.  However, there is growing financial market clamor to get the Fed off the 0% overnight Bank Lending Rate, so it is possible that they will make this move in sort of a symbolic fashion.  But I am not looking for any meaningful short term rate hikes in the first half of 2016, even though the numbers tell us that the economy is firing on all cylinders.

I have been critical of the Fed’s policies in past posts – and how it has led to a malformed recovery.  How can we be at full employment and at historically low interest rates?  The Fed appears to be no longer data driven, and looking at worldwide soft indicators for guidance.   In the words of one Wall Street reporter, the Fed is winging it.  And that may be OK, since we are in economic times with no precedent.

Dan on November 7th, 2015

In honor of CISA passing the senate, which is another nail in the coffin of the rule of law in exchange for homeland security,  I thought it would be a good time to post a lot of random stuff on how all the emphasis on intelligence by the CIA and others has grown over the last 60 years or so.

First off, a great read here on the architect of the modern day CIA – Allen Dulles:


Granted, this is a pretty evil account of Allen Dulles – who knows how much of it is true.  But given the fact that we already know Operation Northwoods and Operation Mockingbird was engineered by the CIA during Dulles tenure, it doesn’t seem like this account is too much of a stretch.

Speaking of Operation Mockingbird, I ran across this article from the 1970’s from none other than Carl Bernstein on how effective the CIA has been in partnering with the media.


Worth a read – a couple good outtakes:

The Columbia Broadcasting System. CBS was unquestionably the CIAs most valuable broadcasting asset. CBS President William Paley and Allen Dulles enjoyed an easy working and social relationship.

Time and Newsweek magazines. According to CIA and Senate sources, Agency files contain written agreements with former foreign correspondents and stringers for both the weekly news magazines.

Finally, here is a copy of the op-ed that Harry Truman wrote in 1963 regarding  his concerns about the CIA:


The last quote is particularly prescient:

 I never had any thought that when I set up the CIA that it would be injected into peacetime cloak and dagger operations. Some of the complications and embarrassment I think we have experienced are in part attributable to the fact that this quiet intelligence arm of the President has been so removed from its intended role that it is being interpreted as a symbol of sinister and mysterious foreign intrigue—and a subject for cold war enemy propaganda.


Dan on October 26th, 2015

Interesting to see Carl Icahn is creating a $150 million Super-PAC expressly to lower taxes on foreign earnings.


Given his investments that will benefit from a lowering of foreign taxes, this seems like a no-brainer as far as return on investment.  The good news is he is being public and straightforward about his motives.  The bad news is it only takes his pocket change to dangle in front of Congress to do it.  This will be a good test to see the market value of what it costs to buy legislation changes – if this legislation gets passed, hidden in some other bill no doubt, we will at least know the market price for democracy.

Dan on October 15th, 2015

Here is something you technical folks might find interesting – the rest of you may just may just get confused..:

A coworker and I ran into an odd problem when developing an  application on  a new server at one of the clients I work at.  This new server is a new 64 bit HP with two quad core hyper-threaded processors giving us a total of 16 cores.  This server is being used as a virtual server, and so for our SQL Server we provisioned a bunch of memory and 8 virtual cores.  (Even though we could have purchased SQL Server 2012, the licensing by core made it unjustifyably expensive, so we are running SQL Server 2008.

The following query would sporadically return results, then no results, then results when run over and over:

select c.firstname, c.lastname, IH.invoicedate
from customer c
inner join invoiceheader IH on c.ID = IH.ID
inner join invoicedetail ID on IH.ID = ID.ID
where c.customercategory = 1
and c.activedate <= getdate() -- customer is active
and isnull(c.inactivedate, getdate()) >= getdate()  - customer has a future inactive date or no inactive date

We tried this query on our old production servers, and didnt have the problem.  After several minutes of head scratching, we finally came up with the solution and rewrote the query to:

select c.firstname, c.lastname, IH.invoicedate
from customer c
inner join invoiceheader IH on c.ID = IH.ID
inner join invoicedetail ID on IH.ID = ID.ID
where c.customercategory = 1
and c.activedate <= getdate() -- customer is active
and (c.inactivedate is null or c.inactivedate >= getdate())  - customer has a future inactive date or no inactive date

