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MAGAZINE

SPREADBETTING The e-magazine created especially for active spread bettors and CFD traders

JU ED N IT E 14 IO N Issue 29 - June 2014

An SBM Tech Focus Special How to profit from the technology sell-off! www.financial-spread-betting.com

THE UK’S ONLY FREE ONLINE FINANCIAL MAGAZINE! DOMINIC PICARDA - US TECH STOCKS SPECIAL

BLINKX - ZAK MIR’S PICK OF THE MONTH

SPORTING INDEX WORLD CUP PREVIEW

HE’S BACK! ZAK MIR INTERVIEWS ANTON KREIL

AND MUCH, MUCH MORE - PACKED FULL OF TRADE IDEAS FROM ALL OUR CONTRIBUTORS!


Feature Contributors Robbie Burns aka The Naked Trader Robbie Burns - The Naked Trader has been a full-time trader since 2001 and has made in excess of a million pounds trading the markets. He’s also written three editions of his book, “Naked Trader” and the “Naked Trader Guide to Spreadbetting” and runs day seminars using live markets to explain how he makes money. Robbie hates jargon and loves simplicity.

Dominic Picarda Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for four years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science.

Richard Jennings Richard was the founder and original inspiration behind Spreadbet Magazine. A prolific trader for many years and former institutional fund manager, he holds the CFA designation and now runs the unique tax free investment house www.titanip.co.uk. A natural contrarian and true to his Yorkshire roots, his primary investment approach is of a value bias.

Alpesh Patel Alpesh Patel is the author of 16 investment books, runs his own FSA regulated asset management firm from London, formerly presented his own show on Bloomberg TV for three years and has had over 200 columns published in the Financial Times. He provides free online trading education on www.alpeshpatel.com.

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Editorial List EDITORIAL DIRECTOR Richard Gill

Foreword For several unrelated reasons, what sticks in my mind at the halfway stage of 2014 is whether this will be the year for the big stock market correction?

EDITOR Zak Mir CREATIVE DESIGN Lee Akers www.cfdmedia.co.uk COPYWRITER Seb Greenfield EDITORIAL CONTRIBUTORS Dominic Picarda Robbie Burns Alpesh Patel Richard Jennings Filipe R Costa Simon Carter James Faulkner Nick Lewis Patrick Callaghan

Disclaimer Material contained within the Spreadbet Magazine and its website is for general information purposes only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decision. Spreadbet Magazine Ltd. does not accept any liability for any loss suffered by any user as a result of any such decision. Please note that the prices of shares, spreadbets and CFDs can rise and fall sharply and you may not get back the money you originally invested, particularly where these investments are leveraged. In comparing the investments described in this publication and website, you should bear in mind that the nature of such investments and of the returns, risks and charges, differ from one investment to another. Smaller companies with a short track record tend to be more risky than larger, well established companies. The investments and services mentioned in this publication will not be suitable for all readers. You should assess the suitability of the recommendations (implicit or otherwise), investments and services mentioned in this magazine, and the related website, to your own circumstances. If you have any doubts about the suitability of any investment or service, you should take appropriate professional advice. The views and recommendations in this publication are based on information from a variety of sources. Although these are believed to be reliable, we cannot guarantee the accuracy or completeness of the information herein. As a matter of policy, Spreadbet Magazine openly discloses that our contributors may have interests in investments and/or providers of services referred to in this publication.

This is partly because of the obvious point in the interest rate cycle we are at. It is also due to the argument made here at Spreadbet Magazine that the bull market would end on 30th April 2014. Perhaps the fairest thing to say is that the jury remains out on such a call, although few would likely be comfortable going against this assertion. As in many cases of conundrums in the stock market, you might not be a seller, but would you really be a buyer of the FTSE 100 at near 14-year highs, or the Dow and the S&P at record highs? Away from equities there is perhaps an even greater threat: the effect of ultra-low interest rates on real estate. This has not only caused the super-rich to double their wealth over the past five years, but also means that everyone and their mother is a housing market speculator, either directly or indirectly. Sub-prime was where the financial crisis of 2007/8 began, and it would appear that a “super-prime” trigger could be the time bomb which is ticking at the moment. As is usual in this country, after engineering a boom, the Bank of England is having to address the consequences of the bubble that Mark Carney has stoked since coming to the UK from Canada. The initial answer seems to be to control mortgages. But it may very well be the case that much of the heat in the real estate boom is not actually driven by your Mr and Mrs Average getting a loan from the High Street banks. Hot money from abroad is the key here. Only a painful Mansion Tax or related “unfair” sanction is likely to be enough to derail this particular “one-way bet.” How easy it will be to structure this ahead of next year’s General Election remains a moot point. If real estate is apparently an accident waiting to happen, and the stock market has seen its best for now, where is the scope for upside? On a wider perspective it seems difficult to argue with what has become something of a Spreadbet Magazine crusade in recent months: the appeal of gold and silver (the latter my May pick), and mining stocks as a contrarian choice. Incidentally, in this month’s technology-themed issue, I have maintained the contrarian theme with a buy call on video advertising group Blinkx (BLNX), just four months after interviewing its nemesis, Professor Ben Edelman. Sorry Ben, but I think, at least for now, the bad news and your blog may be in the price! Enjoy this month’s issue, and happy trading. Zak

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Contents

Dominic Picarda US Tech Stocks Special In the first of our technology focussed articles this issue Dominic Picarda looks at how to play the US markets.

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T1ps - Three Small Cap Tech Stocks to Buy James Faulkner of T1ps.com covers three small cap technology stocks with excellent short and long-term potential.

Sporting Index - World Cup Preview Following up on last month’s World Cup preview, Patrick Callaghan of Sporting Index casts his eye over the teams competing at Brazil 2014 and delivers his verdict.

Capital Spreads - Is the Chinese economic miracle over? Nick Lewis, Head of Trading & Market Risk at Capital Spreads, asks if China can continue its stellar growth rates.

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Robbie Burns’ Trading Diary

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Fund Manager in Focus

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Back by popular demand, Robbie Burns explains how to play detective in order to take advantage of news driven shares.

Contrarian investing “Father” and behavioural finance advocate David Dreman is in focus this month.

Economics Corner - The anatomy of a bubble and its eventual burst Richard Jennings of Titan Investment Partners and Filipe R. Costa look at how bubbles are formed and how they inevitably burst.

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Zak Mir’s Monthly Pick Blinkx

Best of Evil Knievil’s Diaries

Continuing the technology theme, SBM editor Zak Mir explains why controversial video platform owner Blinkx is his top pick of the month.

Highlights of what infamous short seller Simon Cawkwell (aka Evil Knievil) has been trading this month.

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Zak Mir Interviews Anton Kreil

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Anton Kreil is back! Zak Mir talks to the former Goldman Sachs trader and Managing Partner of the Institute of Trading & Portfolio Management on how not to be a ‘monkey’ in the market!

Technology Corner - Google Glass Resident technology specialist Simon Carter takes a look at the recent launch of Google Glass and asks whether it will be a big hit or just the latest fad.

Commodities’ Corner Silver is set to soar according to Richard Jennings of Titan Investment Partners.

Alpesh Patel: The profits are not where you think they are Fund manager and top stock picker Alpesh Patel travels Asia to find his favourite technology picks.

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Markets in Focus A comprehensive markets round-up of under and out performers during the month of May.

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Zak Mir Interviews - Anton Kreil

A ZAK MIR INTERVIEW SPECIAL

ANTON KREIL

He’s back! Anton Kreil explains how NOT to be the monkey in the market

Zak: The Institute of Trading And Portfolio Management’s (ITPM) latest educational resource initiative is entitled, “Don’t be the Monkey in the Market.” But given the scientific evidence that monkeys aiming at a dart board can do better than many “human” fund managers, are you not being disrespectful to our closest relatives in the natural world? Anton: Hi Zak. It’s good to be back talking to Spreadbet Magazine. You would be accurate in suggesting that some past studies have shown that a primate can outperform professional managers / traders. However, these studies have been parochial in their depth and conclusions. Most notably, it’s not really good enough just to have a monkey pick a few stocks and then benchmark their (concentrated) positions and their performance vs a fund that has much lower volatility. The vast majority of fund managers have a volatility cap in their portfolio that they cannot exceed as part of their mandate. So for example, a particular manager may seek a 15% return annually, with a 12% annualised volatility cap. The manager may have 30+ positions. If the market is up 25% that year with 18% volatility, then the manager has relatively underperformed the market. However, on a volatility adjusted basis they have done their job. Journalists are usually the guilty parties that vilify these managers because it makes a great headline, but it is inaccurate to do so.

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The very reason why investors invest money in funds is because of the return / volatility profile of the fund and the manager. So if the manager / fund parameters are met then they have done their job. The manager is basically fulfilling customer demand. In the case of benchmarking a monkey vs a fund manager, if a monkey picks a few stocks, then of course as they have created a concentrated portfolio and a bit of luck on their side, then they have a much better chance of outperforming a group of managers who have annual volatility caps and much more diverse portfolios. So if you pick enough monkeys and enough restricted managers then the monkey that significantly outperforms will make the headlines. Comparing them is foolish unless you are comparing apples to apples instead of comparing apples with pears. The Institute’s most recent free educational resource is called “Don’t Be the Monkey in The Market” and has a much wider message to it than simply trading performance comparisons between monkeys and managers. So I don’t believe we are being disrespectful to our closest relatives. Zak: Clearly the monkey analogy really refers to 90% of short term traders losing money in the market and making a monkey out of themselves. Are you also suggesting that a monkey with a decent trading method or plan could do better than most of us?


Zak Mir Interviews - Anton Kreil

“If retail traders properly understand the infrastructure of the financial markets and learn how to operate within this infrastructure i.e. if they simply survive the first three months by implementing what we teach them, then their chances of long term success as traders go from 10% to over 50%.�

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Zak Mir Interviews - Anton Kreil

Anton: The message behind the “Don’t be the Monkey in the Market” free education that we are providing at the moment is actually that the money lost by the 90% of retail traders is in fact the result of their approaching the financial markets like a monkey. The monkey analogy is more to do with approaching the market as “dumb money” and not approaching the market in the same way that professional traders approach the market. The first edition which we put out a few weeks ago highlights aspects of the market that retail traders overlook as part of their basic educational requirements to become a competent trader. Retail traders don’t really understand the infrastructure of the financial markets and how this materially affects their chances of success.

With the odds of success beyond three months for a retail trader at 10%, it’s not a monkey that can just do better than a retail trader - a coin flip would also do much better. The problem is for a monkey to have the same odds as a retail trader in making money, they would simply have to apply the same methods as retail traders. For example, if I trained a monkey to sit in front of my trading screens and taught the monkey how to press a green button (buy) when there is a “bullish” moving average crossover and press a red button (sell) when there is a “bearish” moving average crossover, the monkey would in all probability stand as much chance as the retail trader in making money consistently over the long term. This is because retail traders are taught to base their trading decisions on information that doesn’t increase their chances of making money and becoming successful in the long term i.e. information that no professional trader would ever base their decisions on. They are also given information that brokers with conflicts of interest want them to base their trading decisions on because it fills their pockets and not the pockets of the retail trader.

We have found at the institute over the last few years that if retail traders properly understand the infrastructure of the financial markets and learn how to operate within this infrastructure (i.e. if they simply survive the first three months by implementing what we teach them, then their chances of long term success as traders go from 10% to over 50%.) The infrastructure education that we teach is focussed on understanding how brokers and the retail trading environment operate and do business. The education highlights where retail traders are positioned in the market, how the conflicts of interest in the market really work against their chances of success (i.e. commission, spread, financing, liquidity) - and what happens behind the scenes to ensure that the odds are always against them. The “Don’t be the Monkey in the Market education also shows retail traders how these conflicts of interest manifest themselves into conscious methods used by retail brokers to masquerade as the truth. This is so people feel like they are trading in the correct way, when in fact they are trading in the opposite way to the way they should be in order to ensure sustainable success.

