How to Improve My Credit Score

Having a good credit score is essential in order to obtain financing at affordable rates and can save you thousands of dollars in terms of interest charges. Here are 7 easy steps to improve your credit score. Why listen to me? I have a 790 FICO score so I know what I am talking about. Enjoy.

1) Get added as an authorized user to your parent's cards (make sure they ask for your SSN). These will report on your credit score and increase your amount of available credit outstanding, thus lowering your overall credit utilization (30% of score). This only makes sense if your parents have never been late on the card and keep utilization low (under 10%). 


2) Check your credit report with the 3 credit bureaus for free at annualcreditreport.com-- you are allowed to access your report once every 12 months. You will not see your FICO score, but it is always valuable to check for mistakes or errors on your report.


3) The amount of credit you get approved for initially is mainly a function of FICO score + stated income. Notice stated income. The credit card companies do not verify your income. Sometimes they will ask to access your tax returns (very rare) and you do not have to provide it to them (app will be declined). Every time you request new credit--they will Hard pull you (negatively effects your score). Sometimes they ask for Household Income--when I was in college I just included my parent's income. Never had a problem. The goal is to get the highest available amount of outstanding credit allowed. This will reduce your overall utilization rate, thus improving your score dramatically.


4) Chase is notorious for Hard Pulls every time you ask for a credit line increase which is why I don't like them. American express however will SP credit line increases. Blue cash everyday 3% on supermarkets, 2% gas, 1% on everything else. Furthermore, AMEX has a special 61 day 3X credit limit hack available. Once you open your new account (HP)--you are eligible for a 3X increase to your credit limit after 61 days--best of all Soft Pull (does not impact credit score) guaranteed. This makes it much easier to increase the amount of credit available--which helps increase your score. Just don't go over 25K or you risk a Financial Review (they temporarily suspend you card and make your prove income, assets, etc).


Another benefit of AMEX is backdating your card. I got my first AMEX 8 yrs ago. Got another one last year. They back date your new card so that it looks like it too has been open 8 yrs. This increases my average age of credit (about 15% of FICO score).


5) Don't forget Discover. They have a new product with their Discover IT card which allows you free access to your real FICO score once a month. They have rotating 5% cash back categories which change quarterly, along with 1% back on everything. Also they will SP credit line increase requests after 3 months. I have this card purely for the free FICO. Some companies scam you buy charging you for your FICO score--this way I get it for free. This card definitely pays for itself.


6) Hit up the MyFico forums--they are the best when it comes to all things credit cards and improving your FICO score.


7) Never pay an annual fee for a credit card.  Most people think they can beat the annual fee by some combination of tricks, and heavy spending. Most fail. Credit card companies are set up to make money. They have complex algorithms that determine who much on average they can make from people. To make this short: don't pay annual fees for cards. They are not worth it in the end.


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How to Lie Like a Pro



Lying is wrong mckay. Don't do it. It is not right and it is dishonest. So says the mainstream world.

Fuck that nonsense. Done properly, lying can help you improve your life (career wise, relationships,etc) dramatically and put you ahead of the rest of the pack. Here are 4 steps to help you lie your way to the top.

1.  Maintain Direct Eye Contact--99% of people screw this up. They get nervous when lying and find themselves unable to maintain eye contact. They look down, sideways. The secret is to embrace your lie. Your mark does not know you are lying. Look them directly in the eye and always maintain it. Show you are in control.

2. Stop Fidgeting--this is a clear giveaway that you are lying. People constantly move their hands (signaling increased anxiety) and shift positions (crossing their legs). Instead of doing this, stay calm and maintain a constant and relaxed position. Keep your hands motionless and your back straight. No slouching either.

3. Keep it Simple and Slow down--- When people get nervous they start to talk faster and faster until they slip up and say something stupid. Don't do this. Slow down and concentrate on your thoughts. Less is more when lying. Keep it simple and avoid making complex and outrageous lies. They have to be believable.

4. Smile--When you smile at someone it shows you are comfortable and in control. Insecure people don't lie, they sweat, fidget, and fail to make eye contact. Smiling is the exact opposite of what most people do when they lie.


I got my first job lying (said I had 4 years experience when I had zero). Never would have gotten an interview without lying. Lying also works well in relationships too AKA "Of course baby I would never cheat on you--you are the only one."

Black Swan Insights
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Fed Chair Janet Yellen on monetary policy: "the best way to build credibility was to lie"



Not new to BSI readers, but Janet Yellen the new head of the Fed admits that the best way to build credibility is to lie to the idiot public. At least she is honest about it, unlike Banana Ben Bernanke. 