We theorize the root problem is that this query is exceeding our max cost of parallelism and splitting up the task of running this across the multiple CPU cores available.  The assumption is, each core is taking responsibility for finding getdate() (SQL Server function to return the current system date) and the core that was calculating the date for the isnull(c.inactivedate, getdate()) clause was getting an earlier date than the core that did the final getdate() comparison at the end, sporadically determining that all customers without an inactive date were expired.

The other option is it is just a difference in the way SQL Server 2008 handles query processing, but I lean to the theory that it has to do with increased parallelism available with new servers.  Arguably the original query was not the best way to do the date comparison, but we were surprised that SQL did handle this in a sporadic manner.

So this is another lesson for you developers out there that as servers start to increase the number of cores and spread out processing across multiple CPU’s, concurrency issues will increasingly become a factor, even if you are like me and stay away from multi threading applications.



Dan on October 6th, 2015

One of my favorite charts of late comes from a JP Morgan Presentation on Markets.  This document contains an overwhelming number of charts and indicators – but this one stood out to me:


Looking for a quick way to explain the dramatic drop in oil prices?  This chart shows the dramatic increase in US production due to fracking, as well as dropping demand from Japan.  Japan had been burning more oil for electricity after the Fukushima earthquake caused nuclear to shut down, but now they are starting to bring more nuclear back online.  And with all eyes on China slowing down, its no wonder there is an anticipated drop in future demand.

As always, I also like to point to the rapid drop of solar power crowding out demand for oil.  Check out this article which shows that the cost of utility scale solar installations have been cut in half since 2009:

In the 2007-2009 period, the typical cost was about $6.3 per Watt of AC power; in 2014, that had dropped to $3.1/WAC. The lowest-priced projects (bottom fifth) are now coming in at $2.3/WAC. This price includes a 30 percent investment tax credit, which is due to drop to 10 percent in 2017.

Note that with the reduction in tax credit in 2017, there is a big push to bring a bunch more solar installations on in 2016 – so one would assume we would see a slight spike lower in oil demand in 2016.

Another semi-related tidbit I found fascinating was this story about electricity prices temporarily going negative in Texas.  A windy night and low energy demand provided a surplus of power.

So whats more likely by the end of 2016  – $20 a barrel oil or $100 a barrel oil?  I would have to put my money on the lower of the two.

Dan on September 23rd, 2015

I was reviewing my portfolio recently and decided it was finally time to remove Corning (GLW) from my Puget Investor Portfolio.  I originally started accumulating Corning starting in 2011 thru 2013, as I felt it was a fairly low risk cheap stock that would benefit from the global increase in cell phone ownership (Corning’s flagship glass product is Gorilla Glass used on most SmartPhones).  The stock also yielded over 2% so it seemed a safe bet even if the stock went nowhere.

The thesis worked out pretty well – as  Gorilla Glass maintained its popularity with manufacturers, the stock slowly crept up.  In addition, since 2011 the dividend has increased from 7.5 cents a share to 12 cents a share.

Recently however, with the likely drop off in the Chinese economy,  my recent loss of faith in Apple, and the rising competition for glass products from Samsung, I decided I no longer had a clear reason to hold Corning.  True that Corning has been holding off the competition for years, but I really don’t know if their glass is better than the up-and-comers.

GLW and I part as friends, as I feel I did OK in this case, and indeed I may pick some up again in the future.  Corning seems like a solid holding, and sometimes I am a sucker for dividend yields, and GLW still yields 2.78.  But starting in October Corning will out of the Puget Investor portfolio, part of my ongoing review of my holdings and making sure I have a valid reason for owning particular stocks.

