The weekly ramblings of an eccentric trader. - Part 3

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Weekly Ramblings of an Australian Stock Trader - incorporating

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When Investment Risk Returns…Here’s What You Need to Do.

When Investment Risk Returns…Here’s What You Need to DoA common phrase we’ve heard over the past five years is that the world’s bankers ‘haven’t learnt the lessons of the 2008 financial meltdown’.

The argument is that they’re making the same mistakes now that they made during the 2000s leading up to the meltdown.

Of course, that’s not true. The bankers have learned their lesson. They’ve learned they can take as many risks as they like, because governments and central banks will ultimately bail them out of any problems.

And besides, let’s not just blame the bankers. They are after all just responding to investor demands in a low interest rate environment. In order to give investors bigger returns the bankers have to create riskier and more complex investment products.

So it shouldn’t surprise you to hear that after nearly six years of record low interest rates, risky investments are making a comeback…

Now, if you’re looking for us to tell you not to invest in risky investments, you’re out of luck.

Remember that aside from penning these notes to you each day, our full time job is seeking out some of the riskiest investments on the market – tech stocks and small-cap stocks.

So the last thing you’ll hear from us is the idea that you shouldn’t take risks. [Read more →]

October 28, 2013   Comments Off

Why You Should Prepare For a Year-End Surge for Australian Stocks.

Why You Should Prepare For a Year-End Surge for Australian StocksFor a time we felt quite lonely in our bullish market position.

For nearly a year we’ve trumpeted the idea that Australian stocks could hit 7,000 points in 2015.

But 2015 still seems so far away. So a few weeks ago we gave you another target: that the Australian index would hit 6,000 points by early next year.

So far things are going to plan.

But now we’ve got some company in our once-lonely bullish position…

The thing about being a contrarian investor is that we’re often a lone or minority voice when it comes to picking an investment trend.

When most folks hoot and holler about a raging bull market, we don’t mind tagging along, but we also play with a cautious hand.

And when others run scared, fearing the worst, screaming that the market is crashing, we take note…and then start hunting around for cheap stock opportunities.

That’s when we hoot and holler to buy stocks.

It’s also why we’ve backed stocks for the past 18 months and why we’ve picked the market to keep going higher.

But as we say, others are now starting to follow our lead. [Read more →]

October 28, 2013   Comments Off

Using Stock Charts for Technical Trading: Linear versus Log Scales.

Using Stock Charts for Technical Trading: Linear versus Log ScalesIt can sound quite fancy when someone says they’re using a ‘log scale‘ on a chart. Most people probably scratch their heads at the term. But in actual fact it’s a pretty simple concept.

Generally speaking there are two scales for charting – normal (linear) or log (logarithmic).

Let me explain the difference as this is an important concept for new technical traders to understand.

Imagine a stock that goes from $1.00 to $100.00 over a number of years. When the price initially goes up to $2.00 it’s a 100% gain in the stock price. But when the stock price goes from $99.00 to $100.00 it’s still a $1.00 price move, but in percentage terms is has only gone 1% higher.

So the same $1.00 move has caused a 100% gain in one instance and a 1% gain in another instance, depending on the stock’s starting price.

On a normal chart with each dollar separated by the same distance, you wouldn’t gain a sense of the percentage moves in the price over time. See the long term price chart of Fortescue Metals [ASX: FMG] as an example. [Read more →]

October 27, 2013   Comments Off

Money Weekend’s Technology FutureWatch: 26 October 2013.

Your Next Broadband Provider Could Be NASA
NASA has just tested a new communications system. The simple description for it is space-broadband. It’s not your average broadband. This communication from space is at speeds that smash broadband speeds here on Earth.The Lunar Atmosphere Dust Environment Explorer (LADEE) is currently in orbit around the moon. It’s collecting space dust and sending test results back to Earth. But instead of using traditional radio signals to send the data, LADEE has gone high-tech.

The new system is the Lunar Laser Communication Demonstration (LLCD). And LLCD is as every bit as cool as it sounds too.

What LLCD does is send data back to earth from lunar orbit. Now sending data from space isn’t anything new. The Voyager spacecraft sends data back to earth…and it’s gone inter-stellar.

