Thoughts of a Market Operator

Uncertainty means Profits

2010-06-23T21:09:00.003-04:00

I constantly hear that "The Street hates uncertainty". This has always bothered me, maybe because I have never been to Wall and Broad or even New York for that matter. However, it is a fallacy to think anything is certain. Politicians, natural disasters, human emotion, trends, fads, sentiment, which one of these can be predicted with any accuracy. I was listen to a popular CNBC show when it was announced BP was trying to bring to market some new debt issues. One panel member mentioned they would not purchase the debt if maturities were longer than 9 months. Then they turned around and mentioned a company they liked as a long term buy for 5 to 10 years. We are all delusional, trying to predict that anyone or anything will continually be profitable 5 to 10 years. So, I went through all this ranting to mention my new strategy. Step one, take cheap directional bets and step two is to diversify. The risk reward ratio has to be at least 3 to 1, because I plan to be wrong a great deal. I will check back to give an update on my status.

Long Term Investing

2010-03-31T16:19:00.002-04:00

Below is a chart, I will add any commentary so you can interpret it for yourself. You will have to use the full screen view.

Noninal_Real

Maximizing Profits

2010-03-24T15:57:00.002-04:00

It is difficult to avoid trying to capture short term gains while still pursing a long term strategy. A 15 day chart is noise against the backdrop of a 5 or 10 year trend. A sound investment policy can help avoid that pitfall, which eventually leads to over trading or high turnover. High turnover only means that your initial decision was either unsound or not thoroughly worked through. A sound policy will help minimize emotionally impulses and allow your strategy or system to work. While reading "Winning the Loser's Game", Charles Ellis mentioned that investors get jubilant when stocks are rising and depressed during a fall, but who among us, reacts that way in the mall. When prices rises we shun items and when they fall we buy more than we need, however securities are treated completely contrary. Again a sound policy will aid in quelling the urge to push prices up with the rest of the market. A word of caution, I am not advising buying on dips or averaging losses. If you like the actually enterprise at a market cap of $3 billion and it falls to $1.5 billion because of systematic market movement, you should buy twice as much. If you are trading, cut your losses promptly and move on.

I wonder if he got fired?

2010-03-17T16:37:00.006-04:00

Great clip to watch, especially 5:15. This is a great argument against my free rider problem, but David Einhorn had a short position so he was putting his money where is mouth was. I doubt analyst buy individual stocks yet alone buy what they recommend.

Sun Valley 1999

2010-03-17T12:46:00.002-04:00

This is an excerpt from The Snowball: Warren Buffett and the Business of Life' by Alice Schroeder. This post is quite long but I recommend it to everyone and believe it should be read out loud in trading firms twice a year. Enjoy

"To all you fellow ring-kissers, I would like to talk today about the stock market," he said. "I will be talking about pricing stocks, but I will not be talking about predicting their course of action next month or next year. Valuing is not the same as predicting.

"In the short run, the market is a voting machine. In the long run, it's a weighing machine.

"Weight counts eventually. But votes count in the short term. And it's a very undemocratic way of voting. Unfortunately, they have no literacy tests in terms of voting qualifications, as you've all learned."

Buffett clicked a button, which illuminated a PowerPoint slide on a huge screen to his right. [17] Bill Gates, sitting in the audience, caught his breath for a second, until the notoriously fumble-fingered Buffett managed to get the first slide up. [18]

DOW JONES

INDUSTRIAL AVERAGE

December 31, 1964 — 874.12

December 31, 1981 — 875.00

He walked over to the screen and started explaining.

"During these seventeen years, the size of the economy grew fivefold. The sales of the Fortune five hundred companies grew more than fivefold. [33] Yet, during these seventeen years, the stock market went exactly nowhere."

He backed up a step or two. "What you're doing when you invest is deferring consumption and laying money out now to get more money back at a later time. And there are really only two questions. One is how much you're going to get back, and the other is when.

"Now, Aesop was not much of a finance major, because he said something like, 'A bird in the hand is worth two in the bush.' But he doesn't say when." Interest rates–the cost of borrowing–Buffett explained, are the price of "when." They are to finance as gravity is to physics. As interest rates vary, the value of all financial assets–houses, stocks, bonds–changes, as if the price of birds had fluctuated. "And that's why sometimes a bird in the hand is better than two birds in the bush and sometimes two in the bush are better than one in the hand."

In his flat, breathy twang, the words coming so fast that they sometimes ran over one another, Buffett related Aesop to the great bull market of the 1990s, which he described as baloney. Profits had grown much less than in that previous period, but birds in the bush were expensive because interest rates were low.

Fewer people wanted cash–the bird in the hand–at such low rates. So investors were paying unheard-of prices for those birds in the bush. Casually, Buffett referred to this as the "greed factor."

The audience, full of technology gurus who were changing the world while getting rich off the great bull market, sat silent. They were perched atop portfolios that were jam-packed with stocks trading at extravagant valuations. They felt terrific about that. It was a new paradigm, this dawning of the Internet age. Their attitude was that Buffett had no right to call them greedy. Warren–who'd hoarded his money for years and given very little away, who was so cheap his license plate said "Thrifty," who spent most of his time thinking about how to make money, who had blown the technology boom and missed the boat–was spitting in their champagne.

Buffett continued. There were only three ways the stock market could keep rising at ten percent or more a year. One was if interest rates fell and remained below historic levels. The second was if the share of the economy that went to investors, as opposed to employees and government and other things, rose above its already historically high level. [19] Or, he said, the economy could start growing faster than normal. [20] He called it "wishful thinking" to use optimistic assumptions like these.

Some people, he said, were not thinking that the whole market would flourish. They just believed they could pick the winners from the rest. Swinging his arms like an orchestra conductor, he succeeded in putting up another slide while explaining that, although innovation might lift the world out of poverty, people who invest in innovation historically have not been glad afterward.

"This is half of a page which comes from a list seventy pages long of all the auto companies in the United States." He waved the complete list in the air. "There were two thousand auto companies: the most important invention, probably, of the first half of the twentieth century. It had an enormous impact on people's lives. If you had seen at the time of the first cars how this country would develop in connection with autos, you would have said, 'This is the place I must be.' But of the two thousand companies, as of a few years ago, only three car companies survived. [21] And, at one time or another, all three were selling for less than book value, which is the amount of money that had been put into the companies and left there. So autos had an enormous impact on America, but in the opposite direction on investors."

He put down the list to shove his hand in his pocket. "Now, sometimes it's much easier to figure out the losers. There was, I think, one obvious decision back then. And of course, the thing you should have been doing was shorting horses." [34] Click. A slide about horses popped up.

U.S. HORSE POPULATION

1900 – 17 million

1998 – 5 million

"Frankly, I'm kind of disappointed that the Buffett family was not shorting horses throughout this entire period. There are always losers."

Members of the audience chuckled, albeit faintly. Their companies might be losing money, but in their hearts beat a conviction that they were winners, supernovas blazing at the cusp of a momentous shift in the heavens. Undoubtedly their names would grace the pages of history books someday.

Click. Another slide appeared.

"Now the other great invention of the first half of the century was the airplane. In this period from 1919 to 1939, there were about two hundred companies. Imagine if you could have seen the future of the airline industry back there at Kitty Hawk. You would have seen a world undreamed of. But assume you had the insight, and you saw all of these people wishing to fly and to visit their relatives or run away from their relatives or whatever you do in an airplane, and you decided this was the place to be.

"As of a couple of years ago, there had been zero money made from the aggregate of all stock investments in the airline industry in history.

"So I submit to you: I really like to think that if I had been down there at Kitty Hawk, I would have been farsighted enough and public-spirited enough to have shot Orville down. I owed it to future capitalists." [22]

Another light chuckle. Some were getting tired of these musty old examples. But out of respect, they let Buffett get on with it.

Now he was talking about their businesses. "It's wonderful to promote new industries, because they are very promotable. It's very hard to promote investment in a mundane product. It's much easier to promote an esoteric product, even particularly one with losses, because there's no quantitative guideline." This was goring the audience directly, where it hurt. "But people will keep coming back to invest, you know. It reminds me a little of that story of the oil prospector who died and went to heaven. And St. Peter said, 'Well, I checked you out, and you meet all of the qualifications. But there's one problem.' He said, 'We have some tough zoning laws up here, and we keep all of the oil prospectors over in that pen. And as you can see, it is absolutely chock-full. There is no room for you.'

"And the prospector said, 'Do you mind if I just say four words?'

"St. Peter said, 'No harm in that.'

"So the prospector cupped his hands and yells out, 'Oil discovered in hell!'

"And of course, the lock comes off the cage and all of the oil prospectors start heading right straight down.

"St. Peter said, 'That's a pretty slick trick. So,' he says, 'go on in, make yourself at home. All the room in the world.'