From a previous black swan post:

In fact, San Francisco Fed President Janet Yellen mentioned in a speech that central bankers openly lie as a matter of policy. She recounts her discussions with two international central bankers at her first Jackson Hole meeting:
Two of the leading central bankers in the world took me aside to help educate me about how to conduct myself so I would be an upstanding central bank citizen. They offered me the very same advice: Good central bankers never admit they pursue stabilization policy. Such an admission would reduce the confidence of the public in  your commitment to price stability and therefore undermine your credibility and effectiveness as a monetary policymaker. I responded that I appreciated the advice, especially from such distinguished central bankers, but that it left me a bit confused. They seemed to be telling me that the best way to build credibility was to lie, specifically about how I understood the objectives and how I intended to conduct monetary policy.


Am I the only one who wishes we had a more attractive Fed Chairwoman? I mean if we are going to select a woman for the most powerful position in the country, Obama could have done much better. Admit it--you would feel much better being lied to by an attractive woman like this below, compared to grandma Yellen.

On a personal note--women in business suits (with stockings) are incredibly sexy. You mind explodes with all of the possibilities--like ripping of her stockings, what she would look like in various positions on my desk, etc. But I digress.



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Free Money Alert--Bank of America Wants to Give You $120 annually to Open a Credit Card Account

 


OVERVIEW

[insert attention grabbing sentence ha ha] Sick of making payments to your credit cards company? Would you like to have a credit card company pay you $120 per year for paying your bills on time? This is not some generic and everyday promotional offer of earning $100 on your first $500 of purchases or a one time thing, it is $120 per paid to you every year? Still have your attention? I will tell you how to maximize this available deal so that it puts $120 in your pocket every year while improving your credit score.

THE DEAL

Bank of America (BOA) has at what first looks like a to good to be true offer for individuals with good credit. Just by opening a new credit card with them and paying just one bill per month you receive $25 per quarter + $5 if you have another BOA account such as checking/savings/investment. No annual fee or charges related to the account. This seems like the perfect credit card arbitrage with no risk of losing money. Best of all it only takes for about 10 mins of your time.

Introducing the Better Balance Rewards card from Bank of America:

 
PRO FORMA DETAILS FROM WEBSITE
 
  • No Annual Fee Ever
  • 0% Introductory APR for first 12 billing cycles
  • 11.99% - 21.99% variable APR
  • Earn up to $100 per year for paying more than your minimum payment on time every month
  • Get an additional $5 bonus if you have at least one other qualifying account with us
  • Rewards are automatically credited to your card balance or deposited into your checking or savings account, whichever you prefer


  • THE REAL DETAILS

    1. You Need Good/Excellent Credit to Qualify

    The offer is open to everyone 18yrs and older, however you need good credit. This usually means a FICO score of 720+ and no negatives on your account (i.e. collections, past due accounts, etc).

    2. Must Pay One Bill With Card Per Month

    In short, you cannot maintain a zero balance on the card to receive the bonus rewards. To earn rewards you must run at least one charge or pay 1 bill through the card per monthly cycle.
     
    3. Must Pay More than the Minimum Due on or Before Due Date
     
    This card is set up to reward people who pay their bills on time and pay more than the absolute minimum required. If you can do this, than this card is a good option for you.
     
    4. You Need Another Account With BOA For the $5 Quarterly Bonus
     
    For this feature, you need to have at least 1 open checking/savings/eligible retirement account with BOA. One requirement of a free checking account is that you have to maintain a $1500 minimum daily balance or have at least 1 monthly direct deposit of $250 or more to avoid monthly fees which negate the cash rewards. You can open a savings account for free as as long as you maintain a $300 daily minimum. Personally, if you are not a BOA customer, I would not bother for the extra $5 quarterly bonus. Just know that the maximum rewards per year will be reduced to $100. Still great!  
     
    5. Reward is Paid Quarterly
     
    So if 3 monthly charges and subsequent payments show up on your statements between Jan-Mar you will get the $25 +$5 sometime in April. For those without a second BOA account you still get $25.
     
    6. Have to Meet Requirements for Entire Quarter To Get Rewards
     
    This is the little tricky part which BOA intentionally leaves murky. Based on my reading of the Terms and Conditions it says that you "must have a payment due in each of the monthly cycles of the calendar quarter to be eligible for the quarterly cash reward".What this means is that if you get your card in Feb and use it in Feb and March you will not be eligible to get the $25 reward for the Jan-Mar quarter. You will be eligible for the next quarter's payment in July for the Apr-Jun period.
     
    HOW TO PLAY THIS FOR MAXIMUM REWARDS
     
    1. Apply Online---usually takes under 2mins to fill out application and get an instant credit decision
     
    2. Set Up 1 Automatic Bill for at Least $30 per monthly cycle---It needs to be a small fixed amount bill that does not fluctuate much. You cannot simply charge $1 dollar on the card. BOA has restrictions that will disallow the rewards for very low balances.  So just to play it safe let's make it $30 or more.
     
    3. Set Up an Automatic Payment With BOA---never have to worry about paying on time or missing the due date. You can set this up online to debit the bill due directly from your checking account (does not have to be BOA checking).
     