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The point here is simple. It has been categorically proven in the last fifteen years that over 90% of “modern (i.e online)” retail traders lose money. This is because they concentrate on all the wrong things.


Zak Mir Interviews - Anton Kreil

Zak: Does the assumption that trading is “rocket science” put people off structuring their trading? Anton: I think that’s a fair point. In the last three years we have presented to over 8,000 people as a company. One of the very clear trends we have seen is that retail traders who attend free broker and trading educator seminars get overwhelmed by trading information because they are essentially lambs to the slaughter. The brokers and the trading educators who have a structural conflict of interest - which naturally works against the objectives of the retail trader - are fully aware of this and they purposely deliver the wrong information to retail traders. It’s basically not in the brokers’ or educators’ interest to deliver the information that will allow retail traders the best chances of long term consistent trading success. This is because brokers are incentivised by commission, spread, liquidity conflict of interests (taking the other side of your trades) and financing conflicts of interests (making a turn on the leverage they provide to you from the wholesale supplier of the financing). It’s not a question of taking the information they have given you and using it in the “wrong way” that loses retail traders money. It’s simply because it’s the wrong information. It is a binomial / dichotomous situation except that the odds of the retail trader getting the right information is not 50/50. Unfortunately, 95% of market participants that are either brokers or trading educators will give you the wrong information because they are incentivised to. Blinding retail traders with “science” is also very common. The vast majority of brokers and trading educators do not trade themselves. So they literally have no idea what works and what doesn’t. Most of the time they are simply delivering trading information that you can buy in a $20 book on technical analysis on Amazon. This is something you can simply do yourselves. Except what these people do is buy the book, repackage the content into a PowerPoint presentation then attempt to blind people with “science” i.e. mostly nice patterns on (historical) backwards looking charts. Drawing some pretty lines on a historical chart is not physics, it’s not biology and it certainly isn’t chemistry. It’s simply a douche bag broker / educator who doesn’t know anything about trading, trying to blind you with what seems to be a “science” but really isn’t.

The only “science” they have created in doing this is the “science” of buying a book on Amazon for $20, convincing you that what they are teaching you is worth more (sales) and making you part with your money for something that’s essentially worthless. The problem is that the trading education market is so rife with market participants that have a structural conflict of interest that retail traders seeking the equivalent of a professional trading education simply face a 95% chance of being taught by one of these people. The vast majority of the time they will be “blinded with science” (a.k.a. bullshit). Through no fault of their own, the retail trader ends up believing that trading is a “science”, or even worse “rocket science”, when in fact all it is in reality is a process in getting the correct education and some application over a 12 to 24 month period to learn the real approaches that successful professional traders use. The professional approaches are literally the polar opposite of the “rocket science” information that the vast majority of retail traders encounter. This then discourages retail traders and they understandably lose confidence because they unnecessarily lose money. This not only puts people off structuring their trading in the same way professionals do after they have had their first or second encounter with these morons, but it also puts people off trading altogether. This is a sad fact. People end up with the wrong impression of what trading is all about and they end up missing out on a life skill that if they managed to learn properly would pay them for the rest of their lives. Zak: Are there basic rules and frameworks in trading that ITPM offers which most normal / money losing traders could understand? Is there the risk that signing up to what you are offering may be abandoned half way due to the degree of difficulty? In what way do you address the discipline issue? Anton: I obviously can’t go into the specifics of what we teach too much here. However, after teaching on the road for two years prior to going global and launching our Professional Trading Masterclass (PTM) Video Series, the delivery of all the key information, education and content has been perfected so that everyone can understand how to implement it to become successful in the long term. We get feedback from our students regularly, almost on a daily basis. All of them have understood the key content in the video series when it comes to risk management and discipline.

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Zak Mir Interviews - Anton Kreil

As part of the thirty online videos within the Professional Trading Masterclass (PTM), the four psychology videos (modules) are literally a game changer in terms of teaching retail traders how to manage their trades and portfolios with discipline for long term success. Zak: As well as the stop losses / money management and basic perspective on where a stock or market is, a large part of being a successful trader seems to be down to mindset. Is this something you can be taught without having money on the line and having been bloodied in battle? Anton: I get asked this question a lot and the answer is it that it genuinely CAN be taught. However, there is a big caveat to the success in it being taught. What we have found in the last few years is that most of our successful students that complete our education, and go on to make money in the markets consistently, tend to have done something else in their lives that they have been successful at. This can literally be anything. From completing a tough undergraduate or master’s degree, building a successful real estate portfolio, climbing up the corporate ladder in a difficult industry, starting and building their own successful business, competing internationally at sport and even serving in the armed forces and being promoted through the ranks. The trend is very obvious from where we sit. It’s that if you have been successful at something else in your life you are more than likely to be able to transfer the skillsets that made you successful in other fields into trading and portfolio management.

“so much of the skillsets required in becoming a successful trader / portfolio manager are required in life generally to be successful, both financially and emotionally.” Most of the time it is about formalising what made you successful and then adapting and implementing these skillsets into the world of trading. We teach all of this information in a formalised process as part of the PTM Video Series.

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Therefore, even if you feel that you haven’t yet obtained these attributes, you will be shown them within the video series. What we have found is that the people who have not yet been successful in other areas of their lives financially and / or in their career don’t necessary fail, it’s just that this will be the first time they have seen this information as it is not available anywhere else in the world. Genuinely, what we have found is that most of these people reach a “light bulb moment” within the education when everything starts to click for them. This is usually the beginning of a big change in their mentality and inflection point in their earnings and in their life in general.

Zak: Are there times when you have to tell someone they are never going to be a successful trader? How do you cushion the blow? Anton: Of course! Trading and portfolio management is not for everyone. It can be taught to the vast majority by responsible people with the expertise to deliver the key information and messages in a format that the vast majority understand. However, a lot of people have a perception of trading that differs greatly from the reality. We find a lot of people’s expectations in the retail market are far too high and a lot of people get disappointed when they realise that to become a successful trader requires regular application on a weekly basis. Unfortunately, a lot of people then do not want to follow through and apply themselves to make money consistently. That’s unfortunate, but it’s just a fact of life. That said it doesn’t mean that if people get the right trading and portfolio management education that it’s a waste of time. The skills learnt are life changing and are permanent.


Zak Mir Interviews - Anton Kreil

Therefore, at some point these people will make back the value of their education multiple times over, not just in trading and portfolio management but in all other areas of their lives. This is because so much of the skillsets required in becoming a successful trader / portfolio manager are required in life generally to be successful, both financially and emotionally. Zak: The header in “Don’t be the Monkey in the Market” implies that retail traders are being conned by the “salespeople” with whom they open an account with at spreadbetting / CFD firms. But is it not just normal human greed and folly which is at play here, something merely worthy of no more than a “caveat emptor”? For instance, it seems to be the case that the “salespeople” are just as much, if not more exploited than the people they are trying to hook – chasing commissions and targets. Anton: I would say this is a very accurate analysis. The vast majority of brokers and trading educators are simply sales people incentivised by commissions and targets. They themselves are guilty of not even knowing that the information they are relaying is never going to make their retail trader clients any money. The information asymmetry (caveat emptor) that exists is the major problem. This, combined with the fact that the brokers and trading educators relaying the misinformation are dumb enough to think that it’s useful, is a ticking time bomb. It literally is the blind leading the blind. The only reason they chase commission and targets is because they have been set this infrastructure by management and because it is legal. All of the conflicts of interest outlined in Edition 1 of our “Don’t Be the Monkey in Market” education are actually illegal in Singapore. The FCA in the UK is almost a decade behind.

This doesn’t mean however that retail traders should feel sorry for them. What retail traders should be doing is totally avoiding them and doing literally the opposite of everything they teach and recommend in terms of trading education. Do the opposite of the poor broker / trading educator and you will more than likely survive, if not win, in the long term. We teach all of this in the PTM Video Series. Zak: Are there actually any good points to being a retail trader? Or is the only good retail trader one who has been able to turn professional? Anton: There is a massive plus point to being a retail trader. It’s obvious. A retail trader that makes money! You don’t have to have the objective of wanting to be a professional trader. You can simply be a person that wants to use their own money to make money and build incremental wealth consistently over the long term. We have many guys in the Institute with this objective. In fact, those with the objective of wanting to become a professional trader are in the minority. Zak: Financing costs, variable spreads, slippage, fast markets, platforms going down. These are all part of the game in the financial markets, and in fact most of these problems are much worse now than they were five years ago. Are most of us already aware that this particular casino table is tilted against us? Are the rewards for those trading correctly easily able to outweigh such issues, so that only those who do not know what they are doing are really affected by them?

The brokers (salespeople) have been told to relay particular information, hit certain targets and they probably have personal circumstances that dictate that they have to earn a certain amount of money each month. For example, if a broker or a trading educator has a mortgage or has to pay their rent (pretty much all people), the vast majority of them only care about making it through each month. So they will tell you anything to make sure they get commissions to cover their living expenses. This conflict of interest leads to a situation where they will end up believing their own bullshit because they say it enough times to people that they even convince themselves that it’s true. The sales people are definitely exploited by their management.

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Zak Mir Interviews - Anton Kreil

Anton: As alluded to earlier, the vast majority of retail traders are totally unaware of how the infrastructure works in the retail trader market and how retail brokers work. This is one of the main causes of the problem and keeps the status quo maintained for the retail brokers. They have no interest in people knowing how all of these issues affect performance and how it creates a situation in which from the very outset, the retail trader without this knowledge has the odds stacked against them. The best thing about these parameters is that if you know what to do as a trader you can minimise their impact and stack the odds in your favour. Typically, this involves doing everything in the opposite way to the way the brokers want you to behave. When you become consistently profitable by doing this, the sad fact is that you then become worthless to the broker because you are a nuisance to them. People that make money cost the broker money. They then start to make life difficult for you. I will give you a recent example. One particular brokerage company that the Institute used to clear a lot of trades through attempted to charge us as a significant amount of money (annually) because the majority of Institute Traders that had trading accounts with them were making money. They had decided that the Institute was not profitable for them and put up a financial barrier for us to either jump or be locked out.

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“... if you are profitable you are more than likely going to be exposed to the brokers making life difficult for you, but you have to use your common sense, be strong and stand firm.” We gave them what they wanted. All of the Institute traders closed their accounts and moved their money to another brokerage company. The broker lost over £2mn of deposits. The conclusion is that if you are profitable you are more than likely going to be exposed to the brokers making life difficult for you, but you have to use your common sense, be strong and stand firm. If the broker doesn’t like you because you make money, just close your account. You will more than likely then witness the brokerage company come begging to keep your business.


Zak Mir Interviews - Anton Kreil

Zak: You seem to have an ongoing campaign to save the retail trader and / or create new ones who go about trading in a professional manner. Why do you continue to care after all you have seen, or, like the Blues Brothers, are you on a “mission from God?” Anton: HAHAAA!!! I’m not going to lie. It’s definitely not a “mission from God.” Our interest is the same as everyone else. Primarily financial. Our education first and foremost has a transaction value. Anyone who buys the Professional Trading Masterclass (PTM) Video Series gets invaluable information and of course we get paid for that. Anyone in the world can buy it, take that information away and implement it with pretty much any brokerage company in the world. However, if people want to then come into the Institute of Trading and Portfolio Management and trade under our structure, the PTM Video Series is the pre-requisite for doing so. Students must take the course and pass the exam. They are then eligible to join our community. We are in the process of building a very large profitable community of retail traders and we currently have over 150 traders. Who knows where the tipping point is? But for the Institute, the prize of having hundreds if not thousands of profitable traders and changing the industry is the primary objective / target.