"The prospector paused for a minute, then said, 'No, I think I'll go along with the rest of the boys. There might be some truth to that rumor after all.' [23]

"Well, that's the way people feel with stocks. It's very easy to believe that there's some truth to that rumor after all."

This got a mild laugh for a half second, which choked off as soon as the audience caught on to Buffett's point, which was that, like the prospectors, they might be mindless enough to follow rumors and drill for oil in hell.

He closed by returning to the proverbial bird in the bush. There was no new paradigm, he said. Ultimately, the value of the stock market could only reflect the output of the economy.

He put up a slide to illustrate how, for several years, the market's valuation had outstripped the economy's growth by an enormous degree. This meant, Buffett said, that the next seventeen years might not look much better than that long stretch from 1964 to 1981 when the Dow had gone exactly nowhere– that is, unless the market plummeted. "If I had to pick the most probable return over that period," he said, "it would probably be six percent." [24] Yet a recent PaineWebber-Gallup poll had shown that investors expected stocks to return thirteen to twenty-two percent. [25]

He walked over to the screen. Waggling his bushy eyebrows, he gestured at the cartoon of a naked man and woman, taken from a legendary book on the stock market, Where Are the Customers' Yachts? [26] "The man said to the woman, 'There are certain things that cannot be adequately explained to a virgin either by words or pictures.' " The audience took his point, which was that people who bought Internet stocks were about to get screwed. They sat in stony silence. Nobody laughed. Nobody chuckled or snickered or guffawed.

Seeming not to notice, Buffett moved back to the podium and told the audience about the goody bag he had brought for them from Berkshire Hathaway. "I just bought a company that sells fractional jets, NetJets," he said. "I thought about giving each of you a quarter share of a Gulfstream IV. But when I went to the airport, I realized that'd be a step down for most of you." At that, they laughed. So, he continued, he was giving each of them a jeweler's loupe instead, which he said they should use to look at one another's wives' rings–the third wives' especially.

That hit its mark. The audience laughed and applauded. Then they stopped. A resentful undercurrent was washing through the room. Sermonizing on the stock market's excesses at Sun Valley in 1999 was like preaching chastity in a house of ill repute. The speech might rivet the audience to its chairs, but that didn't mean that they would go forth and abstain.

Yet some thought they were hearing something important. "This is great; it's the basic tutorial on the stock market, all in one lesson," thought Gates. [27] The money managers, many of whom were hunting for cheaper stocks, found it comforting and even cathartic.

Buffett waved a book in the air. "This book was the intellectual underpinning of the 1929 stock-market mania. Edgar Lawrence Smith's Common Stocks as Long Term Investments proved that stocks always yielded more than bonds. Smith identified five reasons, but the most novel of these was the fact that companies retained some of their earnings, which they could reinvest at the same rate of return. That was the plowback–a novel idea in 1924! But as my mentor, Ben Graham, always used to say, 'You can get in way more trouble with a good idea than a bad idea,' because you forget that the good idea has limits. Lord Keynes, in his preface to this book, said, 'There is a danger of expecting the results of the future to be predicted from the past.' " [28]

He had worked his way back around to the same subject: that one couldn't extrapolate from the past few years of accelerating stock prices. "Now, is there anyone I haven't insulted?" [29] He paused. The question was rhetorical; nobody raised a hand.

"Thank you," he said, and ended.

Market Correction?

2010-03-17T12:21:00.003-04:00

I am just as bearish as the next guy but there are three reasons why I believe the market will go higher this year. First, let me say I know banks are hoarding, foreclosures are going up, mortgage resets are still occurring and I have not seen job creation in months, so my argument is not that the market "should" go up, my argument is that the factors below outweigh the aforementioned factors.

1) There is waaay too much liquidity in the capital markets. Marginal and mediocre players are given the opportunity to raise capital, refinance and amend liabilities that would be disastrous in a tight market. Even if rates go from 0 to 2%, is the mutual fund manager going to buy cds or stay in equities? Until there are relatively better capital allocation vehicles, the market rise will continue.

2) The cash on the sidelines argument is more factual than I believed. According to Businessweek, there is $3.2 trillion dollars in money market funds. So, 24% of the US GDP is earning less than 50 basis points. Also, the same article stated $369 billion went into bond funds relative to $23.4 billion in equity fund. There is still room to run with that much money sitting on the sidelines. I do not have the numbers but also since the Treasury auctions have been performing well, the risk less trade seems to be in vogue with 3 month T-Bills yielding 15 basis points according to Bloomberg Market Data.

3) The third point is the strongest. There is still fear and pessimism in the market. I gauge markets by book publishing. There are too many books being published about the crash, bailouts, Wall Street hubris and associated topics. When the trend changes to booms, how to make millions in markets or day trade your way to a million then we will see optimism return. There is not blood in the streets and people are still fearful and not greedy.

Personally, I would be cautious even though my argument is caution is not necessary YET. However, I would not go short issues I feel are weak or marginally. The better strategy is to stay flexible and make money. There is no premium on cash right now, I cannot return to my investors and tell them I outperformed cds by 100 basis points when they could have done it themselves. The bull momentum is not as strong as mid 2009 but the bear forces are in retreat.

Investing vs. Savings

2010-03-15T21:22:00.002-04:00

I believe there is a popular misconception about saving and investing. The misconception is furthered by the fact the most people are encouraged to own stocks and bonds in their retirement accounts. Saving is a safe passive activity that involves practically no risk. Either you are buying bonds issued by the United States government or buying certificates of deposits which are guaranteed by the United States government. Investing is allocating capital for a possible return on the initial capital. Banks and financial institutions connect both parties so capital markets can function. However, an investor is rewarded for taking risk with their capital, while savers are rewarded for deferring compensation to put their money away for a guaranteed return. The best investment one can make is in themselves and the best savings vehicle in the last 40 years was US T-bonds which have outperformed the S&P 500.

Uncommon Sense Truth

2010-03-10T11:02:00.002-05:00

Last year, I had a post discussing leverage. I want to tie that post in with another topic, diversification. I did not link the previous because I will recap and add more detail now. This argument goes for any asset class or investment. Leverage is not bad. If you have a margin account or borrow to invest those are not bad things. The problem is you are subject to a loan or margin call from the lender, which can be devastating when the underlying asset prices fall. However, the problem does not seem to be the leverage but the investments. For instance, a margin account that bought FCX at $18 as opposed to a margin account that bought the ABX at $100. I am fully aware that top quality and good investments go down but I can handle losing 25% versus getting wiped out. Now my other issue is diversification, the only free lunch in the market. While I do oppose it, should be emphasized as much as the media and pundits spotlight the topic. Most managers that I keep an eye do not own more than 30 positions. Again, I do not recommend retail investors own 3 positions and let it ride. The focus of the investor should be quality and risk management. I would rather own one stock and put the rest in cash than buy other stocks so I can feel diversified.

Time Horizon

2010-02-17T10:41:00.003-05:00

This is a major topic as I introspect about portfolio allocations. I usually make fun of Peter Schiff about being right about future calamity but losing 80% of his clients money. While that is a major lost if in 10 years, his year over year return is 1000% I should be writing him a check. The issue is time frame, investors are extremely short sighted, look at the rush to bond funds. While bonds deserve a place in every portfolio the large exodus into bond funds is showing investors short sightedness. Even if rates in the US stay low worldwide they will steadily increase. Who does not want 1000% return in two days, however trying to capture large moves in short time spans will lead to 100% losses.

New Year, Same Profits

2010-02-07T23:10:00.004-05:00

Its been a while but hope everyone is having a good new year. Lately, I have been listening to Econ Talk with Russ Roberts after Accrued Interest gave it a shout out. The host is a Chicago School economist and has many guests that are of proponents of Milton Friedman. While I do not have the quantitative or qualitative ammunition to go head to head I want to present a thought that will be beneficial for the market participant. While I agree with the weak form of efficient market hypothesis, the concern I have is information or data which every you prefer. ABC buying XYZ for 50 percent premium will quickly close because of efficient markets but the news that XYZ is taking a corporate action can be interpreted in many different ways. I am a big fan of Jesse Livermore and recommend all of his books. But in "Reminiscence of a Stock Operator", he mentioned his first million dollar profit during the crash of 1907. He went broke trying to short the market to early and one day he went downtown picked up a newspaper about a railroad issuing more shares to investors. That was the trigger that caused him to get back in the market and start shorting again. This was not in a trading or financial newsletter but a general daily and I am sure thousands picked up the paper read the story and received a different interpretation. Likewise market participants hear a conference call, some walk away reassured in the strength of the firm, while others buy puts and open short positions. This year, our focus is to provide you with profitable ideas in any market: CDs, checking accounts, insurance, bonds, equities, taxes etc. However we will try to present information and leave interpretation to the reader.

Prosper $50 Bonus

2009-11-10T14:11:00.001-05:00

Why buy issues offering less than 1% when Prosper will give you $50 to invest in notes offering 7 to 13%. Even if the lender defaults after one payment you still receive $5 to $10.