    4. Always Pay Bill in Full---this means no high interest rate charges.
     
    5. Put the BOA card in the proverbial sock drawer and never use it again---We are only interested in the $120 yearly rewards, nothing more. There are other cards to be used for normal cash back rewards.
     
    6. More Credit, Lowers Utilization, Improves Credit Score
     
    One of the easiest ways to improve your FICO credit score (the one that most lenders use) is to have more credit available because it will lower your credit utilization metric, which carries a heavy waiting on your score. Also, having another credit card will give you some breathing room during an emergency should that occur, since you can take advantage of the grace period between when the card billing cycle closes and when you have to make payment (at least 25 days).   
     
    POSSIBLE CONS & DRAWBACKS
     
    As always there is no free lunch in life. Here are a few things to consider before applying  
     
    1. BOA Will Hard Pull Your Credit Report
     
    While for most people this is not a major drawback, every hard pull will slightly lower your FICO credit score (about 5pts on average). So if you are about to buy a house or car, hold off on applying for the card until you complete these major transactions.
     
    2. BOA Can Change The Terms of This Deal
     
    In the small font fine print at the bottom under terms and conditions and in the card member agreement, BOA is allowed to change the terms of the card whenever they want without your approval. I know it is not fair, but after all you are dealing with a corporation here. This means that 3 yrs from now this rewards package may not be available. More incentive than ever to sign up today. 
     
    3. Do I really want a 2nd BOA Account for the $5 Quarterly Bonus?
     
    It is up to you. If you already have BOA checking or savings it is a no-brainer. If not, it may not be worth the extra hassle of maintaining a $1500 checking balance or monthly direct deposit. No problem you still get the $25 per quarter anyway equaling $100 per year.
     
    4. Zero Other Perks
     
    Outside of the possible $120 per year in cash rewards, there are no other reasons to use this card. You do not get 1% cash back or travel rewards like you do on some cards. So outside of using it to pay one monthly re-occurring bill, I would never use this card again.
     
    5. My Current Cashback Card is Better
     
    Yes, many cash back cards offer 1%, 2%, and sometimes 3% back. But what makes this offer superior is that you only need to make one small payment per month of $30. Spend $90 bucks a quarter with this card and you get $25. How much would you get back from any other card? .90 cents (for 1% back ), $1.80 (for 2%), etc. You can see that this is far more generous deal compared to other rewards program.  
     
    6. $120: Worth the Effort?
     
    To some people it may not be worth the effort and time to set this plan up. But let's consider how much time it takes to do this. I was able to apply an set up everything in under 5 mins (already BOA customer). So in essence, I earned $120 for 5 minutes of time. Not bad at all.
     
     
    CONCLUSION
     
    Of all the credit card offers available this has to be one of the better ones considering you do not have to spend thousands of dollars per month to earn the rewards. Furthermore, this is not a one time intro deal or first year teaser special, but an opportunity to earn money every year for using the card to pay one ordinary bill per month.  This deal is even better if you are an existing BOA customer with a checking/savings/ retirement account because you get the $5 per quarter bonus (extra $20 a year). For those without an existing BOA account, the offer is $100 per year for doing nothing but make a charge or pay a bill once a month and pay in full. I like to think of this as a form of credit card arbitrage that puts money in your pocket with no risk.  
     
    BLACK SWAN INSIGHTS
     
     


     
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    The Perils of Credit Card Fraud at Restaurants



    OVERVIEW

    With the widespread acceptance of using credit cards for everyday purchases, credit card fraud has become a ubiquitous and ever increasing problem. In the last 2 weeks I have personally had two different credit card numbers stolen and used to buy everything from electronics in Hong Kong to flowers in Manila. While the average person can easily tolerate credit card fraud once and a while, two incidents in a short period of time is alarming. This has caused me to radically rethink the way I use credit cards in an effort to prevent this kind of fraud from occurring again.

    MY STORY

    I have a longtime girlfriend--you know what that means right? I end up going out to restaurants at least once a week sometimes more. My lovely girlfriend is a self-confessed foodie who likes to take advantage of all of the new and exciting dining options Los Angeles has to offer. These are usually hipster/trendy establishments with "hot" new celebrity chefs with exotic menu selections (grasshoppers, uni, eel,oxtail, etc) and small portions available at egregiously inflated prices. I always pay with my credit card because I earn 2x cash back (so in essence I trade my privacy for 2% cash back).