We know that if we build this with integrity then the financial rewards and the possibilities for changing the market are literally limitless.

“...for the Institute, the prize of having hundreds if not thousands of profitable traders and changing the industry is the primary objective / target.”

Don’t Be the Monkey in the Market (Edition 1) If you would like to apply for the Institute of Trading and Portfolio Management’s “Don’t be The Monkey in the Market” (Edition 1) Free Education Document

CLICK HERE Please ensure you enter all of your details correctly, including your email address and phone number. Please also make sure that you include the text “Don’t Be the Monkey in the Market” in the message field.

Professional Trading Masterclass (PTM) Video Series The price of the PTM Video Series will be increasing on July 1st 2014. See recent press release HERE In order to take advantage of the current prices of the PTM Video Series, please go to www.instutrade.com/education/ and enter the code “SBMJUNE” in the promo code areas of either the 1 month or Lifetime Access options. As a Spreadbet Magazine reader you will be eligible to receive 10% off the current prices prior to the scheduled price rise on July 1st. This 10% discount code will expire at midnight on June 30th.

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Three small cap tech stocks to buy

THREE SMALL CAP TECH STOCKS TO BUY BY JAMES FAULKNER OF T1PS.COM

Last month saw a sharp sell-off among technology stocks on both sides of the Atlantic, prompting some commentators to talk of an imminent implosion of a ‘second dot.com bubble’. In the US, big names such as Amazon, Twitter and Facebook were hit by a tidal wave of selling. Here in the UK, new entrants to the market including Just Eat, AO World and Boohoo all saw their shares slip below their IPO price – some of them significantly so. Although the Nasdaq has staged a partial recovery of late, the April sell-off was certainly a shot across the bow for technology investors. Here at t1ps, we think it is unlikely that anything on the lines of the original dot.com crash is about to take place. While we don’t deny that the valuations of certain tech stocks look stretched, the fact remains that the majority of technology stocks around today are profitable, viable enterprises, while the reverse was generally true in the dot.com crash. Nevertheless, we believe that those looking to gain exposure to the sector should take a highly selective approach, not least because simply buying into the latest hot floatation has proved to be a strategy with mixed results at best.

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We believe that one of the main challenges facing investors in this space is the degree of ‘hype’ surrounding the big name tech stocks and recent ‘hot’ IPOs. This has fostered a sellers’ market and partially explains the string of high-profile listings on the London market recently. With this in mind, we believe that investors willing to accept the inherent risks associated with small cap companies should consider the junior markets as an alternative means of gaining exposure to the myriad of exciting investment themes within the technology sector today. Small technology stocks are generally less well researched and, in many cases, undervalued relative to their larger peers. As such, they also provide the opportunity for better gains. Overleaf are three companies we currently like the look of.


Three small cap tech stocks to buy

“Small technology stocks are generally less well researched and, in many cases, undervalued relative to their larger peers. As such, they also provide the opportunity for better gains.�

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Three small cap tech stocks to buy

The first company we highlight is cyber security specialist Accumuli (ACM), which is enjoying decent growth on the back of wider macro trends. According to the Deloitte Global Security Study 2013, the median number of cyber attacks per UK company increased from 71 in 2011 to 113 in 2012, and the average cost per ‘high severity’ attack increased from £450,000 to £850,000. More than three quarters of the annual £27bn cost to the UK in this area is now felt by businesses. This should provide a growing market for Accumuli, which is developing its offering as a one-stop shop for businesses looking for tailored solutions to meet the threat from cyber crime. We believe there is particular value in Accumuli’s agnostic approach, which incorporates elements of owned IP with third-party product sales.

ACCUMULI CHART

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The firm sees itself as a niche player, bridging the gap between the fragmented market of security resellers, among whom it identifies resale and acquisition opportunities, and the larger players such as Xchanging and Computacenter, whose large sales’ bases the company looks to exploit. At the same time as driving growth through acquisitions, the firm is generating enough cash to pay shareholders a meaningful and growing dividend. We also note it is one of the few companies on AIM to state an explicit payout ratio, which is targeted at distributing up to 30% of pre-tax group EBITDA via a dividend. In a recent update for the year to March the firm said it was trading in line with market expectations, with group EBITDA expected to rise by 38% to £2.9m on sales in the region of £17m. Cash balances at the period end stood at £3.5m, down from £7.2m a year earlier, but this was after funding two acquisitions: the settlement of deferred consideration for an earlier acquisition, and payment of a maiden dividend. As an acquisitive company, we believe the main risks to be related to the execution and integration of acquisitions, along with meeting market forecasts.


Three small cap tech stocks to buy

IQE has been left out of the recent bull market for technology stocks, largely as a result of a softening in the smartphone market, which has traditionally been the major outlet for its semiconductor wafer supply business. However, several recent acquisitions have transformed the business, and IQE now boasts market-leading positions in the growth areas of wireless, advanced solar (CPV), Power Semiconductors and LED lighting, as well as a range of consumer and industrial applications utilising advanced lasers (VCSELs). What really stands out is that IQE is now the clear global leader in the provision of wafers to the wireless chip industry, with an estimated market share of between 50%-60%. It is therefore perhaps unsurprising that IQE has previously been mooted (and confirmed) to be a potential takeover candidate for the likes of Intel.

While the weak smartphone market may continue to pose a few headwinds in the short run, the longer term looks brighter. According to the International Data Corporation, smartphone shipments are expected to continue to grow in the coming years to reach 1.7 billion units by 2017, up from one billion in 2013. Meanwhile, the company plans to close two sites in the second half of the year in a move which is expected to yield over £7m of annualised cost savings. Furthermore, better inventory is having a positive effect on cash returns, with strong working capital management driving free cash flow to £16.2m (before deferred consideration payments associated with acquisitions) in 2013. Key risks include the timing of the rollout of the firm’s commercialisation programmes, and exposure to destocking in key markets.

“What really stands out is that IQE is now the clear global leader in the provision of wafers to the wireless chip industry, with an estimated market share of between 50%-60%.”

IQE CHART

June 2014

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Three small cap tech stocks to buy

The last stock we highlight also plays into the proliferation of smartphones and other mobile computing devices, albeit from a slightly different angle. InternetQ offers mobile marketing and digital entertainment services which enable brands, mobile network operators and media companies to design and implement targeted, interactive and measurable campaigns. This puts InternetQ in something of a sweet spot. According to Gartner, global mobile advertising spending is forecast to reach $18bn in 2014, up from the estimated $13.1bn in 2013, before reaching $41.9bn by 2017. InternetQ has wasted no time in profiting from this extraordinary growth. The company has already expanded its commercial footprint to include over 165 corporate clients, and is actively engaged with over 150 mobile network operators (MNOs) having delivered 37 mobile marketing campaigns during the last financial year through its MobiDialog platform.

INTERNETQ CHART

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Meanwhile, its smartphone advertising platform, Minimob, successfully surpassed 100 million unique installations in 12 months, and its product features for developers and publishers are expected to help it to gain a strong foothold in the $40bn dollar app economy. The firm also has a diverse geographical footprint having recently increased its focus in MEA (Middle East & Africa), now 29% of revenues, and maintained its focus on Asia, now 26% of revenues. In a recent update, the firm revealed that first-quarter revenue was up by 68% year-on-year to €30.3m (+30% organic growth) and adjusted EBITDA was up by 59% to €5.2m. The group’s growth rate is said to have accelerated following the successful acquisition and integration of Interacel Holdings, with a particularly strong performance across Latin America. Risks to the investment case include increasing competition in the industry and risks associated with any further acquisitions.

“According to Gartner, global mobile advertising spending is forecast to reach $18bn in 2014, up from the estimated $13.1bn in 2013, before reaching $41.9bn by 2017.”

* The author owns shares in IQE.


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June 2014

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The Best of the Evil Diaries

THE BEST OF THE

Evil Diaries

The man the Daily Mail dubbed “The King of the Short Sellers”, Evil Knievil (aka Simon Cawkwell) is Britain’s most feared bear-raider. He mostly famously exposed the fiction that were the accounts of Robert Maxwell’s Communication Corporation, an event which helped to earn his pen name.

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The Best of the Evil Diaries

“...I am virtually the only fellow left as a shareholder in Naibu (NBU), whose results came out yesterday. This is probably because I am a greedy sucker.” In the same vein, he also predicted the end of Asil Nadir’s infamous Polly Peck fraud. A big man with a bigger reputation, Evil Knievil famously made £1mn by short selling shares in Northern Rock during its collapse. He also uses his knowledge and experience to buy shares, often resulting in the same devastating effect. Three times a week Evil provides his thoughts and musings on the markets only at http://www.theevildiaries.com He doesn’t just deliberate about the financial markets on The Evil Diaries but also comments on politics, current affairs, which horses/sports bets are his latest favourites, with the occasional film and book review thrown in for good measure. Here we take a look back on the highlights of Evil’s diaries in the month of May.

2nd May 2014 Avanti (AVN) have this morning announced a further deal with Avonline and it is described as “multi-million dollar”. All a bit too vague for me. I have not closed my short. Tesla (TSLA on Nasdaq) announced that it is taking batteries very seriously. But so what? After all, battery-powered cars need batteries. I reckon it is time to sell again. Now $208.

7th May 2014 Twitter (TWTR on NYSE) unlocked its founder shareholders yesterday. They are sure foundering. The price finished down by 18% at $32. Clearly, until matters are shown to be otherwise, growth is tailing off. Needless to add, Twitter is losing money and the fundamental problem, which is the inability to monetise the service, is staring out.

9th May 2014 Tesla (TSLA on Nasdaq) is starting to crash and closed at $178 last night. It will be slower from here on but the decline is inevitable. After all, no less than 30% of the register is lent out to shorters.

Zillow (Z on NYSE) reported. Andrew Left insists that there is nothing remotely there to justify a price of $98. So keep bashing away down to whatever. I am paying 4.25% p.a. borrow charges. That is quite steep. Seemingly, of those I know, I am virtually the only fellow left as a shareholder in Naibu (NBU), whose results came out yesterday. This is probably because I am a greedy sucker. My trouble is that I just cannot ignore the vast earnings reported or the final dividend of 4p. However, inspection shows that the cash one would expect to be generated just is not being generated. Particularly alarming is the cost of some licence/approval/right to build a factory, 97,500,000 renminbi or £10.25mn. It seems a preposterous figure and, inevitably, one wonders just what other debits will emerge where they will only be construed as various covert means of siphoning off cash.

16th May New World Resources (NWR) declare that they will refinance by the end of 2014. But although I was hoping for the declaration of a total bust right now I still reckon that there is no hope whatsoever of justifying the current 36p. I am still short Lidco (LID) since my informant is insistent that, by comparison to Deltex, it is way overvalued. Now 20p offer.

June 2014

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The Best of the Evil Diaries

However, the sticky position which resolutely declines to decline is stevia producer PureCircle (PURE), now 600p. This price has to be wrong. It is simply a matter of time.

But as little as a tenth of $400mn is rather more than Oxus’s current capitalisation of £11mn at the current price of 2.2p. I bought 2m at 2.2p. I also bought 200,000 Mirada (MIRA) at 16.5p. This was merely because I was told to do so. However, the deep throat in question thinks a price of 30p more in point. Apparently the latest deal is worth Mirada’s current share price. New World Resources (NWR) have at last broken. They may have extended the refinancing timetable. But it makes no difference for shareholders: death awaits. Now 31p.

