• The bottom line is that the U.S. dollar is going down. It will either go down in an orderly fashion as it has been or it could collapse as Reich has pointed
• The administration wants to get China’s cooperation in preventing a dollar collapse. U.S. dollar facing imminent collapse?
• We might see a global meltdown of theUS dollar or we controlled devaluation of the UScurrency: either way global economy is doomed.

or so people have been saying since the 1920s.

Those three articles are from Sep 2004, Dec 06 and Jun 2007 and as the timeline below shows I could have go on and on.

Wagon wheel

Time Line
Carrying on the Google promo from last week. The chart below is the time line for articles on collapse of the us dollar. Just as I alluded to on  How to Spot Market Turning Points there are always going to be turning points and pundits will always call them. It it inevitable that the US dollar will cease being the world currency, there is a slim chance the USD will fail over the next twenty years and a good chance that within ten years that all will be looking great States side. (I think five years, but ten really improves my odds of being right.)

Times of stress inevitably buildup within large complex systems, this is one of those times for the USD and the US in general. Fear is being whipped up by the probability of a new ‘Global Currency’, how will the US deal with aging boomers, who has the balls or I should say equipment to turn in surpluses and debt.

What is more likely than a collapse is the USD bottoming and them regaining ground against EUR, AUD, JPN, CAD and so on with a few notable exceptions like the Yuan. As always, when is the question?

The worst outcome, would be for Bolton and some other 1%+ holders to sell out late today. As the last place I want to be is with GPG controlling the constitution and not having compulsory purchase, i.e. losers land of 75%-90%.

1.16M shares have sold today. Comprised mainly of small trades with two 75k packages worth  $37,000 being the two high outliers. So no big sellers yet.

I’ll update this post later in the day.

At 15:18 GPG have picked up 3 million shares today, they now own close to 67.7%

I can’t help but drift into a pirates accent when I maul the pronunciation of CAGR. I’ll try to slip CAGR in during my first ever podcast. Compound annual growth is one of the cornerstone concepts  of investing and wealth. I first mentioned it in this post, my worst investment in 2008, but have never explained it.

That’s because there’s a fine explanation for it right here along with a good CAGR calculator. The calculator links to an Excel file, if you prefer a simple online version then try moneychimp. The explanation link is to the Google Wonder Wheel feature, which along with the other search options makes Google look most like ‘the next Google‘. Have you checked out all the search options? Wonder Wheel is good.

The key word in CAGR is compound. Compounding results in exponential growth, which is the engine of wealth.

The Google promo continues. Have you checked out Google Wave? It looks good enough to become the dominate communication interface, just as Google search dominates its space. Did I really say the other day that Google was only a six bagger! What is the CAGR on that? It’s not only a six bagger, it is a six bagger in my backyard. Shame on me.

If you get Wave before me then I’d be super darn happy to receive one of your invitations. I’ll make half my invitations available here. [Though you may need to remind me of that promise.] Exclusivity and highly desirable is a category killer mix . At the very least Wave will raise the bar for all communication software. More intuitive spell checking is the least of it.

Google looks like a fairly priced investment even after the double since the Dec08 lows and an EV of $148B. It’s not cheap, there’s no big margin of safety, but I’d hold it if I owned it. GOOG does have good potential and is the number one pick for the Internet A team.

I’m not buying now, but am conceding that Google is all that. Now that I’m a believer I need to look for good value and technical entry points. Maybe I’ll also try looking at it from a momentum perspective, as a small step on my path to assimilating momentum.

Podcast? It’s inevitable. My kids are big time Fred junkies. Pipe Networks will profit handsomely in Australia from the data tsunami building through both the teens, teenagers and the decade. Shame Pipe (PWK) is priced for it. Akamai is my main internet expansion play along with Telstra and four other telecommunications plays in my portfolio; KONG, M2 Telecommunications, Oplink Communications and Harmonic.

Investing cornerstones

Come on help me build a list.

• CAGR, with focus on compounding.
• Probabilities.
• Risk with a focus on margin of safety
• Use market fluctuations to your advantage, for both companies and the market.
• Stocks are both businesses and candles.