    Well I went to two restaurants last week (Fig and Olive in Beverly Hills) and a Mexican restaurant on PCH, which will remain nameless because it is unknown to the foodies and thus never busy or loud with excellent customer service (have been there over 10 times). I of course paid for the two meals with credit card #1 and thought nothing of it. Within 72 hours I get a fraud alert from my credit card company wondering if I was buying high-end electronics in Hong Kong. Of course not! No problem though, credit card company blocked account and reissued card with new number. Four days later I get another fraud alert from my credit card#2 company saying some supercilious individual was try to purchase large amounts of floral arrangements in Manila, Philippines along with electronics in Singapore. I started to get a little concerned here--has my identity been stolen? has someone broken into my home safe and copied every credit card i own? what's going on here? So I called the second credit card company and talked for over an hour with one of their fraud specialists who gave me some very good tips about using credit cards and how to reduce the risk of fraud.

    CONCLUSION AND SOLUTIONS

    So the question remains: how and when did these credit card thieves steal my card numbers?

    The fraud department told me was that restaurants are one of the prime targets for credit card fraud. The majority of patrons pay with their cards due to the convenience and large amounts involved. You give your card to the waiter and they take the card to be processed (outside your view usually). During this time you have no idea what they are doing with your card. Credit card fraudsters will often work with waiters at expensive restaurants and pay them to swipe customers cards using an electronic reading device which stores the card numbers (all without restaurant management knowing) . Then these pieces of garbage will copy your information onto blank credit cards and sell them on the black market.

    Credit card companies are well aware of this problem and simple analytical software can pinpoint where the fraud was talking place. If 20 customers experience fraudulent activity on their cards and they all had one restaurant or other charge location in common in the last week, then it is pretty simple to track down the criminal. However, credit card thieves know this dynamic, so they will copy and store your information and wait a few weeks or months before using your credit card number. This makes it a little more difficult to track down exactly where the crime occurred.

    As for my 1st case of credit card fraud, the fraud specialist said that most likely it was at a restaurant location since this is where I use my credit cards the most (not pointing the finger at Fig and Olive or the Mexican restaurant). This incident was still under investigation.

    The second case was more difficult and I could not get an answer from the fraud department. I had not used the card in over a month prior to the fraudulent activity occurring.

    While the credit card companies were very good with helping me to identify and resolve these fraudulent transactions, I realized that I was in fact very lucky. These fraudsters made the mistake of using my credit cards outside of the country. This made it very easy for the credit card companies to flag the transactions and decline them. The real problem would be if fraudsters used the card in my immediate and surrounding locality for routine goods such as food, gas, clothing, etc. I doubt the credit card companies would have been as quick to respond to the those charges. Furthermore, the process of canceling the credit card and having to wait for a new one to be sent left me without any credit cards, which was a major hassle since you can't purchase anything online these days without a credit card. Anyway that is my story.

    Here are some tips I got from the fraud department on how to avoid your credit card from being compromised:

    1. If possible, always manually swipe your own card---this prevents a 3rd party from having the opportunity of stealing your card number.

    2. If a 3rd party must swipe your card, always observe them---fraudsters would have to be highly ambitious or stupid to try to steal your card in your presence.

    3. Monitor Credit Card Account Daily---it only takes a few second to log on and check posted or pending transactions to your account. The faster you inform the credit card companies the easier it is to resolve the problem. I actually caught a major error for a legitimate transaction. Instead of charging me 127.89, I was charged $1,274.89. Called and got in quickly refunded. It is funny how merchants never make a mistake in my favor!

    4. Be Very Careful at Restaurants and Gas Stations---These are some of the highest frequency locations for credit card fraud. I will not be using my credit card at restaurants anymore, except when I can swipe the card myself. Once bitten twice shy and all that.

    BLACK SWAN INSIGHTS

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    The 100% Guaranteed Weight Loss Solution--Black Swan Insights Style

      

    OVERVIEW

    Everywhere I go I see more and more creative weight loss solutions offered to more and more gullible fat Americans. Whether it is spot fat remover, supplements, books, Internet diet plans, they are all the same: THE WANT YOU TO PART WITH YOUR MONEY. Americans spend over 20 billion per year on weight loss products to no effect. We are still a fat and sloppy culture. Here is my advice to overweight Americans.

    100% Guaranteed Weight Loss Solution

    STOP EATING (So Much)---You are fat because you choose to be fat!This is the best advice for fat/overweight people. You don't need to buy any more stupid products or have surgical machines use lasers to zap away fat, just stop eating so much food. Since the average man needs about 2000 calories per day (less for women), reduce your caloric intake to between 1000-1200 calories per day period. Losing weight is very simple. Each pound of fat equals 3500 surplus calories. To reduce 1 lb of weight, you have to create a 3500 caloric deficit.

    BENEFITS

    1. Free--You don't have to pay a dime for this diet plan or product.

    2. Puts Money into Your Pocket---No more eating out at casual dining restaurants and fast food establishments saves hundreds of $$$ per month.