19th May 2014 Card Factory (CARD) floated last week at 225p, a level that persuaded directors to sell £54mn worth and Charterhouse, its PE backer, £130mn. Quite why anybody should buy the stock here, now 200p, is beyond me. I haven’t checked the borrow but I think I would be forgiven for doing so. It’s only days to go before, as I hope, UKIP has a triumphant sweep. This is too short a time to allow anything like the maximum assistance from Noddy Clegg to support UKIP’s cause. But, to be fair, he is doing his best. Since I am 67, I am a customer of Saga (it is almost impossible for an oldie not to be). Apparently, the grey market price is above the price range proposed to apply by floating bankers. However, naughty folk in their position are tempted to rig a grey price. So we had best let them get on with it.

21st May 2014 I was yesterday told that Oxus (OXS)’s arbitration against the Uzbekistan government is coming to a head. As some readers know, Oxus’s deal in Uzbekistan was nicked by The Uzbeks. As a result some think perhaps $400m is heading Oxus’s way. I am told that Oxus made mistakes when setting up the original deal.

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Finally, a fortnight ago, a chum set about offering £420,000 for a flat south of the river. He was told by the vendor’s agent that a cash bung for the agent might allow the flat to be my chum’s for £430,000. It’s gone for £520,000. Apparently, quite a lot of this is going on right now where it’s hard to get the evidence required in court. But I hope that one or two of these treacherous monkeys do time.


June 2014

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Sporting Index

SPORTING INDEX

World Cup preview

Sporting Index’s World Cup preparation is well underway, with a number of markets now online. Patrick Callaghan casts his eye over the teams competing at Brazil 2014 and delivers his verdict. See the table overleaf for more information on the points system.

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World Cup Preview

June 2014

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Sporting Index

The Favourites Brazil World Cup Outright 100 Index spread 47-50 The record five-time winners are favourites for the much awaited tournament as they prepare as hosts for the first time since 1950, a year when they lost the final to Uruguay. The Seleção can count on raucous support, and while a group containing Croatia, Cameroon and Mexico is by no means the weakest, it would be a major surprise should they fail to top it. However, the provisional squad announced by Luis Felipe Scolari – who led the country to the 2002 trophy – is not a vintage one by Brazil’s standards.

Argentina World Cup Outright 100 Index spread 44-47 Both Argentina’s World Cup wins have come in the Americas and they’d love nothing more than to lift the trophy on their biggest rival’s own turf.

“A squad that can afford to leave out Carlos Tevez, who has just helped lead Juventus to the Serie A title, needs to be taken seriously.” A squad that can afford to leave out Carlos Tevez, who has just helped lead Juventus to the Serie A title, needs to be taken seriously.

There is a lack of creativity and flair in the midfield, Neymar hasn’t shone in his debut season with Barcelona, and Manchester City fans will surely have had a wide smile on their faces when they saw their former, below par striker Jo named in the squad. Compared to the days when they could count on the likes of Ronaldinho, Kaka, Rivaldo and Ronaldo, this Brazil squad looks incomplete and, therefore, opposable.

30 | www.financial-spread-betting.com | June 2014

There are doubts over the defence, but a gift of a group should allow everyone to find their feet ahead of sterner challenges. Lionel Messi has had an indifferent season by his impeccable standards and will have a personal point to prove, having been eclipsed by his old foe Cristiano Ronaldo. This is the perfect stage for the Barcelona man to deliver and, if he hits top gear, Alejandro Sabella’s side look the team to beat.


World Cup Preview

Germany World Cup Outright 100 Index spread 40-43

KEY SPORTING INDEX WORLD CUP MARKETS

Like Brazil, Germany (including West Germany) have been to seven World Cup final games, but have lost four. They’ve played in 17 of the 19 tournaments and only once failed to make the quarter-finals.

Outright 100 Index

Their consistency should stand them in good stead. But four years ago a very youthful German side made the semi-finals and big things were expected at the Euros two years later. They didn’t deliver and again look vulnerable – not least because no European team has ever won a World Cup in South America.

Tournament Winner: 100pts Runner-up: 75pts Lose Semi-Final: 50pts Lose Quarter-Final: 25pts Last 16: 10pts Others: 0pts

Incredibly, manager Joachim Low has picked only two recognised forwards and, although the midfield is packed with attackers, that’s surely a mistake. In a tricky group with Portugal, Ghana and the USA, selling their total goals may be the bet.

For example, if you bought a team at 16 on the Outright 100 Index and they lose a semi-final, you would make 34 times your stake (50-16 = 34).

Points are awarded to teams on the following basis:

Group 25 Index

Next Best

Points are awarded to teams on the following basis:

Spain World Cup Outright 100 Index spread 35-38 The dominant footballing country for the last decade, Spain finally put years of underachievement behind them with victory in Euro 2008 and haven’t looked back since. They’ll be looking to become the first country since Brazil in 1962 to retain the World Cup and, despite general pessimism surrounding their chances, the squad looks as good as ever. The decision by La Liga scoring sensation Diego Costa to turn his back on his home country Brazil and represent Spain is controversial, but he adds much needed goals and presence to a side that played much of Euro 2012 without a recognised striker in the team. They have a tough group with Chile and the Netherlands, who they beat in the final four years ago, with Australia not a gimme either. Spain were put in their place by Brazil in the Confederations Cup final, and may be worth opposing in their group games, where they are likely to be strong favourites for all three.

June 2014

Winning the group: 25pts Runner-up: 10pts Third: 5pts Fourth: 0pts For example, if you bought a team at 22.5 on the Group 25 Index and they finished second, you would lose 12.5 times your stake (22.5-10 = 12.5).

Supremacy Betting This is a prediction of the winning margin goals of one team over another. England/Costa Rica might trade at 1.2-1.4 and if the match finished 3-0 to England, buyers would make 1.6 times their stake (3-1.4 = 1.6).

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Sporting Index

Interesting outsiders Belgium World Cup Outright 100 Index spread 20-23 Europe’s most exciting young squad, Belgium, have Premier League heavyweights Vincent Kompany, Eden Hazard and Romelu Lukaku at their disposal. My main concern would be a lack of tournament experience and I fancy them more for the Euros in 2016.

“for belgium, Games versus South Korea and Algeria provide the perfect opportunity to hit a few goals and I’d be buying their supremacy in those fixtures.” Belgium have an easy group though and are a fine buy at 18.5 on the Group H 25 Index. Games versus South Korea and Algeria provide the perfect opportunity to hit a few goals and I’d be buying their supremacy in those fixtures.

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Colombia World Cup Outright 100 Index spread 16-19 The dangerous South Americans would be more widely-fancied if their best player, Radamel Falcao, hadn’t suffered a serious knee injury earlier this season. The Monaco man has been included in the provisional squad but whether he’s fit enough to play remains to be seen.

But Freddy Guarin, Jackson Martinez and James Rodriguez ply their trade at the highest levels in Europe and with a blend of youth and experience, and conditions perfect, they will be a handful for any side.


World Cup Preview

And... England World Cup Outright 100 Index spread 16-19 The Three Lions will fly to South America with fans not expecting anything after years of disappointment. The 2010 World Cup was a shambles, with the side hitting just three goals in four poor performances. But supporters can take heart that Roy Hodgson has embraced youth and potential with his squad. Entrusting the likes of Ross Barkley, Raheem Sterling and Luke Shaw with a place on the plane, while resisting calls to bring back John Terry and leaving out the likes of Ashley Cole and Michael Carrick, is a brave move that could pay off.

Take three points from the very beatable Italy in the opener – a clash no country will relish in the jungle heat – and fans might just start dreaming. A patriotic buy at 19 wouldn’t be the most misguided punt. With the pressure off, making the quarter-finals is a very realistic achievement.

June 2014

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Capital Spreads

BY NICK LEWIS, HEAD OF TRADING AND MARKET RISK, CAPITAL SPREADS

China’s economic might could be waning if the latest indicators are anything to go by. The manufacturing sector has shrunk for four straight months, the banking sector has a raft of loans expected to go bad, and the government looks on course to miss its 2014 growth target. In the first quarter the annual rate of growth was 7.4%, the slowest in 18 months and below the stated aim for the year of 7.5%. China has risen to prominence as the world’s second largest economy on the back of huge foreign investment. That is usual for a developing economy. But as the country’s factories have gone into overdrive, foreign consumers alone will not be able to sustain the rates of growth to which the investment community has become accustomed. As a result, Beijing is in the midst of a massive reform programme to rebalance the economy to a consumption-based model. The rise of the Chinese consumer, and swelling middle classes, is already clear to see in the luxury goods market where they dominate. There is a lot of honest money being made here, and the demand for global designer brands such as Prada, Gucci and Burberry is growing with it. Just as the UK and other developed economies are trying to rebalance away from consumer spending and towards manufacturing and exports, China is hoping for the exact opposite. This is a huge ask and will take years to achieve.

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In the meantime, there will be more uncertainty and market jitters in the coming months, with Chinese banking shares looking vulnerable over the shorter term. What is less clear is whether there will be a soft or hard landing for the economy. Growth will undoubtedly trend lower, and if the government’s 7.5% target appears to slip further away, speculation will mount over more stimulus from Beijing. Nevertheless, recent research backed by the World Bank suggests that China could overtake the US as the world’s largest economy as early as this year based on purchasing power measures. That will not detract from the scale of the challenges ahead, but it is worth remembering that the authorities have devised a clear path for reform, shown a willingness to carry it through, and should have sufficiently deep pockets to cope with problems that may arise along the way. The economic miracle may not be over just yet.


Is the Chinese economic miracle over?

“as the country’s factories have gone into overdrive, foreign consumers alone will not be able to sustain the rates of growth to which the investment community has become accustomed.�

June 2014

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Is the Chinese economic miracle over?

Alibaba IPO Grey Market Chinese consumer growth is symbolised by plans for Alibaba, China’s biggest online retailer, to float in New York. The retailer could float for as much as $200bn, with many investors keen on getting a piece of the Chinese consumer market. An interesting new market for investors is the Alibaba IPO grey market. Trading volumes in IPO markets often stay low until a week before the IPO itself, and the new Capital Spreads market is no exception. That said, the market has seen quotes as low as $173-183bn and as high as $200bn-$210bn. That’s a cheeky $27bn swing.

Of course, there are a good number of problems that investors are having in evaluating this market. On the positive side many investors will be keen to buy into the Chinese retail story, an area which Alibaba dominates online. On the downside, there are questions over Chinese regulations, how the company will be run and the possibility of a limited number of shares being sold.

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There is also a question-mark over mobile-commerce, an area in which Alibaba is less dominant.

“On the positive side many investors will be keen to buy into the Chinese retail story, an area which Alibaba dominates online.” Until a few more of these questions are answered, we may see a few more swings in the grey market.


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June 2014

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June 2014

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Robbie Burns’ Monthly Trading Diary

ROBBIE BURNS’

monthly trading diary In my experience, spread betting really comes into its own when you spot a situation that’s gone too far, one way or another, because of a news event. If you get it right you can make a reasonably quick profit in a few days at minimal cost. Trying to decide whether it has gone too far, or not far enough, is to play detective. Any detective you fancy. Who would you like to be, Sherlock, Vera or Wexford?