LLCD is cutting edge not because of what it does, but how it does it. It uses an infrared laser that pulses hundreds of million times a second. And this laser is faster than the fibre optics we get in our homes.

LLCD blows home broadband away. NASA got download speeds of 622 Mbps.

Of course sending a laser from the moon’s orbit to Earth isn’t that easy. NASA says it’s hard to point the laser in the right direction. So hard in fact it’s like, ‘the equivalent of a golfer hitting a ‘hole-in-one’ from a distance of almost five miles.

I’m not sure how they calculated that. But it’s NASA…so I’m sure someone figured it out. [Read more →]

October 26, 2013   Comments Off

Why Cyber Security Will Become a Crucial Industry in the Years Ahead.

Internet securityWe’re writing to you again today from the 4th Annual Australian Microcap Investment Conference in Melbourne.

Yesterday’s line up was a good mix of companies. We popped in to see those that interested us the most.

During the rest of the time we caught up with the market action. We also put together the weekly update for Revolutionary Tech Investor.

Oh, and we chewed through a few pages of Richard Clarke’s book on cyber security, Cyber War: The Next Threat to National Security.

Don’t worry, we weren’t slacking off. Cyber security, cyber terrorism, and cyber warfare were all the subject of the latest issue of Revolutionary Tech Investor.

And based on what we’ve learnt on the subject in recent weeks, if we thought cyber security wasn’t such a big deal before, we sure as heck get it now…

We’ll be honest, when our in-house technology analyst, Sam Volkering, suggested a few months ago that we cover cyber security in an issue of Revolutionary Tech Investor, we almost brushed it off.

The first thought that came to mind was, ‘What? You want us to tip an anti-virus software company? That’s hardly revolutionary.’ [Read more →]

October 25, 2013   Comments Off

Google’s Next Big Project…Cyber Security.

Google’s Next Big Project…Cyber SecurityLast week Google [NASDAQ: GOOG] became a US$1,000 stock. Its market cap punched through US$335 billion. It’s now on track to surpass Exxon Mobile [NYSE: XOM] and Apple [NASDAQ: AAPL] as the world’s biggest company.

Their balance sheet is healthy, revenues are as strong as ever and they’ve got more cash than they know what to do with. Last week Larry Page was talking about the billions Google spend on research. He said, ‘I think [shareholders] should actually be asking me to make more significant investments. I wish I knew how to do that.

In other words, the billions spent on research is chicken feed and he thinks they need to spend more. More on moon-shot projects like ‘Google Loon’. More on humanity-based projects like ‘Calico’.

With all these non-core business-based projects I get the feeling Google is starting to reposition the entire business.

The Evolution of a Giant
I don’t wish to evoke thoughts of Orwell’s Nineteen Eighty-Four, but I’m curious about Google’s big picture plan. I have my own idea which I’ve mentioned before. To remind you, I think Google will eventually be as powerful as any G20 nation state.

That’s to say one day you might find yourself living in the Republic of Google – a place where laws and rules are reflective of the modern world. It would be a place where technology, science and the arts meet to accelerate humankind. And where human rights like freedom of expression are a foundation of society. [Read more →]

October 25, 2013   Comments Off

How to Tell if This Rally Will Last – Watch Small-Cap Stocks…

How to Tell if This Rally Will Last – Watch Small-Cap Stocks…As we wrote to you last week, when the market begins to lift off, typically small-cap stocks lead the way.

That’s because those attracted to small-cap stocks are usually those investors who are prepared to take more risks and are looking for the biggest bang for their buck.

By the time other investors feel the market is safe enough to enter, small-caps have already risen many multiples. The more conservative investors then tend to go for what they consider safer stocks – blue-chip stocks.

And that’s fine. But it’s not where you’ll find much excitement or innovation. For that you need to follow the small-cap sector. That’s why this morning we’re writing to you from the 4th Annual Microcap Investment Conference at the Sofitel in Melbourne’s CBD…

So, why are we here?

Well, we wanted to get an idea how others feel about the market and the outlook for stocks. Closeted away in our Albert Park office for 10-plus hours a day, we could lose touch with what’s really going on in the wide world.

It’ll be great to see the CEO’s and MD’s talk about their businesses and the opportunities they see in the market. And just as importantly, we’re keen to tune it to what other investors and analysts think about the current market.