    3. Starts Immediately--Don't have to wait for the new weight loss product to arrive in the mail or go to any shop to buy. You can expect to lose 1-2 pounds per week. Yes, losing fat is not a fast process. If you want to lose 2 pounds per week you have to create a 7000 caloric deficit. Be aware of water weight. If you eat a salty meal you will gain water weight. So stay away from high salt foods. Limit sodium to no more than 1500mg.

    4. Improves Self-Control--Every human should have self-control over their own body. One of the easiest ways to show self-control is deciding on what to stuff in your mouth. Nobody forces you to eat that Big Mac and Cheese with fries and a shake.

    5. More Attractive--Regardless of your looks, healthy non-fat people are always more attractive at a basic primal/biological level. They demonstrate discipline, confidence, and concern for their health. Fat people reveal sloth, insecurity (eat because they are somehow unfulfilled in life), lack of control, and general disregard for their own health and appearance.

    IMPLEMENT PLAN

    1. Plan on consuming four meals per day spaced out 3-4 hours a part. This will keep you fuller during the day.

    2. Eat Protein and Fat--These two essential elements are what keep people satisfied and full for the day. Eating carbs is only temporarily filling. Problem is that you will be hungry soon after and want more empty carbs. Contrary to popular perception eating fat does not make you fat! It is calories stupid.

    3. Learn to love Water--Why? Because this is the only liquid you will be consuming for the foreseeable future. Water has zero calories compared to those garbage sodas you drink which have 120 or more per bottle. Fruit juice is no better--it is high in calories and sugar. So no juice for you. Diet sodas are no better. Just filled with shit products like aspartame and high fructose corn syrup. So learn to love water. Add a lime or lemon for flavoring and you will be fine.

    4.NO ALCOHOL--I know bummer right. Alcohol is full of completely empty calories and useless sugar. Furthermore, the consumption of alcohol leads to shitty eating habits. Admit it. After a heavy night of drinking you are more likely than not to binge on garbage food (fast food, ice cream, etc). This is also a good opportunity to see if you are an alcoholic or not. Can you go a few months without your precious drug? It is a good test of self-control.

    5.Move Around More--The average American gets up everyday and drives to work, sits all day in a chair in front of a computer, drives home, and then crashes on the couch and eats and drinks until bedtime. Get your ass up and walk around. Get the blood moving and heart beating fast. Run in place for 1 min as hard as you can and rest 1 min. Do this 10-15 times. Jump Rope with a piece of rope or cord. Have a partner or a dog? Go on a walk at night. You do not have to do the same exercise everyday, just do something other than sit on the couch and watch TV.

    6. Take up a new hobby--Instead of food being your hobby of choice or eating purely out of boredom, find something new and exciting to challenge yourself. If you are married the obvious plan would be to extend your sex sessions. Average married couple has sex for 23 mins 2 times per week--pathetic. A good goal would be 45mins 3-4 times a week. You will burn much more calories while being stimulated at the same time. Not married or into sex? Learn a new skill such as painting, home improvements, scuba diving, outdoor/survival skills, hunting, target shooting, cycling etc. Anything to keep you mind occupied and off of food.

    7. Chew Sugarless Gum--For some fatties who have to have something in their mouth all the time try chewing some gum. It will keep your mouth occupied while keeping your calorie count low. Average piece of sugarless gum is around 3 calories. Not bad.

    WHY THIS PLAN WILL NOT WORK

    Americans don't want simple straightforward solutions. They want convoluted/new age/liberal explanations which tell them it is not their fault they are fat, or that fat is okay/fat acceptance or even sexy. Furthermore, they do not want to change any of their bad habits or admit that they are the only ones responsible for their predicament. Fine! Keep gorging on your favorite fat foods, die young, develop severe health problems, and forget the idea of getting a suitable mate in life.

    This plan takes one thing: Self-control. You cant fake it, buy it, or cheat your way through it. It is simply up to you to change yourself. No one or product will be able to do it for you.

    One last thing. Having a slow metabolism/thyroid is not an excuse to be fat. Go the doctor and get them to test your T3/T4 levels to see if you indeed have a thyroid problem. This can be easily rectified. Hell you can even order a blood test online with privatemdlabs.com without your doctor's permission. It works great. They set you up with a local clinic to get a safe and effective test. Easy as pie.

    About Me: I am not a doctor or do I play one on TV. I am just someone who lost 39 pounds following this simple plan.

    BLACK SWAN INSIGHTS
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    My Advice to Altria Corp on Ecigs and More



    As many readers will know, I am a great aficionado of tobacco stocks and believe they have the single best business model of all-time. They sell an addictive product to loyal customers who literally cannot stop buying their product. Tobacco companies can raise prices every year with little effect on sales (adjusting for the structural decline of the business). And best of all, they pay out large and ever growing dividends to their shareholders. Owning Tobacco Stocks + dividend reinvesting = Long Term Wealth.