FXCM Mirco $25

2009-09-19T12:24:00.003-04:00

Open a FXCM Mirco account and receive $25 to trade. There is a charge to withdraw the money, so I recommend trading with the money and seeing how much you can make. Trading currencies is not like trading stocks because the leverage is usually 1:100. For every $1 you control 100 units of currency and sometimes even 1000 units. Making $100 in one day is not unusual but you could lose the $25 within minutes. If you are interested in currency hedges read my 30 yr trade post.

Capital Structure

2009-09-01T10:40:00.001-04:00

Here is another video courtesy of Marketplace.

Capital structure from Marketplace on Vimeo.

Land Mines

2009-09-01T10:23:00.003-04:00

Like many investors, I turn on the computer or television and see stocks that jump up 100% and say dang why I'm I in XXXX instead of that pharma stock that found the cure to balding. Recently, there have been many pseudo GSEs that have seen values double or triple within weeks. However, while I missed most of these names, I am still very cautious. I am long FNM and have sold calls against the position. But I think the government should wind down both FNM and FRE for various reason, but will save that for another post. But I cannot predict the future so for INVESTING there should be a margin of safety. That means a moderate dividend yield, sizeable amount of cash and book value and market value are at a reasonable proportion. I have experienced trying to catch the tail of a rally only having it turn and bite my position to in half. While my experience differs from others I cannot advocate holding positions that lack fundamental reason.

Marking to Market

2009-09-01T10:03:00.003-04:00

While the argument for mark to market has been less audible than in September. There are still proponents in the accounting, real estate and banking sector that feel it should be banned permanently. Some feel that mark to market caused a housing slump to spread into other sectors causing the Great Repression. While the arguments have reason they lack fundamentals and the conservatism US GAAP accounting is known for. Ironically this argument was only presented when prices were falling sharply. Land developers who used the increase in property values to expand lines of credits had no problem when values were skyrocketing but when the free fall started marking properties to market was absurd. The reason mark to market was enacted was for stakeholder transparency. FASB allows some assets to be marked at historical cost and an impairment test conducted annually. However, other assets are marked to the market or fair value to reflect true value. Marking to market saves money and time and avoids the subjectivity of an appraisal. Removing mark to market will overstate bookvalues for some companies that have no going concern. Companies that write up financial assets when there is economy expansion will be the same companies the write down financial assets when there is economy retrenchment.

Debt Sold to Widows

2009-08-23T12:54:00.003-04:00

I read an article a couple days ago about Incapital which underwrote millions of bond offerings for: GMAC, CIT, Lehman and many other companies. Incapital sells Internotes, Incapital says InterNotes, managed by a joint venture with Banc of America Securities, are sold through 600 broker-dealers, including Fidelity Investments and Edward Jones & Co. Incapital CEO, Tom Ricketts said, “We’ve always stuck to investment-grade and we’ve always put our faith that that was a good line in the sand,” Ricketts said. “To the extent that we have investors that may not get their money back, that doesn’t make me happy. CIT is in distress. We would never have put something up on our screens if we had a thought that they would ever end up in a situation like this.” Earlier in the year there was a great deal of criticism about how credit rating agencies handled subprime debt and CDOs. Lehman Brothers, CIT and AIG were investment grade issues until late 2009, consequently Incapital assumed they were providing retail customers safe liquid securities. however, the bigger issues is even thought criticism for the credit rating agencies is well deserved what alternative is there. The reason there are financial intermediaries is because of the large asymmetry of information and knowledge between retail investors and institutional players. On August 24, 2007 CIT was trading at $37.85 and $61.00 a month earlier. As we speak, there is no other viable alternative, but hopefully these companies can be more forward looking and more introspective about off balance sheet risk and innovative exposure stealth.

Sheeple

2009-08-20T10:05:00.002-04:00

There truth is no one wants to be alone. Who wants to be the only money manager at a social not buying tech stocks in 2000. Who wants to be the only member of a California neighborhood without an investment property. In the short term the market is a voting machine, but in the long term the market is a weighing machine. In the investment community there is a great deal of group think, which is reaffirmed by rising prices. Fannie and Freddie were more than 90% institutional owned and lets not forget AIG also. There is even an emphasis on what institutional managers are buying so the home gamers can follow. Let me expand on a point I heard from Accrued Interest blog. Leverage was not the problem, the problem was bad investments. Being leveraged 25 to 1 and buying Google or Apple 5 years ago would have been brilliant. Being leveraged 25 to 1 and buying WAMU or Indymac would have been a disaster. Below is another video courtesy of American Public Media's Marketplace detailing the rise of toxic assets.

Toxic assets from Marketplace on Vimeo.

Training for a Marathon

2009-08-15T13:38:00.002-04:00

Any competitive sport requires participants to consistently train and practice. For marathons the key is endurance because there are no TV timeouts, 2 minute warnings or out of bound whistles to stop play. Investing has been compared to a marathon, however there is one major difference, the race never ends. Because of this continuity investors can hang on to poor performers because nobody stops the race. You could have purchased GM in 1990 and lost the race due to their filing Chapter 11. My goal is not to discourage you but to emphasize practice and training. Investors must study the past, the present and human nature. These seem to have more bearing than valuations. One young reader encouraged me to explain aspects of the market using more media, therefore starting today I will have videos courtesy of Marketplace(one of my favorite radio shows)that explain market activities from CDOs to Dark pools. Also, remember in the marathon you are trying to beat time, if you focus on your peers speeding by you, you may run out of steam trying to catch up or even find yourself in the hospital. Focus on your pace and continue to train for a never ending race.

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.

In the Dollar Store

2009-08-13T12:22:00.003-04:00

It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.- Warren Buffet
Again with the Warren Buffet words of wisdom. Again Mr. Omaha is right, for some strange reason individuals think when a stock is at a dollar it is a sale and they are getting a bargain. While the upside is infinite and the downside is $1, that is a logical fallacy. You are foregoing the opportunity to make money by buying a dud that will not make money or even lose money. I believe the fascination is the ability to buy many shares example 1000 shares for $1 instead of 20 for $50 a share. These days it is hard to find the wonderful company trading for a low dollar price, maybe a low multiple, but that is also rare. The real money is made in private equity and venture capital. Buying into a little known company before it is followed by big Wall Street firms. My new goal is to file a 13G or 13D within 3 years.

Uncle Warren

2009-08-11T18:52:00.002-04:00

I am no fan of Warren Buffet. Maybe it is pure jealousy or maybe because he simplicity shows the inferiority in my bad trades. However, I have begun to read the book "Snowball" about the life of Warren Buffet. This has lead me to begin reading books about sports handicapping. Ironically, I have heard some investors compare investing to horse racing. One rule is that the gambler does not have to win it back the same way you lost it. I have bought a stock at the opening, seen it fall quickly and attempted to make it back by buying or shorting another stock immediately. The reason I think Buffet's style agitates me is that I am impatient. Telling individuals that you can make them a guaranteed 18% in two years does not seem to get their attention. However, I can make you 18% in 30 days, stops them in their tracks. That is why Ponzi schemes are so successful. But while investing and gambling are different there is a great deal of overlap. Consequently to be successful in either you need discipline.

Making Money with Options

2009-08-10T15:36:00.003-04:00

This is a simple strategy that does not necessarily involve stock picking. For my example I will the SPY( an ETF that tracks the S&P 500), this tracks 500 of the largest publicly traded companies. First I need a brokerage account that allows me to trade stocks and options. I recommend Option Express which has higher commissions than some brokers but is perfect for novice investors. Next, I buy 100 shares of SPY, lets say at $100. Next, I sell some call options at a strike price for 103.00. I will receive as of today $67. That is an automatic .67% gain. Some reader may say less than one percent I can get that from a bank CD. However, .68% in 30% days translates to 2.04% in 90 days. I do not know the future but SPY goes to $100 by the option expiration date. You made no money on the stock but still made $67. If the stock goes to $103 and is exercised, you made ($68+300) $368. Not bad for a month gain, this can be repeated until kingdom comes. The downside is if SPY goes to $130 you lose $2700 because you HAVE to sell the stock at $103. An option gives someone the option to buy or sell but anyone in there right mind will buy something at 103 if they can sell it for 130 the same hour. This is one way to use options, as my options knowledge expands so will my post regarding options.

How to Earn Money on a Credit Card

2009-08-10T11:51:00.002-04:00

Thanks to Hustler Money Blog for the wonderful idea.

We all know that you can’t just get cash out of your credit card for free. There is a hefty credit card fee for doing any cash advance. However, you can order coins with up to $500 per president out of five, making a total of $2500 worth of coins, and get it deliver for free. Order this through the Charles Schwab 2% Cash back and deposit the coins back into your bank. Also, there is no limit to the Native American Agriculture coins, hence order as many as you like. Buying these coins is considered a purchase. Hence, it’s no different than buying a coffee latte from Starburcks.