When you spot one of these situations you also need a plan. What you’re looking for is a share that has/is moving fast because of either something in the news, or as a result of a statement. The market is reacting to it, and you can make a turn with really nothing more than a bit of common sense using detective work. I have found that the major clues usually come from a sentence that stands out in company announcements. One of my favourites ever in this area was Greencore, the Irish food business which supplies ready meals. It suddenly got hit by the horsemeat scandal back in January last year. The shares were in freefall. But I spotted a few crucial lines in an announcement the company made. “Beef bolognese sauce represented c. £0.3 million of Greencore’s £1.16 billion turnover in its last financial year. The annualised revenue of all products withdrawn represents less than £1 million.” The company also seemed to be saying it was unlikely it supplied much else horse-flavoured stuff. It was just a horsey sauce.

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So, in essence, withdrawal of the pony polluted products meant little to the company’s overall performance. Nevertheless, the shares saw a 30% fall within a few days – way too much for a company whose withdrawn products didn’t even account for 0.1% of its turnover. So I bought tons and tons of Greencore in the 80s, both on spread bets and in my ISA too. I figured that, at the very worst, a quid would be a fair price, but there was actually no reason why the price shouldn’t at some point head back up to its old high. Well, the price gradually lifted up, and guess what...? It went all the way to 300p. I took some profits a bit earlier than this, after it bounced up from the 80s, but was along for a very enjoyable ride. On the initial bets in the early 80s, I placed stops at a hyper-cautious 75p. If the worst came to the worst, I knew I would then only lose small amounts if the price kept falling. And I could start again later. The amount of work I did to make giant profits here? Well, very little really. In fact it was all just a bit of common sense. No complex technical analysis was needed.


Robbie Burns’ Monthly Trading Diary

“It’s easy to see how market over-reaction over bad news can make you good money. Just give yourself a few rules and boundaries. Make sure you understand the company and are sure it has been oversold.”

GREENCORE GROUP CHART

It’s easy to see how market over-reaction over bad news can make you good money. Just give yourself a few rules and boundaries. Make sure you understand the company and are sure it has been oversold. I don’t want you going out and buying up every company going through a disaster.

If you buy a bad-news share that you think has long-term potential and it keeps falling, set a tight stop, get out and try again when it’s lower. You must make sure you are not trying to catch a falling knife that simply continues to fall. If you get in near the bottom and it goes up, raise your stop under the price. Keep buying as it heads up and keep raising the stop. Happy trading!

June 2014

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June 2014

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Zak Mir’s Monthly Pick

ZAK MIR’S MONTHLY PICK BUY BLINKX (BLNX): ABOVE 75P TARGET - 120P POSSIBLE IN 1-2 MONTHS Recommendation Summary: It is perhaps ironic that Blinkx is my monthly pick on at least three counts: 1. The recent Ben Edelman interview in Spreadbet Magazine.

It is not unusual for stocks and markets to revisit former significant levels and then push higher again, and this is the view as far as the video advertising company is currently concerned.

2. The way that Spreadbet Magazine founder Richard Jennings of Titan Investment Partners recently managed to bottom fish the stock at 59p. 3. The main positive piece on Blinkx in the recent past is from Seeking Alpha, a name and a website I find frighteningly irksome. My buy recommendation climbs the wall of fear and sabotage that hangs around the video platform group. After the recent massive share price losses and all the muck that it is possible to throw at a company in the age of social media, one can truly say that almost all the bad news, both real and imaginary, is in the market. Now, in the wake of the latest full year results, it appears high time to move on from the Blinkx bashing and explore the recovery argument. This is particularly apt from my technical perspective given the way that the May 58p bounce for the stock was actually a penny above the February 2013 57p floor. This is where I made my first big bull call on the stock, which eventually peaked at 234p in the autumn of last year.

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Technicals: The overall charting description of Blinkx since the beginning of 2013 actually comes down to a very simple concept: a gap fill rebound. This is one of the more reliable chart setups, with the only “difficulty” in this instance being the way that the floor of the February gap last year was 66p, but the low in May this year was 58p. However, would be bargain hunters were helped by the way that the late January floor was 57.75p. Therefore, there was a decent chance of a dead cat bounce even if this was only an intermediate affair. Now the question is whether, after a decent rebound through 70p, we are looking at the prospect of a resumption of the breakdown here, or the start of a lasting bull phase.


Zak Mir’s Monthly Pick

“After the recent massive share price losses and all the muck that it is possible to throw at a company in the age of social media, one can truly say that almost all the bad news, both real and imaginary, is in the market.�

June 2014

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Zak Mir’s Monthly Pick

Once again I am looking at the chart pattern at Blinkx. The present setup in place since the start of the year looks to be a quite robust triangle reversal formation, the floor of which Blinkx has bounced off very well so far. But what should set the seal on a fresh rally is the way that there is backing for the bulls from the configuration of the RSI oscillator. It can be seen how it is possible to draw a bullish divergence line along the trace since the end of January. Typically, such lines are a leading indicator on turnarounds in the price action, often for significant moves.

While we have already seen a 20% improvement, the momentum here is sufficient for a return to the main post-February resistance zone at 120p plus over the next one to two months. The stop loss on the buy argument is currently a weekly close back below the recent flag consolidation at 65p.

BLINKX CHART

Recent Significant News: SeekingAlpha.com 12th May: The ad tech space has to be one of the most hated corners of the market right now. The stock prices of Millennial Media (MM) and Rocket Fuel (FUEL) have dropped by around 70% in the last several months. The whole sector trades on incredibly low P/S ratios despite having some of the highest growth rates in tech. Blinkx is perhaps the most hated name of them all. Its stock has dropped from 237p to 66p in just six months.

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And unlike most ad tech plays, which are either unprofitable or have razor thin operating margins, Blinkx is strongly profitable having 16% EBITDA margins and an equity free cash flow yield of 8%. Ex- cash, the stock is down to its IPO price back in 2007, when the company had only minimal revenue and was loss making.


Zak Mir’s Monthly Pick

Financial Times 6th May: Shares in Blinkx, the Aim-quoted video advertising company, fell nine per cent on Tuesday after full-year results showed only a modest rise in profits before tax. Blinkx makes money by using patented digital filters to place video and banner advertising alongside relevant content that increase the chances of a viewer watching and clicking on the ad. Investors have been jittery about Blinkx since Ben Edelman, an associate professor at Harvard Business School, published a critical blog post in late January that caused the stock to collapse by a third. Mr Edelman, who accepts paid briefs by private clients and is a seasoned internet privacy campaigner, claimed that Blinkx inflated its traffic figures by installing software on to users’ computers without their permission. The company released a detailed rebuttal in March, claiming that Mr Edelman had made “numerous factual errors”, but the shares have not recovered their prior levels. Blinkx’s 2013 revenue increased by 25 per cent to $247.2m, while profit before tax rose only five per cent year-on-year to $17.6m. Blinkx remained upbeat about the opportunities in mobile video advertising, with Brian Mukherjee, chief executive, saying that “we are fortunate to find ourselves at the crosshairs of a booming segment”. CityAM 6th May: Blinkx, the online video advertising firm whose share price plummeted in January on the back of a critical blog post, saw its shares fall another 8.38 per cent yesterday to 84.75p as retail investors abandoned the firm following disappointing results.

Despite Blinkx’s revenue jumping 25 per cent in the past year to $247m (£147.56m) with adjusted profits up 30 per cent to $31.9m, much of the market’s focus was on a 32 per cent fall in basic earnings per share to 3.23p. Numis analyst Paul Richards said he expected Lyfe to cost Blinkx around £1.17m in 2015 and trimmed his profits’ estimate from £26.5m to £25.3m on the news.

“Part of the reason for choosing Blinkx as this month’s pick is the way that it has almost everything you could want in terms of a short-term speculative situation.” Fundamentals: Part of the reason for choosing Blinkx as this month’s pick is the way that it has almost everything you could want in terms of a short-term speculative situation. The other aspect is that being a bull now is simply a classic example of being a pigheaded contrarian. This comes off the back of an annus horriblis in 2014 to date, with the Professor Ben Edelman drubbing, as well as a general decline for sector peers, and an increasing dislike of mobile advertising by the end user.

June 2014

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Zak Mir’s Monthly Pick

While it is still very much wide open as to which factors will eventually win for Blinkx going forward, even the cynics may argue that for the stock to be so sharply down from its late 2013 peak does appear to be somewhat harsh. This is both on a technical and especially fundamental basis.

There would be few who doubt the potential for growth in this space, even in the aftermath of what was clearly a bubble in valuation terms for the company and its peers in the second half of last year.

For Blinkx, the Achilles heel, even over and above the contribution of the good Professor, was the earnings per share decline of one third posted for the financial year to March. This was despite a reported profit rise of a similar proportion. The contradictory data certainly allowed the doubts to come in and ensure that private investors who bought into Blinkx looking for some investment bling have had their fingers well and truly burnt.

With Blinkx we have the problem of the built-in fog coming in the form of the company not being able to disclose who its partners are, for fear of the competition undercutting its offer. Nevertheless, there is not only the organic momentum underpinning the Blinkx space, and a push from its ongoing acquisitions (such as Lyfe and Rhythm NewMedia), but also the prospect that Blinkx itself could fall prey to M&A on the basis of a competitor wishing to increase market share.

Of course, many of us will be aware that private investors seem to have a knack of identifying companies with binary outcomes on fundamental positions, with recent situations such as would be potash miner Sirius Minerals (SXX), and of course oil & gas explorers Gulf Keystone (GKP) and Xcite Energy (XEL) particularly coming to mind.

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All of this should ensure that the positives on the fundamental front are well in focus for the rest of 2014.


Fund Manager In Focus

“I had been taught a lesson. The ride up was magnificent, but the ending was horrific. Despite my training and knowledge of bubbles, I too was zapped.”

contrarian Investing “Father” David Dreman By Filipe R. Costa & R Jennings, Titan investment Partners

June 2014

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Fund Manager In Focus

Learning From Past Mistakes… “I had been taught a lesson. The ride up was magnificent, but the ending was horrific. Despite my training and knowledge of bubbles, I too was zapped”. It was in the 60s, while working as a junior analyst, that David Dreman began to reassess just how the equity market really works. Hired as a value analyst within a prominent investment firm, Dreman realised that he was unlikely in that role to be able to add any more value than the next analyst. At the time, everybody including himself, was buying equities. In parallels with recent years, this was, per the usual historical norms, just before a serious rout which would dissipate many peoples’ savings. It was in the early 70s that, following a hard lesson in the markets, Dreman was to change his approach completely on how prices of stocks are formed.

S&P 10 YR RETURNS CHART

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He realised that the market moves through phases of euphoria and depression with varying degrees of the emotion in between. In the end however, his assertion was that fair value reverts and traditional valuation measures based on historic norms are the best guide to the market’s future direction. The chart below, which shows rolling 10 year returns for the S&P 500 since 1937, bears this point out very succinctly. Namely, following a period of poor returns equities outperform, and vice versa after a run of exceptional returns. With this new found confidence in his money making ability, Dreman proceeded to found his own investment business during the latter half of the 70s, a business whose modus operandi was to look almost exclusively for value, while at the same time serving as headquarters for the Institute of Behavioural Finance – a pursuit which is dedicated to the academic research of human interactions in the markets and the causes of these effects.


Contrarian Investing “Father” David Dreman

About David Dreman David Dreman is of Canadian origin, being born in Winnipeg in 1936. He graduated from the University of Manitoba in 1958 and joined the investment business following in the footsteps of his father, who was a prominent trader on the Winnipeg Commodity Exchange. He worked as a Director at Rauscher Pierce Refsnes Securities in New York research and then as senior investment officer with J&W Seligman and senior editor with the Value Line investment service. In 1977 he founded his own investment business, which has gone through various iterations and name changes but today persists as Dreman Value Management.