    Possible Concern of E-Cigs

    While traditional tobacco is a great business, new technological advancements such as ecigs have the potential to disrupt this dynamic. I worry that Altria (my largest shareholding) is not doing enough to keep up with the times and may fall behind. So I wrote a letter to Altria to give them a few ideas.

    THE LETTER


    1. Rethink the company's purpose and strategic vision

    Instead of Altria as simply a tobacco company, let's try Altria as a world leader in providing nicotine delivery devices to US adults. The emphasis is on providing US adults a wide range of nicotine delivery options ranging from traditional tobacco products such as cigarettes, cigars, and smokeless moist snuff to newer products like ecigs. With this change in vision, Altria will be able to research and develop new forms of delivering nicotine to adult consumers such as nasal snuff (convenient 4mg pellets that look like inhalers see http://www.snuff.co.in/english_snuff.html#european_snuff for details ) or nicotine infused beverages.

    2. Improve and Expand Social Media Presence

    While traditional tobacco cannot be marketed through social media channels such as Facebook or Twitter, new ecigs can use social media. Lorillard has an active and very engaging Twitter page with 13K followers. Here all followers certify they are at least 18yrs old to join. This allows Lorillard a powerful marketing tool to directly engage with its valuable customers. As a result, Lorillard's Blu ecigs have over 13K followers and growing. Altria has so far been unable to establish a foothold in to social media. The current number of followers on Altria's Twitter page is 1759. This is a direct result of an inactive corporate account which only recites company press releases. This lack of a social media presence will hurt Altria's eventual roll out of MarkTen ecigs. The new generations of adults 18-21 spend more time on social media sites than traditional avenues available to advertisers like TV, radio, etc.

    3. Embrace Ecigs as a way to grow the adult market for nicotine.

    A traditional way to think of ecigs is to assume that it will cannibalize cigarette sales. While this will certainly occur, it does not have to be a net negative for Altria overall. With the proper marketing I believe that ecigs and other smokeless products could actually grow the US nicotine market (estimated at 44-46 million smokers). This is a potentially game changing technology that could increase the number of people who use nicotine and arrest the long-term decline in the tobacco industry. In 1965 40% of adults smoked cigarettes compared to 20.8% today. The only reason for the decline is due to health risks associated with smoking. If you can present to US adults a proposition which allows them to consume nicotine while not having to worry about the established health risks of smoking, than it is a win-win. Ecigs are able to reach out to new consumers who would normally never smoke cigarettes because of the negative health effects.

    4. Special Marketing for E-Cigarettes

    Unlike traditional tobacco products, Ecigs are not currently regulated by the US government or FDA. This has presented early entrants like Lorillard with the opportunity to market ecigs differently than most tobacco products. With the lack of regulatory guidance is opportunity. Lorillard sells its Blu ecigs directly online with a well-constructed website along with traditional retail channels. The website makes use of celebrity endorsements from well-known people such as Jenny McCarthy and online persona's such as "Bob" aka Mr. cool. Furthermore, Blu has a rewards program for purchasing ecigs and refill cartridges to encourage brand loyalty. Altria, meanwhile, has not managed to get a web store up and running for MarkTen yet. In fact, the Nu Mark website only contains general information about MarkTen. Altria needs to take advantage of the current regulatory uncertainty and actively market MarkTen similar to Lorillard. Simple convenience store displays are not going to enough. Your competitors are already utilizing TV ads to promote their products. They are trying to lock in as much market share of the ecig market as possible before regulatory restrictions ban the practice. One way Altria could roll out MarkTen would be to product launch on social media like Twitter and Facebook along with more traditional events. Give away some MarkTen's to age verified consumers and encourage them to review it and share with their friends. Best advertising is word of mouth especially when it comes to new technology.

    I will leave you with a story which shows the potential for Ecigs. I was in a DMV last month (always a fun experience), and a man next to me started smoking an ecig. Four people came up to him to inquiry what this new device was and whether he was smoking? He said no, it was all water vapor. People were amazed and enthralled with this new technology, and more importantly, no one asked him to stop or move outside! Social stigma of smoking gone! 
     
    BLACK SWAN INSIGHTS
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    Don't Believe the Hype: Apple is Not a Cheap Value Stock

    A quick blurb about Apple's earnings.

    Apple reported earnings last night which beat already lowered expectations. Little surprise. Under-promise over deliver as usual. However, guidance was very poor. That has not stopped the usual Apple groupies from proclaiming that Apple has become a value stock with a growing dividend and share buybacks. This is completely false.

    On the surface Apple appears to the layman cheap. Compared to 2013 earnings expectations, Apple trades at a 9 P/E and a forward P/E of 8.3. What more could a value investor want? The reason that Apple is trading at a low valuation because everyone expects earnings to decline in the future. This is a key aspect which most investors fail to realize. When a non-cyclical stock trades at a P/E of lower than 10, the market is expecting declining earnings--analysts just have not realized this yet. In fact the market is expecting a sharp decline of at least 20% compared to analyst's 49.00 in earnings expected for FY 2014. The concept that Apple is cheap is noting more than a stock market mirage created to suck in low-informed investors into a massive value trap. If anything, Apple is a short not a buy at $414 a share. Expect it to steadily decline over the next year as more and more investors realize that the growth will disappoint to the downside.