Info from fatwallet:

Coins come in $250 boxes (ten rolls of $25). You can order two boxes of each design ($500) for the presidents; there is currently no apparent limit for the Sacajawea dollars. Shipping disappears once you complete the order.This is charged as a purchase, not a cash advance. The Mint will initially authorize the entire amount. The final charge is usually made the day after the coins ship. A few folks have noted receiving partial orders; the amount may not be charged until the order ships complete.The Mint appears to be back to matching order information. Keeping orders small (<$1000) seems to to be helpful in avoiding order matching, allowing one to order more than the item limits over time. To guarantee mismatched orders of the same item, the billing and shipping addresses, and credit card numbers must be different.
All orders from the Mint of $300 or more will ship expedited (UPS Next Day Air or Priority Mail), signature required. Bellyaching about the signature requirement in the thread is verboten.

Many have reported long (sometimes extreme) hold periods for orders. Coins also sometimes get back ordered (the website usually notes an expected ship date). Do not order with any expectation as to shipment and delivery dates. If you are planning on getting a large number of boxes, consider making separate orders of $500 or $1000. Orders appear to be filled on a rolling basis, one design at a time. Also, remember that there may be a hold for your order amount on your credit card for some time.

Due to the vagueries of the Internet, shipping notices are sometimes received the day of or after delivery. The tracking number is the third in the block on the shipping notices. The first two lines have no obvious meaning.

To check the status of your order over the phone, call 1-800-USA-MINT and select option 2. The system will ask you to input your order # and billing zip code. The order number is in both the subject line and body of the order receipt e-mail.

If you do not know your bank or credit union’s policy on deposits of large amounts of coins, contact them before going. Most do not require that the coins be unrolled; however, you do need to remove them from their shipping box. Larger banks that handle commercial deposits have coin bags to place unrolled coins in. One poster reported adverse action from Chase after making coin deposits.

Adams, Jefferson, Madison, Washington, and Monroe available and you can buy 2 boxes each. Choose standard shipping during the order process and the shipping charge will revert to free.

Store Cash and Sleep Well

2009-08-06T11:53:00.002-04:00

With the Federal Funds rate at 0%, investors are looking for short term vehicles to earn interest and provide liquidity. Interest rates have no where to go but up so certificates of deposit are a bad idea. Your money is locked in from 3 months to 4 years, without access to the money and as interest rates rise the purchasing power is decreased. Below are a few accounts the provide both reasonable returns and liquidity.

Earn 2% or More With These Money-Market Savings Accounts

Bank	APY (%)	Minimum Balance
ShoreBank Direct online savings account	2.15	$1
First Trade Union Bank savings account	2.06	2,500
Bank of Internet USA Advantage savings account	2.02	100
UFBDirect savings account	2.01	500
Discover Bank online savings account	2.00	500
Sources: Bankrate.com, Money-rates.com, bank web sites. All yields are non-promotional, but are subject to change at any time. Yields valid as of August 4, 2009.

Earn 4% or More With These Interest Checking Accounts

Bank	APY	Requirements
Community National Bank of Lakeway Area	4.51% on balances up to $25,000	* Minimum of 12 debit card purchases (excluding ATM usage) * 1 automatic payment or direct deposit transfer * Receive your monthly account statement electronically
First Arkansas Bank & Trust Online	4.44% on balances up to $50,000	Minimum of 10 debit card purchases (excluding ATM usage) 1 automatic payment, bill pay transfer, or direct deposit transfer * Receive your monthly account statement electronically * Sign in to your online banking account at least once
Royal Banks of Missouri	4.3% on balances up to $25,000	* Minimum of 10 debit card purchases (excluding ATM usage) * 1 automatic payment or direct deposit transfer * Receive your monthly account statement electronically
Liberty Bank	4.25% on balances up to $25,000	* Minimum of 15 debit card purchases (excluding ATM usage) * 1 automatic payment or direct deposit transfer, and 1 bill pay transfer * Receive your monthly account statement electronically
Connexus Credit Union	4.15% on balances up to $25,000	* Minimum of 15 signature-based check card purchases (excluding ATM usage) * 1 bill pay transfer and 1 direct deposit transfer * Receive your monthly account statement electronically
Ouachita Independent Bank	4.01% on balances up to $25,000	* Minimum of 12 debit card purchases (excluding ATM usage) * 1 automatic payment or direct deposit transfer * Receive your monthly account statement electronically
Source: www.checkingfinder.com, bank web sites. Yields as of August 4, 2009.

$50 Lending Club Bonus

2009-08-06T11:18:00.002-04:00

Good news! Lending Club’s bonus is back up to $50 for new lenders until August 15th. New Investors Get $50 to Invest in Lending Club notes. With average net annualized returns of 9.61% it’s a great time to join Lending Club and they will give you $50 to get started. To get the bonus type in trug49 in the referral code box. I think Lending Club notes are an asset class that could give your portfolio additional return, however these notes are unsecured so there is a large amount of default risk. In a portfolio of $10000, the maximum allocation would be $1000. Anything less would not make a significant impact but again there is little recourse to make borrowers repay.

The House that Greenberg Built

2009-08-06T10:16:00.001-04:00

Yesterday, 134 million shares of AIG were traded when the average volume is 13 million. While I can draw some conclusions on why this happens, the truth is I really do not know why Firm A put an order for 30 millions shares, maybe light track, good breakfast, school is about to start who knows. Many investors saw the better than expected results from Radian and might have speculated the AIG would correspond likewise. However, investors are only paying for ownership in 21 percent of those earnings. However, given that I cannot predict the future I will watch from the sidelines and jump on the bandwagon of the winning side.

Reader are Leaders

2009-08-04T20:24:00.002-04:00

Usually when I say "Readers are Leaders" I say it in jest. But on a serious note, those who decide to watch television and listen to their friends to decide their financial future need to pick up some books. It is difficult but not impossible to be sensational in print as opposed to television and seminars. I am amazed when people tell me a fact based upon hearsay or secondary sources. Not every book is the truth or word of God, but I feel more confident in a book that someone took time to write than a 30 minute TV script or a speech that motivates the audience to spend thousands on books and audiotapes. My solution is that the public start to get informed and read. No one is going to throw jewels and pearls to the public for free and without work. The truth is you are going to have to work, read, have plenty of money or resources to get the gains that those Google Ads show.

Everybody wants Energy Efficient Vehicles

2009-08-03T21:39:00.004-04:00

I hate to accentuate the negative again, but everyone is excited about car sales. Here are the facts:

July auto sales rose to 11.2 million when converted to an annual rate. That's the first month this year that sales rose above the depressed 10 million level. As recently as 2007, car and light truck sales topped 16 million vehicles, but a drop in consumer confidence sent sales plunging late last year. Ford Motor Co., which has steadily been gaining sales since GM and Chrysler took government aid and went through bankruptcy proceedings, reported a year-over-year sales increase, up 2.4 percent for the first year-over-year sales jump since November of 2007.

Here is another fact:

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion. Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

I mentioned earlier the government cannot continue to subsidize growth. Therefore, my strategy is to purchase a basket of international SOVEREIGN bonds. Most people will mention currency risk, geopolitical risk and a history of default risk, but the US is in debt, USD are in danger of devaluation and the US is relatively young compared to Italy, France, China and India. I mentioned I wanted to short Treasuries but I saw an error in my strategy. This is an asymmetrical position, there is not much to gain by going short unless you "juice" the investment. By that I mean leveraging the position to see a larger return.

HURN

2009-08-02T21:45:00.003-04:00

Here is another symbol to watch closely. These are the facts from the companies SEC filings.

a) On July 31, 2009, the Company issued a press release announcing that it will restate its financial statements for the fiscal years 2006, 2007 and 2008 and the first quarter of 2009, to correct the Company’s accounting for certain acquisition-related payments received by the sellers in connection with the sale of certain acquired businesses that were subsequently redistributed among themselves and to other select Huron employees.
b) On July 31, 2009, the Company announced that Gary E. Holdren, Chairman of the Board and the Company’s Chief Executive Officer has resigned as Chairman of the Board and Chief Executive Officer effective immediately and will leave the Company as of August 31, 2009, that Gary L. Burge has stepped down as the Company’s Chief Financial Officer effective immediately, but will continue with the Company until the end of the year and that Wayne Lipski has stepped down as the Company’s Chief Accounting Officer effective immediately and will be leaving the Company. No severance expenses are expected to be incurred by the Company as a result of these management changes.

I will leave these facts to interpretation. I plan to go long or short tomorrow and will let my result known. As mentioned earlier I will use options as a hedge in case my assessment is misdirected.