Dan on September 13th, 2015

Financial media has been abuzz of late regarding Thursday’s Fed meeting where we find out whether or not the Fed raises the overnight interest rate a quarter point.  I am beginning to think this is the Trump-ization of the Fed – much like Trump has brought politics closer to the realm of entertainment – the Fed rate hike is now starting to move into mainstream conversations at the water cooler.

Anyway – Peter Schiff wrote an interesting piece on what I think is more important regarding interest rates – things affecting the long end of the treasury curve (see http://www.europac.com/commentaries/meet_qt_qes_evil_twin).


Remember the Fed can only impact short term rates with rate hikes – to lower long term rates they had to use quantitative easing to aggressively buy mortgage backed securities – thus making it so debt issuers could offer lower rates than they would otherwise because the Fed had their back.

Schiff cites 3 trends which may have a much bigger impact on rates going forward:

  • China has been decreasing its holdings in US Treasuries as their economy slows:

chinareserves(chart courtesy tradingeconomics.com)

Without the Chinese buying up our treasuries – who will we sell debt to?

  • Declining demand from oil rich companies (from Shiff’s article):

The steep fall in the price of oil in late 2014 and 2015 also has led to diminished appetite for Treasuries by oil producing nations like Saudi Arabia, which no longer needed to recycle excess profits into dollars to prevent their currencies from rising on the back of strong oil. The same holds true for nations like Russia, Brazil, Norway and Australia, whose currencies had previously benefited from the rising prices of commodities

  • Potential shrinking of the Feds holdings (from Shiff’s article):

Potentially making matters much worse, Janet Yellen has indicated the Fed’s desire to allow its current hoard of Treasurys to mature without rolling them over. The intention is to shrink the Fed’s $4.5 trillion dollar balance sheet back to its pre-crisis level of about $1 trillion.

So with all the potential lack of buyers for all this US debt, whether or not the Fed changes the overnight rate seems pretty inconsequential.  I will be listening to hear if the feds plans to stop rolling over it’s maturing treasuries.  Or… given the China and Middle East decline in purchases – perhaps the Fed will go the other way,  and hint at QE4 (start buying securities again to keep rates from rising)?


Dan on September 2nd, 2015

As an investor I am late to the party as far as following technical indicators.  Only in the last few years have I been really looking at momentum when it comes to stock prices.  In particular, it is clear to me that the US stock market as measured by the Standard and Poors 500  (S&P 500) can show predictive negative and positive patterns.

Recently, the S&P 500 dropped below its 200 day moving average.  To see what historical implications this has, take a look at this article.  A great statistic quoted in the article:

Since 1960, 22 of the 25 worst days have occurred below the 200-day moving average. Of the 100 worst single days over the last 55 years, 83 of them happened while stocks were below the 200-day.

(Source:  The Irrelevant Investor)

Recently, a death cross also appeared across all averages, which technical traders also consider a negative indicator.

sp500 death cross

Its easy to look for technical reasons to be bearish when the market is having the recent wild swings  – so I have to be careful  to not let the drops cause a sell low buy high mentality.  But in tracing these technical indicators an moving averages on Puget Investor, if you look at the historical performance of weighting and un-weighting the S&P 500 you can see a profitable pattern develop.

So as an investor you have to decide, should I sell now that the market is 10% off its highs, and sell at the bottom of the correction, or is this the start of a long term decline and get out while you can?  Nobody knows – but I am leaning at least in the short run to lighten up on my stock allocation, given the prevalence of these negative technical indicators.

Dan on August 16th, 2015

When I saw that Berkshire Hathaway was buying out Precision Castparts last weekend, I got that good feeling you get when you know one of the stocks you own was about to increase in value.  However, as I looked at it a little closer, it just made me feel like I missed an opportunity.

I started accumulating Precision Castparts late last year, when it showed up on my list of stocks that met my criteria.  Management seemed to be sound, stable industry, reasonable valuation – a good long term holding.  Unfortunately for me, my timing was lousy because soon after I built my initial position, the stock dropped roughly 20% on lower guidance due to the strong dollar and exposure to the energy sector.  I think I should of looked closer at the stock before  I started accumulating, perhaps I would of held off a bit.