“In what is an interesting fact, over the long period from 1970 to 2005, only 2.5% of the 355 mutual funds that remain in existence have managed to outperformed the S&P 500 by at least 2%, which clearly shows that active portfolio management en bloc fails to deliver outperformance over the longer term.” In what is an interesting fact, over the long period from 1970 to 2005, only 2.5% of the 355 mutual funds that remain in existence have managed to outperformed the S&P 500 by at least 2%, which clearly shows that active portfolio management en bloc fails to deliver outperformance over the longer term. Dreman had different plans however, which involved enhancing his strategy with a psychological overlay. Plans that were pretty unique and ground breaking at the time. Investors, you see, are not as rational as theory predicts. Which explains why bubbles form. Knowing this and using the knowledge appropriately makes it possible for those disciplined enough to profit from this fact. It is what is called contrarian investing. Since the inception of Dreman Value Management, the firm has been dedicated to following contrarian strategies.

The pendulum of greed and fear that plays out in the markets, as with all newbie investors (who MUST go through the learning process) hit the inexperienced trader Dreman in the bear market of the early 70s but it also gave him important insights that changed his future direction. It was pretty obvious to him that simply following the crowd was not likely to generate sustainable alpha. It is sure, in the short term, any fool can make money in a bull market. But, if you are managing other people’s money and you confuse a bull market for brains and ability, then you will ultimately create losses for those investors.

While Dreman is a successful investment manager, he is also a writer and a scholar, having written several books and research articles about forecasting errors, bubbles, and how to apply a contrarian strategy. He also writes the column “The Contrarian” at Forbes, something he has done for 30 years now. His academic insights additionally led him to sit on the board of directors of the Institute of Behavioural Finance, which publishes the “The Journal of Behavioural Finance”. This is an academic publication dedicated to the study of market anomalies through the use of psychology. To complete his roster of academic achievements, he is also co-editor of the “Journal of Psychology and Financial Markets”.

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Fund Manager In Focus

Dreman Value Management While the “final version” of Dreman Value Management was incorporated in 1997, David Dreman had already founded predecessor companies going back to 1977. The company as it is today has $5.5 billion in assets under management coming from mutual funds, pension funds, foundations, endowment funds and high net-worth individuals. While Dreman does not sit at the top of the industry in terms of absolute returns over a long time scale, what he has achieved is not subjecting his investors to the same risks that many of those hedge funds at the top of the tree have incurred. When it comes to protecting against the downside, most funds are pretty poor as the singular most popular hedge fund strategy is based around trend following, but with leverage. Consequently, when the trend turns it typically creates a large drawdown for those funds as they only get out after quite a hit. A classic recent example of the difficulty of these types of funds is the woes experienced by the AHL Diversified fund at Man Group – range bound and choppy markets are impossible for them to navigate. In contrast, the investment strategy that Dreman follows seems to be a very sound one and that has been achieving consistent profits across many years.

It was during the 60s that Dreman faced what all money managers do early in their career – a devastating loss. Through simply following the crowd and using leverage he was hit with a tub thumping 75% loss on his own capital, something which, unsurprisingly, led him to redefine his strategies.

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He became, in the process, one of the founding fathers of the contrarian strategy: buying when everybody is selling and selling when everybody is buying. One of the principal inputs of his approach is based on P/E evaluation; buying low P/E stocks and selling the high P/E ones.

“When it comes to protecting the downside, most funds are pretty poor as the singular most popular hedge fund strategy is based around trend following, but with leverage. Consequently, when the trend turns it typically creates a large drawdown for those funds as they only get out after quite a hit.” While many academics and market participants would have you believe that financial markets are premised on the assumption that investors are rational and have unbiased expectations, Dreman believes the opposite and that additionally, human psychology plays a considerable role in equity price movements. The market often misjudges future prospects, with a tendency to over-react to events through buying what is already at high prices and selling what is out of favour. In a truly efficient market, even if some people make misjudgements in their investments, one would expect that the biggest and best resourced players would take this opportunity to make profits at their expense and so harmonise return peaks and troughs. In recent years in particular we can see that this most certainly has not been the case, with one bubble after another forming. Again, if markets were “efficient” then at the first sign of a bubble forming these educated investors would just short sell the market and drive it back to intrinsic value. But that doesn’t always happen.


Contrarian Investing “Father” David Dreman

Dreman points out that analyst forecasts show a 40% quarterly error for the past 38 years. That is a huge systematic error! When there is a positive surprise in a quarter, the average return above the market for a low P/E stock is 6.7% over the following year, while it is mostly flat for a high P/E stock.

Similarly, when there is a negative surprise, low P/E firms still return a small positive number while high P/E firms return a negative 7.4% below the market – see chart below. Illustration indeed that low P/E stocks generally have the bad news “in the price”.

The table below is a further advocation for value biased investors, illustrating that the total return over long periods, being ranked by P/E levels, accrues disproportionately to low P/E stocks relative to high P/E stocks. This finding gives the second basis for the investment strategy followed by Dreman.

June 2014

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Fund Manager In Focus

The main idea behind the approach is quite simple and can be summarised simply this way: investors are sentimental individuals who induce price deviations from intrinsic value based on emotions. One should buy what has value, based upon traditional means such as price to book, P/E, cash-flow yields, dividend yields etc and then BE PATIENT in waiting for the intrinsic value to revert back to the mean. Because Dreman seeks value he often holds controversial positions, buying unfavourable stocks and selling the favourable.

“If we replace the ratIonal and unbIased Investor wIth a sentImental, and bIased one however, one who does not always evaluate every pIece of InformatIon but Instead Is Influenced by market sentIment and emotIons, then we can see why prIces devIate from IntrInsIc value and why such devIatIons persIst.” MOST RECENT STOCK POSITIONS TABLE

A Little More About Behavioural Finance… As we have already established, in a rational market, any deviation from intrinsic value would immediately be arbitraged away and prices would always reflect fair value. Instead of wide gyrations in stock prices we would see a chart that is much more tightly correlated with the growth of a domestic economy and the profit share of companies as a proportion of the economy. In essence, whether you are buying a home, purchasing stocks, or building a new plant, “any price would be good until it isn’t”. If we replace the rational and unbiased investor with a sentimental, and biased one however, one who does not always evaluate every piece of information but instead is influenced by market sentiment and emotions, then we can see why prices deviate from intrinsic value and why such deviations persist.

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With this idea in mind many studies show that when investor sentiment is too bullish, investors cause prices to depart from their true fundamentals. A strategy based on selling stocks when sentiment is excessively bullish and valuations detached from deemed fair value (and vice versa when sentiment is poor and stocks cheap) should outperform. The long term results history of this approach certainly bears that out.


Contrarian Investing “Father” David Dreman

The efficient market proponents, which include most economists, do not believe that psychology, with its “softening” of human rationalities, should be allowed a role in investment or economic decision making. Instead, it seems they have “plastered the lipstick of complex mathematics onto an academically abstract piggy to sell a lot of theoretical bacon”. Understanding how an investor really thinks and how his thinking departs from an unemotional individual is the key to achieving consistent long term profits. If you don’t believe this principle then the only thing you can do is buy an index tracking fund as there are no profit opportunities to be achieved in excess of its return.

Namely, we are value focused asset allocators looking to take advantage of dislocations of value within markets as a consequence of sentiment extremes. The structure of a spread betting account that allows us to apply a modest amount of leverage and additionally to go short when appropriate provides the perfect mechanism for this approach and best of all, being tax free*. If you’d like to learn more about our fund management company then click the image below.

Final Comments We felt that David Dreman is definitely worth featuring in SBM as his approach is almost a carbon copy of the investment principles we apply here at Titan.

*All Titan Funds operate within a spread betting account which means gains or losses are currently free of tax. However, legislation can change in the future. Spread betting is a leveraged product which could result in losses of some or even all of your initial deposit. Ensure you fully understand the risks.

June 2014

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Economics Corner

ECONOMICS CORNER

The anatomy of a bubble and its eventual burst By Richard Jennings, CFA of Titan Inv Partners & Filipe R Costa

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The anatomy of a bubble and its eventual burst

Conventional wisdom is that financial markets represent a future “expectation” of the real economy, with prices reflecting all available public information. At an aggregate level, aside from earnings expectations, interest rates (the “price” of money) are the most important factor. The cheaper money is, the higher equities are typically valued at as the discount rate is lower. Vice versa, the higher the price of money then the lower valuations are as they have to compete with this higher rate. While the economic cycle is a complex one in which everything is somehow connected and thus difficult to clearly understand each component part, let’s start by looking at the influences in the environment of an expanding economy. When the economy is expanding, households demand more products and services. To fulfil this extra demand businesses need to therefore produce more. However, the installed capacity may not be enough to meet this incremental demand. Initially, companies typically expand the hours of work by employees and buy more raw materials as needed; something that results in increasing costs. Thus the increased demand pressures wages and causes overall prices to rise. If the demand persists as the economy grows, businesses increase capacity through purchasing new machinery, building new plants, increasing the distribution chain etc. etc.

As the demand for capital (money) increases, so does the price of it, which is the same thing as saying that interest rates begin to rise. When there is a shock (an increase or decrease) in demand, there must therefore be an increase (or decrease) in prices and adjustment to supply in order to accommodate for it and for the market to return to equilibrium. A rise in overall prices, wages and interest rates is the mechanism of accommodation for the change in consumption. Economic growth, interest rates, wages and inflation are all highly correlated, as they are all part of the same phenomenon.

HISTORIC ECONOMIC VARIABLE CHART

June 2014

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Economics Corner

As for the stock market, it should reflect a forward-looking view for all the companies comprised within it, and which of course is a consequence of expected economic conditions. If consumption is expanding, that means increased demand and thus higher corporate profits. Even if this ends with a rise in wages and an increase in interest rates, it shouldn’t be regarded as necessarily a bad thing for equities. The price of equities should not spiral down due to the expected rise in interest rates. In many historical instances, as interest rates rose as a natural consequence of the increasing level of economic activity, then the perception of that being a consequence of a positive stream of events lead to higher equity prices – the mid 90s in particular being a prime example. The so called natural interest rate is something different from the nominal interest rate. The word “natural” is something that appears as a spontaneous, unconstrained, and unmanaged consequence of a stream of events. Applied to the price of money, the interest rate should change as a direct consequence of demand pressures. But, when there is an agent like a central bank creating an artificial supply, the actual interest rate may differ from its natural level. You’ll see where we are going now… Central Banks have understood for quite some time now that waiting for the economy to adjust as a function of “normal” supply and demand forces is a long game. In particular, inducing higher consumption to drive overall demand higher until the point that there is an increase in the demand for capital takes time and patience. So, they surmised: if interest rates are correlated to growth, why not start by reducing them (rates) and wait for growth to appear? If they could therefore increase the supply of money the demand for capital would rise. The extra money would then be invested to create additional capacity, hire new workers etc who in turn would see their income rise and spend more. In the final analysis so the thought process went, the level of economic activity would increase. Central banks have used the interest rate as an adjustment tool or, to be more precise, as a disequilibrium generator tool in the sense that they use it to correct an imbalance in capital markets. As a direct consequence, financial markets start looking at the interest rates as the main indicator of future prosperity. Instead of reading a high interest rate as a signal of economic prosperity, they see it as an increase in costs. It is that discounting of future cash flows using a higher rate which results in a lower present value.

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But, while interest rates increase, in the short term due to economic momentum, the cash flows accruing to companies are likely also higher. In the end however, as we detailed above, the expectations of growing rates due to improved economic conditions shouldn’t be automatically a bad thing for the stock market. In contrast, decreasing rates shouldn’t be immediately always a positive issue for equities if no growth is expected.