From CIT to Sallie Mae

2009-08-02T21:27:00.003-04:00

As Debtwire reports, several correlations desks made a killing over the recent CDS blow up: most notably Natixis and the omnipresent Goldman Sachs. According to Debtwire's Nicoletta Kotsianas:

"Correlation trading desks at a few firms, including Natixis and Goldman Sachs, have been buying up CIT protection on the cheap since January to hedge risk in the instruments they structure and trade...CIT stood out to some traders, both because of its exposure to the credit crunch and its ubiquitous placement in the bespokes, said two correlation traders. Just six months ago, jump to default exposure to the name averaged roughly €50MM for many correlation desks, estimated two of the trader sources... One correlation trader who runs a mid-sized bespoke book said that he bought $85MM in short dated protection at an average price of 12 pts up in January and throughout the spring. Five-year protection on the name was quoted at 34 on 9 July but ballooned to the high 50s by 20 July when it became clear the government would not bail out the asset-based lender. Much of that price movement originated from other correlation desks rushing to hedge their jump risk."

So whose CDS will Goldman's correlated tentacles blow up next? According to Debtwire, it is Sallie Mae's turn:

"Sallie Mae is the next name in correlation traders' crosshairs, said two correlation traders, an analyst at a boutique brokerage and a sellside desk analyst. Five-year protection on Sallie Mae trades at 20 pts upfront, reflecting relatively low risk of default in post-credit crunch terms. Though not as widely held in bespokes as CIT, nor as distressed, Sallie Mae caught attention in recent weeks as correlation desks braced for the company to be downgraded to junk, all the sources said. Standard & Poor's last week placed the ratings on credit watch following a vote by the House Of Representatives Education and Labor Committee to pass a bill that would eliminate the origination of federal student loans by private lenders after July 2010... Offers to sell protection from dealers grew scarce this week and several dealers have faded offers, in a sign that not all desks are covered for Sallie Mae jump risk, aid three traders. Some bids did get picked up this week but the market is now 18/20 upfront on the contracts as opposed to 691 bps on July 19, according to a broker and data from Markit." Again watching CDS spreads and purchases can show who firms think are weak.

This post is courtesy of Zero Hedge( shoutouts on the new site) and Debtwire.

Accentuate the Positive

2009-08-01T13:21:00.003-04:00

In bull markets participants discount the negative and put a premium on positive news. In bear markets participants do the opposite. I have long positions and have profited greatly but I still doubt this rally. It is hard to know when you are being patient or stubborn as I cover my short positions. On Friday, my assessment was given a sound thrashing. The Commerce Department reported second quarter GDP fell by ONLY 1.0%. This news gave investors cheer as they pushed up stocks. However, the better than expected results was from the Federal Reserve holding down rates and the Obama administration spending. The spending is not indefinite, the government must pay back the debt and holding rates down for so long creates its own problems. Again this might be my stubbornness so take my assessment with a grain of salt.

Money in Options

2009-07-31T09:28:00.003-04:00

To most people the word derivatives is just as bad as terrorism. However, when used efficiently derivatives can hedge risk and increase profits. But you can lose money on derivatives even if you assess the situation correctly. My strategy is to sell out of the money call options on stocks that have already made me a substantial gain. I want the option contracts to expire worthless but even if they are exercised I have locked in a profit and could buy the stock back at the same level if necessary. For options trading I highly recommend Option Express. Their platform is easy to use and they offer a vast library of strategies and coaching for new comers.

RIP Yahoo

2009-07-30T02:00:00.002-04:00

First let me say that Yahoo Finance is one of the best resources for individual retail investors. Also, Jerry Yang should have taken the deal last year but founder bias played a major role. Okay with that out of the way Yahoo has sold there earning generator and might eventually be bought whole for pennies on the dollar. Yahoo has very little upside and plenty of downside in this deal. They were better off trying to partner with a web browser like Safari or Mozilla than selling the soul to Microsoft. But while it seems like shorting is common sense, I would wait. I have been repeatedly shocked on how Radio Shack is a going concern, so consenus may be wrong. They just might pull a Lazarus.

Citi's $100 Million Man

2009-07-27T18:47:00.003-04:00

Not that I care, but CNBC subjected its viewers to three different segments in regards to Citi not paying one of its energy traders. Well, the argument seems to be because the government has a percentage stake in Citi and taxpayer money should not used to pay bonuses. Of course I disagree with this thinking. Shareholders large or small do not make compensation decisions. Even Warren Buffet cannot tell GE who should or should not receive bonuses. Also, this is a contractual obligation. Contract law must not be undermined by anyone other than the parties involved. Let the man get his millions, he earned it.

Disadvantaged Masses

2009-07-25T11:59:00.002-04:00

Yesterday, I listened to one of my favorite television shows, Wealth Track. Yale's Endowmment Manager David Swenesen was interviewed and shared some words of wisdom. The individual investor is at a disadvantage. Many investors do not know what their IRA, 401k or ESA owns. The truth is most mutual fund managers underperform index funds. The other truth is that mutual funds want large amount of assets under management to increase the fee income they generate. The problem is that the financial service institutions who receive your weekly payments or lump sum deposits do not have your best interest at heart. The stock broker wants you to make money but he/she needs you to trade and make as many transaction as possible. The mutual fund manager needs to increase assets to make more money for themselves and the firm. Your bank wants to give your money and forget about so they can make loans without worrying about withdrawing deposits. Even thought your 401k gives you a large basket of funds to choose from, they all will underperform the index benchmark. Investors must read and educate themselves. The expert on television makes $1o million annually because you pay him to perform his job in a mediocre way. Investors must take their future into their own hands because most firms do not have their interests aligned with their non-high net worth clients. The masses are deluded if they believe that their financial institution gives them the same attention that a millionaire client recieves.

IRS Arbitrage

2009-07-23T10:08:00.002-04:00

I have been asked this questions many times, Should I write 5 exemptions so I can keep all my money and pay the taxes back in April? While this is a great way to make a small return it is very difficult.

In theory:
1) You could take numerous exemptions
2) Multiply your weekly pay by your tax bracket
3) Put that amount in a ING Direct account or high yield savings account
4) In April pay your taxes with the balance in the savings account
5) You should have a small profit that could be compounded over the years

In practice:
1) Get more money in pay, spend more money

The problem is individuals are not discplined enough to put the money in the high yield savings account. Some feel that making $200 not enough compesnation for there effort, but $200 can get you closer to that new Coach purse or set of golf clubs.

Forget Equities, Buy Debt

2009-07-23T09:21:00.002-04:00

Our Congressional representatives only seem to worry about reckless speculation when markets fall not when they rise. But I must stress that if investors are going to take time evaluate individual stocks and companies, they must evaluate fixed income securities. I try to read at least one book a week and in my trips to Barnes and Noble, the library and Amazon.com I rarely find books discussing bonds. But I see numerous books about stocks, which is the breeding ground for speculation. Going forward investors must purchase foreign debt and foreign government debt. I found a Moody's study which discusses sovereign debt default. In the last 30 years most defaults have been in Latin American countries, but that trend may shift to Eastern Europe countries. Diversification protects investors when they diversify among asset classes. Buying 20 different US stocks is not diversification because in crisis correlation goes to one and all stocks fall. Take time to read the study or talk to a financial advisor about international investing.

Moody Sovereign Debt Study -

30 Year Trade Recap

2009-07-22T09:47:00.002-04:00

I am making headway in my attempt to buy individual sovereign bonds throughout the world. I am going through the process of buying bonds from the Reserve Bank of Australia. First, I will open a HSBC account in the United State then open an account in Australia. I will keep readers informed as the process continues.

Morgan Stanley 2nd Quarter

2009-07-22T09:23:00.002-04:00

Morgan's losses were mostly attributed to paying back TARP and purchasing a majority stake in wealth management firm, Smith Barney. The latter will be a major revenue center going forward and adversely Citi will not have the extra revenue. Regional banks seem not to have the same glass half full outlook I think because they did not have the same opportunity to underwrite debt and equity like the major financial centers.

Capitalism is Back?

2009-07-21T19:43:00.001-04:00

This weekend CIT negotiated with its bondholders to avoid bankruptcy. The negotiations were rushed due to the Treasury office and FDIC refusal to aid the small business lender. CIT may still fail because the money is enough to pay down interest and outstanding debt but the firm still needs capital to continue to earn money. This was a trade I had on but closed because the government was an uncertain wild card. Whether CIT was too little to save or not a threat of systematic risk the government must allow failure. While some argue for drastic situations call for drastic measures, this view is wrong. For capitalism to work there must be destruction and creation. The government allowing small firms to fail and rescuing large firms is the systematic problem. If capital is tied up in large failing firms, small efficient firms do not have access to capital to grow and expand. This is my stance but I still plan to buy BAC, as a trader buy the winners that will take taxpayer money and increase earnings.

Stop Wasting Money!

2009-07-18T12:03:00.003-04:00

Great article I found on Yahoo.