    And remember--those stock buybacks are nothing more than a waste of shareholder money. Buying back stock at inflated prices when earnings are declining is a recipe for disaster. I pity anyone owning Apple (e.g Greenlight Cap and about a billion other hedge funds). The Apple Titanic is sinking, better abandon ship before the whole thing sinks and there wont be enough lifeboats for everyone.

    Black Swan Insights.
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    AP's Fake Terror Tweet: The Beginning of For-Profit Terrorism?

    Historically, most terrorism was committed for ideological reasons, but now a new form of terrorism may be emerging: for-profit terrorism.

    On April 23 2013 AP's widely followed Twitter account was hacked and falsely reported that an explosion had occurred at the White House injuring President Obama. Normally such a report would have little impact, but with 2 million followers, AP's tweet translated into real world consequences for US financial markets. Before the false tweet, US markets were enjoying a rally of about 130 points on the Dow and 14 points for the S&P 500. Within 3 minutes of the fake AP tweet, the S&P 500 had crashed 13 points with large gaps seen in many stocks. Zerohedge reports that during that time 260,000 S&P contracts traded with a notional value of $20.4 billion. A large amount of money was made and lost during this time, all because of a fake news report on a twitter account. While this instance was isolated and minuscule in the general course of the stock market, it may mark the beginning of a disturbing new trend where terror is used for financial gain.

    The rapid dissemination of information through mobile and social media is a double-edge sword. People are more connected to their friends, families, and employers despite living 1000's of miles apart in some cases. Information is no longer controlled by a top-down mainstream media hierarchy which was vetted by editors and producers before dissemination to the masses. Instead information can now be transmitted almost instantaneously be anyone with an Internet connection, bypassing traditional forms of media such as TV or radio which had controls to prevent false or unsubstantiated stories from breaking. This new form of unedited information has the same power to change the course of events as traditional mainstream media information. Malicious actors (whether state-sponsored or independent) could use this new technology to make money.

    Consider the following example. A man in Times Square starts shouting that the President has been shot and is dead. He runs around telling everyone that he has a source at the White House that told him this was true. What would be the effect of this false statement? Most likely nothing. Some by passers may get upset and call the police to report the deranged man for making threats against the president. The point being that no real world impact occurred. Most likely, the event will be considered a non-event and not covered by the media.

    Now consider another example. Hedge fund Alpha wants to make a quick buck in the stock market. Hedge Fund Alpha purchases the services of an accomplished hacker to break into the twitter account of AP and post a false report that "Terror in DC--the president shot and killed at public reception--- foreign terrorists thought responsible--Washington on lock down--more news coming". Knowing that this headline would cause the market to drop precipitously, Hedge Fund Alpha shorts a large amount of S&P 500 futures or buys puts. Within minutes, Hedge Fund Alpha has made millions of dollars and promptly closes its positions. After 10 minutes, information comes out that this was a false report and that AP's twitter account was hacked. The White House Press Secretary tweets that the president is fine and all is well in the West Wing. AP asks Twitter to suspend its twitter account in order to prevent further misinformation from occurring. The problem is that the damage has already occurred. Investors lost money as stocks plummeted, while Hedge Fund Alpha collected large profits. Keep in mind that this whole event happened in less than 10 minutes. What was the cost of this illegal hack operation for Hedge Fund Alpha? The answer is not much compared to the millions in potential profits. All the hedge fund had to do was to hire a hacker and not tell them what the hack attack was designed for. You could probably hire a computer hacker for a trivial amount (lets just say $50,000), provided they did not understand the goal of the operation.

    The above example illustrates how simple and cost-effective this fake terror story could be generated and disseminated to the world. While the story was quickly debunked as a false news item, it succeeded in its objective by creating a temporary panic in the stock market,  allowing nefarious operators to make some fast money. While this fake terror scenario was relatively benign (e.g. no one was physically hurt or injured), the incident raises an important point regarding terrorism: it can be very profitable.