I’ll finish by quoting myself from an Oplink post, “The wise rightly disdain on only looking forward one quarter. However, as many investors have the attention span of an ADHD kid supercharged on Coke, it doesn’t hurt to consider what they’re focusing on.” Keep your friends close and your enemies closer. The same goes for those who focus through a TA lens.

Cornerstones?

Here are Mark Sellers’ essential traits from this speech, So You Want To Be The Next Warren Buffett? How’s Your Writing?

Mark Sellers’ seven traits:

1. Ability to buy fear sell greed.
2. Obsessive about investing.
3. Willingness to learn from past mistakes.
4. Inherent sense of risk based on common sense.
5. Confidence in convictions.
6. Both sides of your brain working.
7. Remain true and thoughtful in a volatile environment.

No related posts.

Safety Insurance (SAFT) the second largest private passenger insurer in Massachusetts reported good earnings on November 2nd. Book value jumped 10.9% YoY and earnings again showed signs of stabilising.

Safety Insurance Third Quarter 2009 Results and Q4 Dividend

• Dividend is unchanged at $0.40.
• Book value up 10.9% YoY to $41.21.
• Combined ratio 93.4%
• Net income $17M, $1.11 eps
• Premiums written stabilising.

SAFT closed at $35.04 with a Book Value of 0.85, considerably below it’s long term average. While investors shouldn’t expect P/B to return to pre-open market days of 1.5 to 1.6 a re-rating on stablising conditions should see a P/B of 1-1.2 with the book continuing to expand.

Full results PDF.

Disclosure: Long SAFT

Guinness Peat Group (GPG) announced 64.15% yesterday and with another 1.8million bought so far today they should end the day owning close to 66% of MMA.

75% allows GPG to change constitution. There was a new constitution out yesterday, which contained the amendments from AGM resolution 7.

I wonder what Nick Bolton is up to. Come on Nick leave me a comment.

The independent directions continue to say no. I’m wavering, but if everyone stands strong I will too!

Flexibility in the Market

That’s the secret, you may know it already. Just as yoga is great for keeping your body flexible and strong, averaging in and out of markets is the way to maintain a flexible and strong portfolio.

I use 50%-150% equity market exposure, with the majority of the time spent in the 80-120% area.

Since around the March market low I’ve sold 11 options in the US, a put in late February and then 10 calls, four of which are for November. The positions are listed below. I almost feel sorry for my broker. Two years ago I was making that many trades most months.

I only now noticed the shoes on the model. It appears she is not practicing yoga as I assumed, still full marks for flexibility.

It still smarts thinking about that LUK call, despite being a profitable round-trip, Leucadia was unfairly sacrificed near the market lows on little more than a last in first out basis.

How to spot probable market turns: I use probabilities based on fundamentals, historic distributions and TA 101 as TraderMark put it. Looking at the option trades you’ll see how as the market became more stretched I sold more calls, with 40% of my calls sold in the last month.

While I wasn’t positive we’d see a short term peak in October, at over 4800 on XJO, S&P/ASX 200 (^AXJO), it was probable. Hence, why just over a week ago I said the All Ords was set for a nasty snapback and back in Mid October as the XJO jumped above 4800 and the S&P 500 closed in on 1,100, I said the following in my correction they say we must have post. “I’ve spent sometime this morning running various future price scenarios for the S&P and my conclusion is that it is very unlikely that waiting to see the momentum change will result in better sale prices. Hence I’ll continue to stick to my averaging out plan. “

To card players this will seem simplistic. I basically increase my bet when the odds are in my favour, the better the odds the higher the wager. Hence in October the odds appeared strongly in my favour so I increased my conservative bets. I use the same odds philosophy as part of my position sizing algorithm; I wonder if I can keep a straight face when calling a hodgepodge of factors an algorithm.

An added benefit of averaging in and out of the market is it should enforce rotating out of fully valued companies into undervalued companies.

No, I don’t always get it right and yes I still have a lot to learn, but my results are encouraging and it’s rather pleasant to celebrate good calls. Even if a tad prematurely, as good news could arrive tomorrow sending the market into a new up leg or for strong Reflexivitists the market could head higher tomorrow and thus turn the news flow positive.