Banks to Save the Day

2009-07-17T09:19:00.002-04:00

Today the banks report better than expected earnings. I still do not believe the hype. However, I need time to evaluate my thinking. I am not sure whether I am being patient based on the facts or being stubborn based on my bias. I give the negative news a premium and discount positive stories. So, I will return on Monday with some insight. Enjoy the weekend and checkout Hustler Money Blog for some astute investments.

Everybody is an Expert but Nobody Knows Anything

2009-07-16T09:04:00.002-04:00

I will be first to admit I have been wrong. The last three weeks my positions have lost more than they have made. In a market operation, the only way to know if you are right or wrong is to make money. Tables and charts mean nothing if your positions are bleeding. As I wait to see where CIT will open, I will probably closing some positions to satisfy my margin call and reevaluate the portfolio as a whole. Happy hunting!

The Media is Not Your Friend

2009-07-15T10:23:00.004-04:00

While there is coverage on the soon to be Supreme court justice, I do not understand why is on Yahoo Finance. Will her one vote change the financial landscape, who knows. But the optimism in GMGMQ seems to be dying as the OTC stock fell 59.2 cents, or 51 percent, to 55.8 cents in morning trading Wednesday. My thought for the day is the news is entertainment. Many Americans watch the news thinking they are going to more informed than the guy down the street but they leave with very little. The news can help you learn about what roads not to take in the morning, major issues on the Capitol and what restaurants failed their inspection. But after 3 hours are you smarter or more informed. The news like every other non public show needs advertising revenue. If they were really there to help why do they wait until after the commercial to tell you the life threatening product lurking in your kitchen. You have to separate the useful information from the noise and this includes my favorite channel CNBC.

More Dominoes?

2009-07-14T10:15:00.004-04:00

Impending doom , not sure but here is a list of companies that were or are on the brink. Many have declared and will declare bankruptcy. This is a starter some of this companies will bounce back and you do not want to be on the short side.

Moody's Bottom Rung List Q1 2009 -

Sorry, right click and hit full screen for better viewing.

My New Market Indicator

2009-07-13T10:26:00.002-04:00

Unemployment, GDP, Consumer Confidence those are great because economist get paid to calculate those numbers. But pay attention to railroad transports, Baltic Dry Index and especially oil, oil refiners and oil drillers. When there is buying and spending these groups will have good news to report. When the recovery starts you will know is you pay attention. The easiest way to make money is to sell in a bear market and buy in a bull market. Why try to find the winners when the market is free falling, just short the whole list and wait for a turn.

The Insanity

2009-07-12T18:55:00.003-04:00

When a company is in bankruptcy or retains bankruptcy counsel, that is not the time to go buy thousands of cheap shares. Stocks are never too cheap to short or too expensive to buy. I am more likely to short a stock getting kicked down than rising exponential. There was more profit in shorting old GM at $34 but when the stock was at $5 and there was talk of bankruptcy thats was a good time to short as much as you can carry. But investors lose billions of dollars seeing a large pull back in a bad stock and buying thinking, "This stock was trading at $50 a share 8 months ago, it is bound to go to at least $25 from $2". While I have seen marvelous rebounds, I have seen more cases of investors pushing a stock down because there is a problem. But there is always money to be made in the market.

Laughing to the Bank

2009-07-10T10:11:00.003-04:00

Last month, I mentioned investors should look for short positions in public traded banks by looking at FDIC reports. On July 1, Habersham Bank received a “cease and desist” order. Unlike many cease and desist orders, this one came from Georgia Department of Banking and Finance instead of the FDIC. The order states that the bank must come up with a plan to maintain adequate capitalization. However, bank management claims they have more than sufficient liquidity. We shall see.

Disclosure: I am short HABC.

CIT

2009-07-10T10:02:00.002-04:00

This is a great trade, this stock will make money, either long or short.

Bond Market Watch

2009-07-10T09:36:00.003-04:00

After seeing billions of corporate bonds (mostly high yield) come to market and garner a large amount of subscription, the trend seems to be trending down. Borrowers issued at least $11.5 billion of debt this week, a 39 percent decline from the five-year average for the second week of July, and compares with $20.4 billion last week, according to data compiled by Bloomberg. Following the record pace of investment-grade bond sales during the first half of 2009, issuance may fall as borrowers cut back on capital expenditures. Yields over benchmark rates on speculative-grade debt widened 27 basis points this week to 1,079 basis points, or 10.79 percent, as of yesterday, according to Merrill Lynch’s U.S. High Yield Master II index. Yields rose 16 basis points to 13.14 percent.
Regal Entertainment Group’s Regal Cinemas Corp., the only junk-rated company to issue debt this week, sold $400 million of 10-year, 8.625 percent notes that paid a 560 basis-point spread, Bloomberg data show. The company is based in Knoxville, Tennessee. High-yield companies issued $4.26 billion the previous week. Rather than watching the Dow daily pay attention to the high yield market and whether new issue spreads are widening or tightening. In my opinion that is a better leading indicator. The link is available for the full Bloomberg article.

The 30 yr Trade

2009-07-10T01:10:00.007-04:00

Over the last 30 years, if an investor had put their money in the S&P 500, they would have made 1.70% less than their bond (10yr treasury) counterpart. The table below shows how the 10 year has performed versus the S&P index. I do not believe this trend will continue. My solution is to invest in a basket a sovereign debt throughout the world. I would include the BRIC countries, Germany, Australia, South Africa, Thailand, one or two Middle Eastern countries and of course the United States. While I can think of many other nations that should have tremendous GDP growth, this is not a trade to call and brag about to your neighbor. The key is return OF capital. The other important issue I want readers to take away is, you could have paid no commission and slept soundly for 30 years and still beat most of the money managers on the Street. But there are no shows on CNBC about buy treasuries. Great article from WSJ discusses the misconception of long term investing.

Treasuries Outperform

zzzzzzzz10 yr TreasurieszzzzzzS&P 500zzzzzzzzAnnual Diff.

30 yrszzzzzzz9.40%zzzzzzzzzzzzz7.70%zzzzzzzzzzzzzz1.70%

10yrszzzzzzzzz6.80%zzzzzzzzzzz-3%zzzzzzzzzzzzzzzzz9.80%

5 yrszzzzzzzzzz6.20%zzzzzzzzzzz-4.80%zzzzzzzzzzzzz11%

1 yrzzzzzzzzzzzz9.70%zzzzzzzzzzz-38.30%zzzzzzzzzz 48%

Source The Leuthold Group

Blowing Bubbles

2009-07-08T09:44:00.002-04:00

The government and regulators want to protect the consumer. As oil raised passed $140 politicians and regulators wanted to cap the price of oil because hedge funds and speculators were driving up prices. But as oil dropped off a cliff, no one stepped forward to stop the sharp drop. There is a bias to any active the impacts the masses negatively. By trying to cap oil from rising, a fictitious price will be held until the bubble breaks causing the true price to be revealed. I am opposed to cheating and unfair play, but allowing individuals to put their capital at risk is the basis of capitalism. But an outcry rises when employees lose 401k money or soccer moms pay $4 at the pump. Capping prices is a failed policy, America needs to tighten up!

One Day

2009-07-08T09:29:00.002-04:00

JWM Partners LLC is closing its main Relative Value Opportunity II fund after losing 44 percent from September 2007 to February 2009. Meriwether, credited with generating billions of dollars of revenue at the former Salomon Brothers in the 1980s through so-called relative value trades, returned an average of 1.46 percent a year with his new fund since opening in 1999, compared with 2.4 percent for the Credit Suisse/Tremont Hedge Fixed-Income Arbitrage Index.

JWM Partners was created in 1999 by John Meriwether more famously known for his earlier hedge fund creation Long Term Capital Management. To learn more about LTCM read "When Genius Failed", LTCM lost $3billion dollars in 3 months.

No More Sitting on the Fence

2009-07-07T10:01:00.002-04:00

I do not have a crystal ball, but the market as a whole is heading down. The green shoot argument is dead. In an Op-Ed section of The New York Times by staff writer Bob Herbert. “No Recovery in Sight” was the heading and his opening sentence asked, “How do you put together a consumer economy that works when the consumers are out of work?” While many argued that the labor market numbers were lagging indicators and a sharp rise is a sign of the ending of a recessionary cycle. But today the American Bankers Association released data showing a rise in home equity and credit card delinquencies. Delinquencies on home-equity loans climbed to 3.52 percent of all accounts from 3.03 percent in the fourth quarter, and late payments on home-equity lines of credit climbed to a record 1.89 percent, the group reported today. An index of eight types of loans rose for a fourth straight quarter, to 3.23 percent from 3.22 percent in October through December, the group said. Delinquent bank-card accounts jumped to a record 6.60 percent of outstanding card debt in the first quarter from 5.52 percent in the previous period, a signal unemployed borrowers are relying on cards as falling prices erode the equity in their homes. More borrowers are using cards to meet daily expenses after losing their jobs, the ABA said. Lets not forget that the "Stress Test" parameters might be breached by early August when GDP comes in lower than expected and unemployment rockets pass 10%. Already politicians and advisers are calling for more stimulus. Well, I will sleep more easily at night having short positions than waking up hoping the futures are higher. Hope never made anyone money!