If these folks are representative of the folks we hear about on TV and read about in the papers, we doubt that more than one in a hundred will be as bullish on the market as your editor. If that’s true, it’s fine by us. [Read more →]

October 24, 2013   Comments Off

Why Most Stocks Lose Money.

Why Most Stocks Lose MoneySince the deal in Washington the markets have celebrated. The stock market indexes have climbed higher than when the shutdown began. Optimism has paid off again in 2013.

It has to be said that for most of the past three decades or so, optimism has paid off,‘ bank analyst William Vincent opined in a recent column for SNL Financial titled ‘Where Are the Bears?

But has it really?

Vincent’s column looked at the lopsided consensus on a number of big stocks as a warning. (Apple, for instance, has 43 buys against just three sells.) In that column, he also rolled out the bullish refrain by citing the returns of various stock market indices. The Dow is up 358% since 1984. The Nasdaq, though it remains below its 2000 peak, is still up 2,765%. The indices deceive.

If you really track the mortality of companies,‘ says Carlo Cannell, ‘you’d conclude the market does not have the upward bias everyone thinks it does. The market is actually a well-tended garden.

Cannell is one of those rare birds, an investor who has consistently made money on the short side betting against companies. (The quote comes from The Art of Value Investing, a collection of quotes from some very good investors, edited by Whitney Tilson and John Heins. Like a bag of chips and a jar of salsa, it’s not a book you consume in one go. It’s good for dipping.)

Cannell’s analogy of a well-tended garden is perfect. The makers of the index weed out the losers. By doing so, they make the returns on stocks look greater than they appear.

Most stocks lose money,‘ is the way John Del Vecchio and Tom Jacobs start off their new book,What’s Behind the Numbers? The authors want to help prevent you from getting snookered in the market. They start by making sure you understand Cannell’s point. [Read more →]

October 24, 2013   Comments Off

Could Google’s Share Price Signal a Real Economic Recovery?

Could Google’s Share Price Signal a Real Economic Recovery?How do you fancy paying US$1,011 for just one share?

If that’s your bag you may want to think about having a flutter on Google [NASDAQ: GOOG]. It closed at that price on Friday in the US. It was up 13.8% for the day.

Of course, at US$1,011 Google has a long way to go before it catches up with Warren Buffett’s Berkshire Hathaway [NYSE: BRK/A], which ended the day on Friday at US$175,400 per share.

But Google’s whopping share price is only part of the story. The most important part is the reasonbehind Google’s big price rise on Friday – it could mean the phoney economic recovery is stronger than we think…

Let’s make one thing clear. We’re still copping flak from folks who think we don’t get what’s going on in the big economic picture.

Well, we’ll say it again: we do get it. That’s why we call it a phoney recovery. But we also get it that regardless of what’s happening on the macro-economic and political front, stocks are still going up.

Just look at Google. Just look at the S&P/ASX 200. This year they are up 44.5% and 13.9% respectively.

You’ve got to ask yourself, do you want to sit and gloat and say things are a mess and not make money? Or do you want to acknowledge things are a mess and give yourself a chance to make a lot of cash on stocks?

You know our answer. What’s yours? [

October 23, 2013   Comments Off

China has the USA in its Crosshairs – Buy Gold and Silver Now.

China has the USA in its Crosshairs – Buy Gold and Silver NowYou should stock up on gold and silver while you can – in particular, physical precious metals and high-end mining shares.

In the short and medium terms, prices of precious metals will do whatever they do. Up a little, down some and sideways for a while. Day to day, you just never know. The price chart bounces around. But long term? Hold gold. Hold silver.

In fact, today there’s more reason to hold precious metals…

Why buy gold and silver, especially after the sell-down of the past year or so? Start with the fact that Chinese are buying lots of gold. Lots! Here’s the latest chart of Chinese gold imports from Hong Kong, showing strong, steady accumulation over the past two years:

Since September 2011, China imported 2,116 tonnes of gold. So in just two years, China has imported just under the equivalent of the entire gold reserves of France (2,435 tonnes) or Italy (2,451 tonnes). [Read more →]

October 23, 2013   Comments Off