Precision Castparts Stock Price for 2015

Precision Castparts Stock Price for 2015

I will give myself some credit –  I did add to my position even after the stock dropped – I try to follow the old saying ‘If you liked the stock when it was 20% higher, you should really like it now.’  It’s hard to follow this adage, but I felt the leadership was still good and hopefully most of the bad news was out of the way.

So its nice that in the end my analysis was vindicated, and I can now claim to almost be as smart of investor as Warren Buffet.  However, in the end, if feels like I botched it.  At the Berkshire Hathaway takeover price, I will probably break even on my investment, maybe come out a little ahead.  To add insult to injury, that position I added $210 a share will likely be taxed as a short term gain,  and its possible my initial purchases will be a long term loss, though it will be minimal.

I have come to accept that in investing you win some and you lose some – it just comes with the territory.  It’s just that in this case, it feels like I should of won and I didn’t.

Dan on August 7th, 2015

For the last few years  I have been tracking my asset allocation on a spreadsheet, to ensure that I keep within the rules I set for myself of what to invest in.  If I look back to the early days of my investing, I believe I have a tendency to overweight in stocks when the market is doing well, and underweight when the market is low.  Most investors do succumb to this emotional tendency – buy high – sell low, and so I think every investor should use an asset allocation strategy to try to drive emotion out of investing.

As part of my ongoing tinkering with JavaScript libraries, I decided to embark on the project to migrate my spreadsheet to a webpage, where anybody can use it to experiment with asset allocation.  The resulting tool now appears on the vfsystems.net site at http://www.vfsystems.net/investing-tools/asset-allocation-tool/

VFS Asset Allocation Tool


Note that my sample allocations are spread across a wide variety of asset classes.  This tool includes a lot more categories than the average investor would care about, but I thought it was good to include as many categories as possible to at least make investors think about what categories to consider.  Note also I included the red and green arrows next to most asset classes.  This isn’t too clearly explained in the page – but it ties back to some of my earlier work in asset allocation where I adopted a strategy of over-weighing  categories based on momentum.  To recap – historically if you overweight / underweight the S&P 500 based on a 10 month moving average, history tells you it will increase your return.  So I have expanded this to include overweight / underweight indicators for the other asset classes where history shows a return increase based on momentum.  Note that some asset classes show no correlation to this strategy, and for those  I did not factor those into the weighting adjustment.  As a side note – for those categories I plan to someday look into what factors could also be included to see if a pattern can be determined – but thats on my ‘someday to-do list’ at this point.

On a technical note, this project was quite interesting.  This was my most complex JavaScript library project to date.  Other than an API call to Puget Investor to get the initial asset classes and weightings, this application runs client side, using AngularJS and JQuery.  So even though it runs in WordPress on PHP, there was no PHP coding other than adding the scripts for Angular and JQuery/JQuery UI. The Angular JS part of it was pretty smooth – interestingly it was the Jquery UI stuff that gave me the biggest headaches.  I use JQuery UI to build the help dialogs over the question mark icons – and I formulated  a standard pattern that I plan to incorporate in future projects for these help boxes.  But getting the dialogs to position and resize correctly took me much longer than I had anticipated, largely due to changes in JQuery between versions 1.9 and 1.10.  One of the hazards in using the internet for all your research is you find examples for many different library versions, and its hard to find the right example for the version you are using.

The other framework decision I made with this tool was to host this at vfsystems.net.  Rather than have these tools on Puget Investor, I plan to have VFSystems be the home for my investing tools, and focus Puget Investor back to a stock portfolio tracking tool.  I think vfsystems.net makes for a better jumping off point for my various investment related endeavors, so look for more tools to appear at vfsystems.net.

I encourage anybody with an interest to try out this new tool – it may help you refine your investment strategy, and perhaps give you new ideas about investing alternatives.  And please – any ideas for improvement or feedback – please leave a comment below, or send a note to Vertical Financial Systems.