What happened to the Toxic Assets?

2009-07-06T10:31:00.002-04:00

From September to December of 2008, everybody was an expert on toxic asset clean up. Recently, everybody has been an expert on cultivating green shoots. This is the folly of the media, they are able to distract the masses while causing amnesia. I know the jobs number was worst than expected and the economy is not showing the signs of growth I am looking for. But I was told (correctly or incorrectly) that the problem was housing and toxic assets. Well, foreclosures are rising, home prices are falling and the market is ignoring the PPIP. But maybe I am ignorant of the real facts, if that is the case my 5 long positions will be short positions as soon as Timmy lets us know who is participating in the PPIP.

Change of Plan

2009-07-05T13:44:00.002-04:00

I mentioned in a earlier post about changing your positions as facts and circumstances change. But let me differentiate between changing facts and changing your mind. As the economy picks ups or continues to decline traders should adjust. But when your positions starts to lose money do not change a trade into an investment. Also, if the movement (earnings, acquisition, dividend,etc) takes place or does not come to fruition move on to something else. Traders enter the market optimistically and when fortunes turn, they become Warren Buffet reading annual reports and dissecting financial statements to reaffirm their position. I believe in proper fundamental analysis and long term investing. However, the trader must know themselves and there trade or investment. Also, the trader should establish a limit sell or stop loss BEFORE you buy or short. Establishing a sell or stop after can be a costly error if the trader lacks discipline.

Short Sellers (Part of the Axis of Evil)

2009-07-05T13:16:00.001-04:00

The Demons of the Street intent on destroying shareholder value, causing panic and starting unfounded rumors to drive down prices. They are portrayed as Un-American, but is it unwise to bet that the roller will shoot a 2, 3 or 12 or bet on the do not pass line. Why is it unwise to not profit when you see a faulty strategy or execution in a business plan? I am fully aware that short selling is in asymmetrical and loses can be infinite but it has and can be extremely profitable. I have 5 stocks, courtesy of Barron's Short Alerts:

JCOM
MIDD
CMP
LRN
PTV

I am not short and do not own any of the positions above. However, the only position I am considering is Pactiv. The company has $1.35B in debt and $152M in cash. In what I believe will continue to be a credit retraction, PTV will have problems rolling over debt and issuing new debt. However, there are many companies with similar balance sheets that have seen rising equity prices. My recommendation is a starting point not a definite trade. Also, if the market ramps up and begins to rise, I would cover whether I am right or wrong. Short selling is profitable and you should keep an eye out for failing companies.

End of Recession?

2009-07-02T11:18:00.007-04:00

As California plans to send out I.O.Us and add to days employee furloughs, there seems to be more pain ahead for the entire nation. There are 48 out 50 states with budget gaps, ranging from $140 million to $13 billion. While the United States Treasury can hold Treasury auctions every week, states must balance their budgets. With dropping personal incomes, reduced sales tax and falling home prices the problems keep compounding. The question is to tax or cut spending? Either option will cause constituents to spend less or receive less state add. Why do economist see GDP growth when there is going to be retrenchment within individual states?

TABLE 3: SIZE OF TOTAL FY2009 BUDGET GAPS
	Gap before budget was adopted	Additional mid-year gap	Total	Total Gap as Percent of FY2009 General Fund
Alabama	$784 million	$1.1 billion	$1.8 billion	22.2%
Alaska		$360 million	$360 million	6.8%
Arizona¹	$1.9 billion	$1.8 billion	$3.7 billion	36.8%
Arkansas	$107 million		$107 million	2.4%
California	$22.2 billion	$13.7 billion	$35.9 billion	35.5%
Colorado		$1.1 billion	$1.1 billion	14.2%
Connecticut	$150 million	$1.9 billion	$2.1 billion	12.2%
Delaware	$217 million	$226 million	$443 million	12.2%
District of Columbia	$96 million	$583 million	$679 million	10.8%
Florida	$3.4 billion	$2.3 billion	$5.7 billion	22.2%
Georgia¹	$245 million	$2.2 billion	$2.4 billion	11.5%
Hawaii		$417 million	$417 million	7.3%
Idaho		$452 million	$452 million	15.3%
Illinois	$1.8 billion	$4.3 billion	$6.1 billion	21.4%
Indiana		$1.2 billion	$1.2 billion	9.1%
Iowa	$350 million	$134 million	$484 million	7.6%
Kansas		$186 million	$186 million	2.9%
Kentucky	$266 million	$456 million	$722 million	7.8%
Louisiana		$341 million	$341 million	3.7%
Maine	$124 million	$140 million	$265 million	8.6%
Maryland	$808 million	$691 million	$1.5 billion	10.0%
Massachusetts	$1.2 billion	$4.0 billion	$5.2 billion	18.5%
Michigan	$472 million	$1.5 billion	$2.0 billion	8.5%
Minnesota	$935 million	$654 million	$ 1.6 billion	9.2%
Mississippi¹	$90 million	$363 million	$453 million	8.9%
Missouri		$542 million	$542 million	6.0%
Nevada	$898 million	$561 million	$1.6 billion	19.9%
New Hampshire	$200 million	$50 million	$250 million	8.0%
New Jersey¹	$2.5 billion	$3.6 billion	$6.1 billion	18.8%
New Mexico		$454 million	$454 million	7.5%
New York	$4.9 billion	$2.5 billion	$7.4 billion	13.2%
North Carolina		$3.2 billion	$3.2 billion	14.9%
Ohio¹	$733 million	$1.9 billion	$2.6 billion	9.4%
Oklahoma	$114 million		$114 million	1.7%
Oregon		$442 million	$442 million	6.6%
Pennsylvania		$3.2 billion	$3.2 billion	11.3%
Rhode Island	$430 million	$442 million	$872 million	26.6%
South Carolina	$250 million	$871 million	$1.1 billion	16.3%
South Dakota		$27 million	$27 million	2.2%
Tennessee¹	$468 million	$1.0 billion	$1.5 billion	13.4%
Utah		$620 million	$620 million	10.4%
Vermont	$59 million	$82 million	$141 million	11.6%
Virginia	$1.2 billion	$1.1 billion	$2.3 billion	13.8%
Washington		$1.3 billion	$1.3 billion	8.5%
Wisconsin	$652 million	$1.0 billion	$1.7 billion	11.7%
Wyoming		$119 million	$119 million	6.8%
TOTAL	$47.6 billion	$63.2 billion	$110.8 billion	15.3%
¹ Only the low end of the estimated FY09 gap for these states — ones that provided a range of estimates — is shown in this table. For more detail see 29 States Faced Total Budget Shortfall of At Least $48 billion in 2009 available at http://www.cbpp.org/1-15-08sfp.htm. Note: In some cases all or part of these shortfalls have already been addressed.

Express Yourself

2009-07-01T15:30:00.004-04:00

Before I express my opinion let me say that I have absolutely no idea when the recession l will end and really I do not care. I will take long and short positions based on my analysis and experience. But calling the recession is pointless if one does not profit. So if Dennis Kneale believes his claim he should go buy the SPY, SPY calls and any instrument that will benefit when the recession ends. Rather than attack the data I will take a different approach because data can be subjective based on an individual's beliefs and bias. I believe that the market is biased towards optimism. As the markets crashed from late December 2007 until May 2009, guest came on CNBC and recommended buying stocks on a scale of 10 o 1. Rarely, you saw a guest continue to doubt a rebound and even less likely to recommend short positions. I do not know why the market is obsessed with owning stocks, my feeling is that a large portion of money in the game is on the long side. Other large players make money on transactions so they only care about volume and trading activity. Short sellers are despised and even threatened with jail when a poorly run institution fails. But while I do want people back in work, food on tables, care to the sick and other benefits of life, it would be foolish to allow my optimism or desire of a better life for others to influence my trading and blind me to objective facts. Bottom Line: Everyone should leave the belief of the American people and hope for a better future at 9:30 am and pick it back up at 4 pm (of course Monday through Friday).

Value Added

2009-06-30T14:22:00.003-04:00

Enough with Bernie Madoff and Michael Jackson. All this sensationalism and in depth news and no value added to your life. Yesterday, I got a lesson in technical analysis that was insightful and I plan to use along with my fundamental knowledge and experience. But while individuals look for 1000% return on some unnamed pharma stock or penny stock, there should be a focus on dividends. A steady return can help one be optimistic in a bear market. For example, I own GME (Gamestop), I like their business model, there in a niche market and have a fortress balance sheet. However, they pay no dividends, so even if the stock doubles within a year, my annualized return would be 50%. Also, the opportunity cost would be greater, because I did not purchase another security paying a 4% dividend so I do not get to compound my returns. I am aware growing and technology firms reinvest free cash but make sure you provide room in your portfolio for dividend paying securities.