    Now suppose Hedge Fund Alpha wants to go a step further and actually influence events by committing a low-scale attack against a specific company in order to profit from the events. In this scenario, the attack could be a cyberattack against a company which primarily relied on its website to make money (e.g. Amazon.com, Google, etc). This is not without precedent. Many companies over the last few years have reported denial of service attacks against their websites. However, for the most part these attacks are done by disgruntled low level hackers who take down the site for a few hours at most. Sometimes they post explicit or incorrect images on the website, like seeing a naked woman when you go to bankofamerica.com. Sure its embarrassing for the company, but does little to impact corporate profitability or stock price. Now imagine that a well financed organization with millions of dollars in capital engaged in a well coordinated and persistent attack which shut down Amazon.com. Just when Amazon thinks it has restored the website, the hackers slip a malicious virus into Amazon's network which artificially lowers the price on every item to $1. These kind of well planned attacks continue for 6 days until Amazon finally regains full website functionality. A few days later Amazon announces that the hack attack also resulted in credit card information on millions of customers to be stolen. This attack would have cost Amazon 10's of millions of dollars of profit and hundreds of millions in revenue, along with a serious breach of public trust in the company. There is no question that the stock could decline during the whole incident, a positive for anyone betting against the company through short-selling or puts.

    While the above scenario is unlikely considering how large Amazon is and the thousands of computer technicians it undoubtedly employs, this is not the case for smaller companies who could not defend themselves against such an organized and persistent cyberattack. For smaller or weaker companies this attack could very well force them into bankruptcy. We have entered a new world where this type of scenario is possible.

    Black Swan Insights



       


     
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    MACRO UPDATE: Buy, Sell or Hold?

    Well. I am finally back to the blog after a very long and pleasurable hiatus.

    I am going to begin publishing a weekly survey of the current macro environment with my various trading positions and predictions.

    1. S&P 500 Position: Neutral/with downside bias (e.g.would wait for a correction before buying stock).

    If somebody put a gun to my head and forced me to by a stock I would chose a consumer staple stock over cyclical. The best stocks on earth are the tobacco stocks like Altria (MO) and Lorillard (LO). They pay 5% dividends which increase over time. They have a captive customer who is physically and mentally compelled to purchase their product. Buy. Hold. Reinvest Dividends. Retire Rich.























    Furthermore, sentiment is too high as indicated by the NAAIM Manager Survey sentiment which currently stands at 85%. Anything over 80 indicates a top for the market.


    2. Gold & Silver Position: Buy/Accumulate

    Gold has corrected over the last few months and represents a good entry point. With the Fed promising to print money forever, why not own gold? I am happy that I get to buy gold on sale around $1580-1600. Furthermore, the large commercials have dramatically cut their short positions, indicating that they expect higher prices. HSBC noted that gold fundamentals remain positive because of "rising global liquidity as the likes of the Bank of Japan ramp up quantitative easing, rising inflation expectations, currency depreciation and geopolitical tensions."


    Furthermore, the Cyprus crisis is likely to keep a bid under gold writes UBS:

    "For now, the risk of immediate contagion to otherperipheral countries remains limited, but the Cyprus precedent certainly cannotbe shrugged off particularly if things deteriorate elsewhere...As people start to worry about the safety of their deposits, gold would become an attractive alternative and an escalation of these worries would prompt a return of fear-related physical buying."

    3. Oil Position: Sell/Short

    Too much oil and not enough places to put it sums up the oil market. The chart below shows the surplus amount of oil slushing around the US. US oil consumption is declining and production is growing. Not a good combination for Crude oil. Furthermore, speculators are long crude, which means it is likely to go down. Always fade the crowd my friends. It is not a guaranteed win, but puts the odds in your favor.




    And this trend of massive over-supply is expected to worsen: "According to early estimates from four analysts surveyed by Dow Jones Newswires, U.S. crude oil inventories rose by 1.1 million barrels in the week ended Friday"

    4. Treasuries Position: Neutral

    No reason to buy treasuries. The Fed is manipulating the market with its "QE till we all die" policy. Rates will remain low despite the improvement in the economy and higher inflation expectations. There is no bond bubble and it will not burst. The Fed will not allow this. If you are dumb enough to own Treasuries beware. The government is printing money to debase the dollar. You will always get your principal back with interest, but will likely lose substantial purchasing power due to inflation in the future.

    5. Residential Real Estate Position: BULLISH BULLISH BULLISH.

    If you can qualify for a 4% or less mortgage, this is the best time to buy a home. The Federal Reserve led by kamikaze Ben Bernanke has lowered mortgage rates to near all-time lows. If you buy a house, you are in essence betting on inflation which is exactly what the Fed is trying to engineer. This bet is going to pay off for you in a huge way in the future. You would have locked in a super low interest rate of 4% when historical inflation is 3%. This means that in real inflation adjusted terms, you are borrowing money for 1%. Great deal for consumers. Furthermore, with the illegally printing money, homes prices should increase over the next 1-5 years substantially (10-20%). If you put 10% down, a 10% increase doubles your investment.

    6. Trade for the Week Position:

     Buy Imperial Tobacco (ITYBY.pk) This is the ADR for Imperial Tobacco company which is a large multinational tobacco company with steady profits and addicted customers. Not a bad combination. The stock has strong support at $70.40. I expect a bounce to $73.50.
     




    Happy Trading Everyone!

    Black Swan Insights
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