“The extra money would then be invested to create additional capacity, hire new workers etc who in turn would see their income rise and spend more. In the final analysis so the thought process went, the level of economic activity would increase.” When the unemployment rate is high and it is relatively easy to hire, wages need not immediately rise as slack in the labour market is used up. At present, in the U.S. the mainframe reported unemployment rate sits at 6.3%, a level which is still relatively high. The so called U6 measure, which captures all those employed part time and the “marginally attached” to the workforce, is a much better measure to understand how easily it can be to hire without offering any higher wages. Take a look at the table to the right: The U6 measure is still around 12.5% in 2014, and which is much higher than it was before the 2007-2009 crisis. So in looking at this measure of the job market conditions, we would conclude that labour supply is still plentiful and that there is no pressure from this quarter for interest rates to rise. At the same time, the mechanism that is at the heart of an interest rate cut (or increase in the supply of money) is the assumption that investment in the real economy would increase as a direct consequence of such a cut. In the States, it seems that companies have taken the super cheap money and have used it to repair indebted balance sheets and/or to repurchase their own equity.


The anatomy of a bubble and its eventual burst

U6 UNEMPLOYMENT CHART En bloc, they have not and still are not creating major additional capacity, real jobs, or contributing to sustainable GDP increases. It follows that in order for companies to be interested in creating capacity, they should see extra consumption first. In the context of the current economic landscape in the States, Europe and the U.K., those individuals with access to the cheap money (the richest) have used it to invest in financial and other assets (fine wine, classic cars, art etc) and in the process have helped drive the stock market higher and higher. Instead of reflecting real market conditions, the stock market starts reflecting a huge artificial increase in the demand for financial assets, demand that is directly generated by the central bank. The middle classes however do not benefit to the same degree from financial asset increases, whilst at the same time the increased liquidity is not getting through to where it is needed as consumption is still muted - capacity expansion. In the end, the real economy doesn’t really make progress while the financial side gets ever more heated. These are precisely the conditions in which a bubble is formed. The Central Bank is unable to achieve its desired impact on real economic growth.

In looking at the trillions of asset purchases conducted by the FED over the three QE programs since 2009 and the current bold BOJ action, the main issue is that the “meat” of their economies – the middle class - are not largely benefiting. This is even with the stimulant effect of lower mortgage rates. Wages are not rising and so “good” inflation is not happening, whilst the cost of living continues to rise.

“It follows that in order for companies to be interested in creating capacity, they should see extra consumption first.” There is an argument that without the QE stimulation, the knock on effects of an insolvent banking system would have been unthinkable, but at some point the benefits to the wider economy of the current policy must be questioned.

June 2014

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Economics Corner

The tapering programme is the first question being raised and the jury is out on whether this will be fully completed or halted soon. Central Banks and the Fed in particular have become imprisoned in their super loose monetary policy without a clear exit. If they suddenly let the interest rate rise back to its natural level, the stock market would very likely crash; something they believe, wrongly in our opinion, that is a very bad thing.

S&P 500 30 YEAR CHART

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The vicious cycle must be cut at some point however and policy measures tailored towards improving the wider economic conditions and living standards, not merely increasing the stock market value. In looking at the chart below of the Dow Jones and S&P 500 over the last 20 years we have no doubt here at Titan that the Fed has created a new and even bigger equity bubble and we are preparing for its burst in our portfolios. If you’d like to join us then click the banner below for more details


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Dominic Picarda’s Technical Take

Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for four years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science.

Dominic Picarda’s Technical Take US TECHNOLOGY STOCK SPECIAL

US technology stocks have short-circuited of late. While Wall Street as a whole has kept inching higher, this racier segment of the market has been on the slide. Even if you don’t trade tech stocks, their weakness is still worth paying attention to. If investors are losing appetite for riskier plays like these, it could be bad news for the bull market in equities more generally. Ideally, tech and biotech ought to lead the way higher during a boom, just as they tend to be worst hit during a downturn. As I see it, the boom in tech stocks seen in recent years has clearly been fuelled by the US Federal Reserve’s money printing drive. This programme is now steadily being withdrawn and is the most likely reason for higher-risk equities’ poor performance of late. Later on this year, it will probably have come to a complete halt. While I believe that the authorities will eventually have no choice but to resort to further money printing, I also think tech stocks are likely to struggle more in the interim.

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US Technology Stock Special

“the boom in tech stocks seen in recent years has clearly been fuelled by the US Federal Reserve’s money printing drive. This programme is now steadily being withdrawn and is the most likely reason for higher-risk equities’ poor performance of late.”

June 2014

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Dominic Picarda’s Technical Take

Nasdaq 100 The Nasdaq 100 offers traders an obvious way to take a stance on big technology firms collectively. The index is home to such tech titans as Google, Apple, eBay and Facebook. From its November 2008 lows to its March 2014 highs, the index has added 267%, much larger than its previous five-year bull run that ended in 2007. This mighty uptrend has left it very stretched on its monthly chart, with a relative strength index reading of 80.2%. Except for during the technology bubble, such readings have generally been associated with significant tops in the market.

NASDAQ CHART

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Since its latest peak in March, the Nasdaq has shed less than 9%, even at its worst point. No real technical damage has been done to its uptrend, with the price still above its 10-month exponential moving average (3,452), a line which itself is still rising. Should it end a month below there, however, the outlook would darken for me. A drop to 3,359, 3,241 and perhaps 3,074 might be seen. I’d short reversals around the falling 21-day exponential moving average.


US Technology Stock Special

Tesla Motors Inc It is human nature to harbour overblown expectations about tomorrow’s world. In 1989, the second of the Back to the Future films depicted Americans in 2015 flying around in hover-cars. The same imaginative optimism about the likely speed of progress seems to have infected investors in Tesla Motors Inc, the Californian maker of high-spec electric cars. The company sold fewer than 23,000 of its luxury vehicles in 2013. Nevertheless, the company was lately valued at more than $30.33bn. Admittedly, sales are forecast to accelerate, with a leap of more than one-half signalled for 2014. However, investors are projecting this top-gear advance to keep going several years into the future. This sort of guesswork has a nasty habit of going badly awry, as the experience of the dot.com bubble years showed clearly.

Should the company fail to live up to the market’s high hopes, its high-octane share price is almost certain to hit the skids. Tesla’s recent sell-off – which has taken it down from $265 to as low as $177 – has left it not far above its 10-month average. I use this line to define major uptrends and downtrends, so a monthly close below here would turn me more bearish still. With a clear sequence of falling lows and highs in evidence, my thoughts for now are with shorting. Further drops through the 21-day exponential moving average make for obvious shorting entries. Targets lie at $151 and $135. One warning to exit shorts would be the 21-EMA crossing above the 55-EMA.

TESLA CHART

June 2014

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Dominic Picarda’s Technical Take

Apple While the Nasdaq has tumbled of late, Apple has resisted the Newtonian pull of gravity. The maker of iconic phones, computers and gadgetry has pleased investors lately with a fatter dividend, talk of more share buybacks and a forthcoming 7-for-1 stock split, the latter aimed at making the stock more accessible to a larger number of individual investors. Apple, which makes up some 13% of the Nasdaq 100, has now clawed back a fair chunk of the ground it lost between September 2012 and April 2013, when it dropped from $700 to below $400.

APPLE CHART

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One sign of its present technical good health was how the shares “gapped” higher in late April, with the price opening much higher than its previous day’s close. This is often the mark of a really powerful uptrend and Apple has since shown stability around its latest highs near $600. I would be especially happy to buy bounces from around the rising 34-day exponential moving average. A dip to that level would help unwind the stock’s near overboughtness on its relative strength index. The objectives thereafter lie at $616, $665 and then $681. By contrast, I would switch from bullish to neutral were Apple’s 13-day EMA to fall below that 34-day EMA.


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Technology Corner

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Google Gass – Next big thing or next big fad?

Technology Corner

GOOGLE GLASS NEXT BIG THING OR NEXT BIG FAD? By SIMON CARTER

June 2014

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Technology Corner

Earlier this month, after years in development, Google Glass finally went on sale to the general public – or at least to whoever could stump up $1,500 to grab one of the extremely limited number of devices on sale. Despite this, the glasses have already provoked buzz, controversy, confusion, wonder and ire. So will Google Glass end up changing our lives forever, or will it be this century’s Sinclair C5? Google Glass is one of two breakthrough products – the other being the driverless car – developed by the Google X facility, put together to push boundaries and explore and innovate new technologies and lifestyle devices. The idea of a wearable computer controlled by little more than eye movements and voice commands has long been floated by science fiction writers. And when Google’s first attempt weighed in at a neck breaking 8lbs it seemed as though, like hover boards and flying cars, the idea could have remained a pipedream.

“Google Glass is one of two breakthrough products – the other being the driverless car – developed by the Google X facility, put together to push boundaries and explore and innovate new technologies and lifestyle devices.” But Google persevered and early last year, after a number of high profile demos in 2012, they started to roll out a beta version of the device to those who had been invited to join the “Explorer” program. But what exactly are the early adopters getting for their money?

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There’s no getting away from it, Google Glass looks a little weird. Google admit this themselves and have already signed a design contract with Ray Bann and announced in early May that design expert Ivy Ross would now lead the Glass team. Essentially a head band with a small screen attached to it – the device does look better when worn with regular glasses – but what it looks like is only a small part of the story. The screen may be tiny, but the distance it is set from your eye is said to be the equivalent of a 25 inch monitor. From the point of view of the average consumer, the device’s features read like those of a typical smartphone. You can use Google Glass for navigation, to take photos and videos, to receive and send texts and emails, to keep up to date with your social networks, to translate languages, to search the web and to listen to music. But when you consider each of these functions will take place in front of your very eyes, it’s hard not to feel at least a hint of excitement.


Google Gass – Next big thing or next big fad?

Take navigation for instance. We’ve all probably found ourselves lost while wandering in an unfamiliar town or city and resorted to holding our smartphones in our hands, map application on the go, trying to figure out which way is north. Well, now imagine having the directions appear on the road in front of you. Spot something interesting on the way? Let the Field Trip app call up information about a local monument or building as you look at it live. Taking photos and videos is as simple as winking your eye or talking to the Glass. And rather than trying to frame your image through a viewfinder, the picture will be exactly what you see.

And police could use Google Glass for facial and vehicle recognition to make our streets safer. This all said, Glass is not without its controversies, with privacy activists in the US already reportedly ripping the devices from people’s faces, and a number of organisations and venues banning Glass outright. The secretive nature of photo taking – the wink to take a photo gesture – does also make it a little creepier than it perhaps ought to be, and video recording has also already raised concerns.

There are apps for fitness that can give you real time feedback as you exercise, and for golfers there is an app that can analyse your swing, provide stats and act as caddy while you play 18 holes. News updates, stock updates, texts, calls and emails will be more immediate than ever, so you can keep up to date without having to keep checking your phone, tablet or laptop. There’s also on-the-fly translation, so a foreign menu is magically written in English, and cooking assistance is there to help you with your recipe as you chop and sauté. Beyond the consumer, there are practical, professional applications of Google Glass too. Imagine a doctor receiving diagnostic and medication information as he examines his patient, or surgeons being relayed live videos of keyhole surgery while they work. Airlines could potentially replace scores of complicated instrument panels as pilots receive everything they need to their Glass.

Overall, there’s no doubt that Google Glass could be one of the most exciting innovations of recent times, and is already a breath-taking feat of engineering. As to whether it will be a hit or remain a novel curiosity, only time will tell. Maybe we should all just wait for the Google Contact Lens.