I can’t reliably time the turns. If I could then the drinks would always be on me. However, on infrequent occasions when the elastic band is pulled as tight as it was my timing is more accurate, though never certain. The market could have continued sideways to the end of year and might even still do so.

Getting back to my opening comments, people can give the appearance of market timing by consistently posting about the next market turn and can gain the appearance of timing by increasing those predictions as the probability of a turn increases. I may be ‘people’.

If I could reasonably time the market I would buy more options. If I could embrace momentum I would buy more options. I can’t yet, so I mainly sell options. In real life I sell more options as the elastic band gets pulled tighter, as fear or greed move to extremes.  As I said yesterday “I predominately sell calls on fully valued companies increasing the number sold when the overall market hits my fundamental historical and TA targets then buy puts, enter bull spreads and buy LEAP calls when fear strikes.“

Looking Forward

To paraphrase a useless cricket commentator, the market could go down, up or sideways from here. The following quick chart shows one possible path. I’ve said before how I like to read the leaves of at least three scenarios with weighted probabilities. Over the next two months I give 4900, 4500 and 4000 on XJO almost equal billing, with a skew towards the downside. [Update I wrote this on Monday, with the 50DMA now decisively broken the downside is in control. It will take some very good news for the uptrend to regain traction.]

Looking forward in Dinoland. As I learn more, increase my tools and confidence I can see evolving from my 50:150 to -50%:150%.

There’s one thing I been meaning to discuss with you. SAP Project System software is on my short list of  things I’d consider myself an authority on. As an authority on project systems I may be biased, but people appear to under utilise project management in their lives. Project management and probabilities are cornerstones of my world.

1. Name and describe the objective.
2. Break it down into small achievable tasks.
3. Do it and refine as you go.

Be the squirrel, break down your insurmountable objectives into discrete easily achieved tasks, do it one nut at a time.

To get to to -50%:150% I’ll have milestones of 0-150% and 25-150%. Actually, it’s coming up on two years since I was at 50%, so that can be my first target. Now I better get busy with the tasks required to meet my objective.

Percent invested is just one tool in a entire toolkit that I have yet to master. I look forward to that mastery.

Five ways to maintain flexibility.

1. I’ve covered percent invested, it deserves a place at the top of the list.
2. Sector.
3. Market cap. Is big the next black?
4. Volatility. Embrace it, use it.
5. Embed yoga within your life. Going to a yoga class is better than nothing, but embedding yoga in your life is easy to do and it’s free. Think posture!

In summary. Stay flexible by altering your percent invested. Use probabilities based on fundamental historical data and technical analysis to determine your market exposure. Use project management to help you achieve more in life and business.

While the Investometer series chart shows no change this month the second chart reflects the calls sold.

Calls sold on AEO, MIDD, NUAN and FDX this month generated cash for the ‘larger, no external cash flow account’.

It just struck me that I might be a 101 kind of guy. I commented the other day how I use TA 101, well I mainly stick to Options 101 too. I predominately sell calls on fully valued companies increasing the number sold when the overall market hits my fundamental historical and TA targets then buy puts, enter bull spreads and buy LEAP calls when fear strikes. [Woops! That TA 101 comment is still in a draft post, so I will post about TA 101]

The growing account with regular cash flow is our SMSF account. Due to regular personal and employer contributions we’re happy maintaining a slightly lower cash balance in our SMSF. If the market goes down we’ll have new cash to add each month. If you manage your own Super, what approach do you take to cash? What does your investment strategy say? Mine has cash ranging from 0-100% with an expected average of 10%. While waiting for market opportunities cash will be invested in high yielding online accounts. Fixed term accounts may also be used.

As an aside those in accumulation phase should be rooting for a sell-off. The longer and lower prices go in the near term the better the future returns on new cash. A well known Warren is credited with that wisdom, but it probably predates him.

Fusion Investing Portfolio

The FI Fund briefly returned to positive territory during October. It was good to pop into the green and lets hope we see more of that soon.