June 2014

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Commodity Corner

COMMODITY CORNER

SILVER READYING FOR A BEAR MARKET BOTTOM By Richard Jennings, CFA of Titan Inv Partners & Filipe R Costa

It doesn’t seem like it to many no doubt, but gold is in fact one of the better performing asset classes so far in 2014, outperforming the S&P by around 7% at the time of writing (mid May). Oddly however, silver is actually down on the year. Many people believe that silver is a sort of turbo charged play on gold. Well, if so, somebody forgot to hit the turbo switch! Notwithstanding this being Zak Mir’s monthly pick last month (Click here on page 54) the metal is resolutely declining to stick to the script.

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Silver readying for a bear market bottom

June 2014

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Commodity Corner

It was in reading this story here on Bloomberg – http://www.bloomberg.com/news/2014-05-01/silver-looks-like-gold-as-slump-defies-more-car-partuse.html - that nearly 20 years experience in the markets had my BIG opportunity antennae twitching. Here are the important points that I took out of the article – 1. Silver demand is at a 9 year high, and rising with expectations of increasing global growth 2. Analyst price expectations are neutral/bearish. 3. Silver declined 36 percent in 2013 – the largest since 1981, which was in the aftermath of the infamous Hunt Brother silver squeeze - http:// en.wikipedia.org/wiki/Nelson_Bunker_Hunt 4. Hedge funds have cut their long position by 90% over the last 2 months and in fact now hold 2,620 long futures exposure against a 5 year average of over 20,000.

COMEX CHART

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5. ETP holdings and retail demand for silver coins and eagles remains very healthy. 6. Volatility is deterring investors from entering the market. 7. The Gold/Silver ratio is at an important high and previously an inflection point. Dealing with some of these in turn, it strikes me as odd that industrial demand is at a multi-year high and also physical demand for so called “eagles” and coins and ETP’s (Exchange Traded Physicals) and yet the price of silver continues to decline. Two charts below displaying the available silver at the COMEX and Shanghai Futures Exchange tell a thousand words and bear out the limited supply conditions (that is, strangely in conflict with an element of the Bloomberg story it has to be said).


Silver readying for a bear market bottom

“Hedge funds collectively, intriguingly, hold one of the smallest long positions on record. This is very important to contrarian investors as at first flush it would appear that the so called “smart money” not being enthusiastic about the metal is a bearish sign.”

SHANGHAI CHART Consensus so called “expert” opinion is that prices are going lower, what with “The Squid” aka Goldman Sachs and whom, like a certain other stock “tipster”, I ALWAYS like to trade against. I have learnt of old that when price expectation is one way, the very vast majority of the time prices move the opposite way. The trick of course is finding your entry point to trade against the consensus of course and, very importantly, position sizing appropriately.

Hedge funds collectively, intriguingly, hold one of the smallest long positions on record. This is very important to contrarian investors as at first flush it would appear that the so called “smart money” not being enthusiastic about the metal is a bearish sign.

June 2014

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Commodity Corner

The chart below shows just how “smart” the hedge fund spectrum has been over the last few years. Not very smart…

HEDGE FUND CHART Indeed, in recent weeks it was reported that hedge funds had their worst month for nearly 13 years as the tech sector got routed. For many of these funds, “hedging” doesn’t seem to enter the equation. What they really are, are levered beta chasers that jump on the momentum trend – great when it keeps going, bad news when it breaks. For us contrarians, the signal here is that should the trend turn and begin to follow the fundamentals, then the bull is NOT presently “in” and the real marginal buying firepower is ready to be deployed. The volatility issue is also interesting, as this reduces the number of participants in a market.

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Most punters and retail traders prefer to jump on a seemingly steady uptrend rather than trade one that gyrates around dramatically. The comment from the Bloomberg article that silver experienced a dozen bear markets in just 10 years (that is a price decline of 20%) is telling. Equally however, if you are nimble and able to recognise the classic signs of a bottom then the rallies can be very sharp and so lucrative. Now, let’s look at the latest COT positioning by investors.


Silver readying for a bear market bottom

COT POSITIONING TABLE We can see that so called “managed money” has a net long position of just 3,600 contracts (in green). This is positively miniscule. The producers have also reduced their natural net short position. With the price of silver extraction on an “all in cost” basis widely accepted to be around $21/oz, then the appetite to (a) sell production here, let alone lower is only likely to continue to diminish and (b) with reduced supply due to the loss making economics in the medium term, only add to the very positive supply/demand dynamics for silver going forward. Here is the table of the gold silver/ratio that we pick up on below, with the key points to take away written into the data:

GOLD/SILVER RATIO CHART

June 2014

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Commodity Corner

“How to play a move to the upside then? Well, first thing is to remember that there are no guarantees in the market and they are set up to confound and throw egg on the faces of as many people as possible as much as is possible!” So, to conclude, we presently have silver demand at a multi-year high (and this demand is expected to continue to increase over the next few years) our friends the “anal”-ysts, as ever looking through the rear view mirror and acting like most other market participants; that is being conditioned by the price action that has happened rather than looking forward and smelling the aroma of a bottom.

That is that after hitting a closing low in June of last year of $18.53, the precious metal has, so far, refused to take this out. It came pretty close at the beginning of May after the US Non-farm payrolls figure – toeing $18.60 - but then rallied very sharply by over a dollar during the day – what is known as an outside reversal day (going lower than the prior day then taking out the previous day’s high).

The metal is actually the most oversold it has been in over 30 years, and is now sitting on strong long term support. It is under owned and unloved by financial market participants (but not in the physical buying capacity) and there are few articles by pundits advising you to buy. Warehouse stocks of the physical are at extremely lows levels and finally, the long term gold/silver ratio is back towards its upper extremes over many years as we highlighted here - http://www.spreadbetmagazine.com/blog/titaninv-partners-the-goldsilver-ratio-and-what-it-maybe-t.html and that has frequently proved a precursor to sharp rallies.

Not only for Zak Mir (!), but in the face of the fundamentals relayed here, that is an important signal for bulls of silver. We really do wonder where the firepower would actually come from to push the metal lower knowing that this would very likely only exacerbate the exceptionally tight supply/demand dynamics presently at play.

I’d be hard pressed to find more bullish ingredients for the long silver cocktail that we have here… So what is going on? Why is silver not rallying with gold? The short answer is we do not know, and anybody who says they do is plain guessing. It is simply counterintuitive to see rising demand and falling stocks and yet the price of silver continues to remain in the doldrums. This is despite there being one very important technical element to pay heed of from the price action in recent months.

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The likely culprit for the price weakness is the ongoing tapering of the QE bond buying programme in the States. With us now being just over half way through the tapering process and, coupled with the extreme oversold status on a long term basis, we would argue that this story is now “in” the price. The old adage “buy the rumour sell the fact” could equally be twisted in this case to – “sell the anticipation and buy the closure” (of the bond buying that is). I leave you with one final chart (see right). This is the price of silver over the last 38 years. It is the most oversold it has ever been during this period. It is however sitting on old resistance that, per technical theory, becomes new support. This measure of oversoldness however is very rare and it is a brave man that goes short here in our book.


Silver readying for a bear market bottom

SILVER 38 YR CHART How to play a move to the upside then? Well, first thing is to remember that there are no guarantees in the market and they are set up to confound and throw egg on the faces of as many people as possible as much as is possible! There is always the potential for another lurch lower just to really grind the bulls into the dirt – perhaps to $16/oz per the chart above. We will plan for such an eventuality here at Titan through selling puts on a downtick and keeping our position size appropriate in the outright silver commodity/related instrument like the USLV so that we can take advantage of such price weakness. As the saying goes – “fail to plan and you will likely plan to fail”!

You should not take this piece as an advocation to trade in any of the instruments mentioned and should always take professional advice in relation to your own personal circumstances. All Titan Funds operate within a spread betting account which means gains or losses are currently free of tax. However, legislation can change in the future. Spread betting is a leveraged product which could result in losses of some or even all of your initial deposit. Ensure you fully understand the risks.

June 2014

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Alpesh Patel on the Markets

ALPESH PATEL ON THE MARKETS

TECHNOLOGY: THE PROFITS ARE NOT WHERE YOU THINK THEY ARE I am part way through a tour of Asia. India, the Philippines, Malaysia and Hong Kong are recent memories and now I am about to fly to Jakarta and Singapore. On my travels I am looking for potential world class technologies and the money making opportunities which come from them. But the stock markets, not perceptions, are the real indicator of where money is to be made. As I said in my recent speech in New Delhi, money is not to be made where you think.

June 2014

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Alpesh Patel on the Markets

Let’s look at the biggest and most exciting technology sub-sectors to see what I mean. “Big data” plays, you would think, would be a good place to start. Wrong. Take the returns of those in business intelligence within this sector. Most have provided a negative return over 12 months, including companies such as SAP, Actuate and Qlik. Some data management companies, such as CommVault, have also seen falling share prices. Surely enterprise storage within big data is doing well? Nope. Fusion and Quantum are both down. Of course, even in such sectors some do well, like EMC, or MicroStrategy and Verint. But for me the majority are “steer clear” plays. I’ll give one more example where reality and perception diverge, and then some lesser known tech sectors which you should investigate. Smart Grid, where consumers can manage electricity consumption smartly thanks to digital intelligence and analytics, is much hyped and much vaunted. Technology infrastructure plays like Silver Spring Networks and PowerSecure stink. So does Smart Meter maker Itron.

“My favourite overlooked tech companies are in minimally invasive surgery, but not those in robotic surgery as they’ve not done well.” So which technology sectors are worth examining? In my view Chinese internet stocks are worthy of further investigation. The subsectors I like are the portal companies like Qihoo, YY and Bitauto. Also in this sector the e-commerce companies like Vipshop and Ctrip and the gaming players like Shanda Games and KongZhong are attractive. Even the subscription networks like SouFun are leaping ahead. Or take the opposite technology extreme – the modern warfare sector. Within that the subsectors doing really well are command and control companies like General Dynamics, L-3, Exelis and Harris. Advanced aero companies too like Lockheed, Northrop and Orbital Sciences are performing admirably.

My favourites in this sector are missile defence and smart bomb companies Alliant and Raytheon.

Given the boom in the sector you’d think that robotics companies in modern warfare would also be reaping the rewards. But back on the downside those, and the simulation tech companies, are not doing well. On to fracking companies. You may have thought with all the legal and political problems it was all over. Well, every company, from the chemical and proppant providers, to fluid logistics and contract drillers, services and equipment companies, is booming. Key examples are RPC, Pioneer Energe, Kirby and US Silica. My favourite overlooked tech companies are in minimally invasive surgery, but not those in robotic surgery as they’ve not done well. In particular I am looking at microsurgery companies like Conmed, ArthroCare, NuVasive, Staar and Globus. Speaking of overlooked, digital dollar firms, but only those in card networks (Amex, Visa, MC), processing (Total System Services, Global Payments and Vantiv) and in solutions, like WEX, Xoom and QIWI, are worthy of a further look. Take another look at tech in Chinese solar too, and couch commerce companies (MakeMyTrip – I am a shareholder) and Vipshop. So you see, tech is all around, but it’s the companies that you generally don’t hear about that do the best. I’ll leave you with this: nuclear technology – love it. Especially instrumentation companies like Curtiss-Wright and Flowserve to fuel management companies like Thermo Fisher and US Ecology. But I don’t like the uranium mining companies – given how well those in fuel management and in instrumentation do by comparison. Alpesh B Patel - www.investingbetter.com

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June 2014

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Markets In Focus

MARKETS IN FOCUS MAY 2014

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Markets In Focus

June 2014

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MAGAZINE

SPREADBETTING Thank you for reading. We wish you a profitable June!

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Spread Betting Magazine v29  

The e-magazine created especially for active spread bettors and CFD traders. Zak Mir interviews Anton Kreil, Blinkx – Zak Mir pick of the m...