How to always win in Texas Hold'em

2009-06-29T09:11:00.001-04:00

Very interesting story courtesy of 60 Minutes.
Watch CBS Videos Online

Just Stopped the Madness Already!

2009-06-28T15:23:00.002-04:00

This is a great post, courtesy of Phil's Stock World. There is a tendency for individuals to marry a position and overestimate the accuracy of their beliefs or measurements. People tends to be bullish because they own stocks and bearish because they are short. But to increase profitable you have to be willing to contradict yourself and change as facts change. Society looks down upon those individuals who change their mind. Politicians and elected officials are criticized for changing their minds regarding laws and policies. But why must one be concretely faithful to their opinions and beliefs even when facts change. This post is very informative and should be approached with an open mind. Stay flexible and cut losses!

Friday Bank Closure Report

2009-06-27T13:52:00.003-04:00

Every Friday this year, the FDIC has seized the assets of least one bank or thrift and June 27th was no exception. The FDIC seized the assets of 5 banks (2 in Georgia). Currently, I have a short position on a Georgian bank, which to my regret has not been closed. But below is the list of banks closed yesterday.

41st Bank Failure of 2009 (8th in GA)

* FDIC Press Release
* Closed Bank: Community Bank of West Georgia
* Location: Villa Rica, GA
* Size: 1 office, $199.4 million in assets, $182.5 million deposits
* Possible Uninsured Deposits: $1.1 million
* Acquiring Bank: None
* Estimated Cost to Deposit Insurance Fund: $85 million
* Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com

42nd Bank Failure of 2009 (9th in GA)

* FDIC Press Release
* Closed Bank: Neighborhood Community Bank
* Location: Newnan, GA
* Size: 4 offices, $221.6 million assets, $191.3 million deposits
* Possible Uninsured Deposits: All deposits transferred
* Acquiring Bank: CharterBank, West Point, GA
* Estimated Cost to Deposit Insurance Fund: $66.7 million
* Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com

43rd Bank Failure of 2009 (1st in MN)

* FDIC Press Release
* Closed Bank: Horizon Bank
* Location: Pine City, MN
* Size: 2 offices, $87.6 million assets, $69.4 million deposits
* Possible Uninsured Deposits: All deposits transferred, except some brokered deposits
* Acquiring Bank: Stearns Bank, N.A., St. Cloud, MN
* Estimated Cost to Deposit Insurance Fund: $33.5 million
* Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com

44th Bank Failure of 2009 (5th in CA)

* FDIC Press Release
* Closed Bank: MetroPacific Bank
* Location: Irvine, CA
* Size: 1 office, $80 million assets, $73 million deposits
* Possible Uninsured Deposits: All deposits transferred, except brokered deposits
* Acquiring Bank: Sunwest Bank, Tustin, CA
* Estimated Cost to Deposit Insurance Fund: $29 million
* Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com

45th Bank Failure of 2009 (6th in CA)

* FDIC Press Release
* Closed Bank: Mirae Bank
* Location: Los Angeles, CA
* Size: 5 offices, $456 million assets, $362 million deposits
* Possible Uninsured Deposits: All deposits transferred
* Acquiring Bank: Wilshire State Bank, Los Angeles, CA
* Estimated Cost to Deposit Insurance Fund: $50 million
* Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com

ING Direct $25 Bonus

2009-06-27T13:48:00.002-04:00

ING Direct is offering a savings account bonus of $25 for opening an Orange Savings Account by August 3, 2009. The promotion page is located at ingdirect.com/save, and the reference code is VE222. Bonus is only available for new customers, and it's limited to one bonus per household.
Opening the account takes less than 10 minutes and requires a minimum deposit of $1, so there should be no excuse not to open an account that pays twice the interest than many brick and mortar banks

Flagstar $100 Bonus

2009-06-27T13:44:00.002-04:00

This bonus is only available to residents of: GA, MI, IN Only .
Flagstar is offering two checking account promotions. One offers $100 for opening a checking account and establishing direct deposit of at least $250/month. Here's the online promo page . The website makes it look like you can apply online; however, I called, and the CSR said that a branch visit is required. Some of the important details in the small print include:

* New checking account customers only
* Minimum opening deposit of $50
* Direct deposit of income of at least $250 per month
* Direct deposit must be established within first 60 days of account opening
* $100 will be deposited into your account within 30 days after first direct deposit
* Account must remain open and active for a minimum of 6 months
* Bonus will be reported in your 1099

The other checking account promotion guarantees 2% APY for 12 months from account opening for all balances up to $100,000. It requires opening an interest-bearing checking account (I was told the eChecking doesn't qualify). Like the $100 bonus, direct deposit is required. If it's not established within 60 days, the rate may be reduced. Like the $100 bonus, this also requires a branch visit.

This 2% promo doesn't seem to be listed at Flagstar's website. It was advertised in yesterday's Fort Wayne Newspaper (6/13/09). The ad is available online here. A reader also saw it advertised in a Michigan newspaper.

According to the ad, there's a limit of one promotion per customer. So it appears you can't do both promotions.

Readers have reported a hard credit inquiry when applying for new Flagstar checking or savings accounts.

Branches are located in Michigan, Indiana and Georgia. The bank is a member FDIC (FDIC Certificate # 32541).

Gazprom and Nigeria create "Nigaz"

2009-06-26T10:26:00.002-04:00

Russia's energy giant Gazprom has signed a $2.5bn (£1.53bn) deal with Nigeria's state operated NNPC, to invest in a new joint venture. The new firm, to be called Nigaz, is set to build refineries, pipelines and gas power stations in Nigeria.

Analysts say the move could further strengthen Russia's role in supplying natural gas to Europe. Sergei Novikov, a spokesman for Rosatom, Russia's state-run civil nuclear energy agency, said the Nigaz deal would lay the foundations for building nuclear power reactors in Nigeria.

Nigeria has previously said it would like to develop a nuclear power plant to address its energy shortages.

Hopefully, this joint venture will benefit both partners equally, however that is usually never the case. Here is the link link to the BBC article. With $2.5 billion you think someone involved would mention the implications of the name of the joint venture.

Sideways Market

2009-06-26T10:14:00.002-04:00

I am looking through my positions to reevaluate my strategy. My long term view is weak dollar (which should stimulate exports), short treasuries (because of increased yields) and a rise in inflation. However, until markets feel confidence in banks and employment increases inflation is no where to be found. While the stock market receives 90% of all media attention, investors can better gauge sentiment by which bond indices like: IG, HVOL, XO and HY. Credit expansion will be the sign of a true recovery not over exuberant optimism. Enjoy the weekend!

Jim Cramer

2009-06-25T11:32:00.003-04:00

I have no doubt in my mind that Jim Cramer is a great financial mind. However, I would not recommend watching his show for stock picks. 3 picks a day with 3 more in the lighting round. That is 30 picks a weeks and 120 a month. Investor might as well buy the SPY if they plan to purchase that many equities. If Jim Cramer is your pro bono financial adviser, stop trading and put you money if government debt. I would recommend reading his books but the television show is for entertainment. Viewers flock to CNBC because it is more entertaining and avoid Bloomberg which in my opinion is less exciting but more informative. Trading or investing for excitement is gambling, the market has no regards to your hopes, feelings or wants.
Therefore, cut losses short and run winners regardless of how you feel and watch Jessie James Must Die instead.

Bank of America Merrill Lynch REIT

2009-06-25T11:11:00.001-04:00

Here is Merrill's List of their REIT Recommendations. Let this be a starting point not your decision maker. Personally, I like depressed property areas like: LA, Las Vegas and Florida. I would also avoid stock dividends unless there is a discount. Printing new equity every quarter will slowly dilute shareholders' equity but will save the company cash. Thanks to Zero Hedge for the chart, and I would recommend reading his post and also,Goldman engineers Financial Crisis.

Next Bank Closure?

2009-06-24T11:23:00.002-04:00

There is no better short position than a bank that the FDIC takes over, equity is wiped out but usually the bonds of the parent company hold some value. So my new favorite website is FDIC Institution Directory, keep in mind that many of the seized banks where not traded on public exchanges, but you might have been lucky to have shorted IndyMac or WAMU. But I am focused banks chartered in Georgia, Illinois and California. Happy Hunting!

The Face of Terror: The Persian Empire

2009-06-24T09:11:00.003-04:00

I hate to diverge from my money making thoughts into an area I have no expertise in, but I need to vent. Oil has remained higher than I expected maybe due to geopolitical issues, whatever the reason weakening demand should push down oil service providers I can go purchase some particularly PBR and SLB. But I am very upset at the media's coverage of the aftermath of the Iranian elections. I have seen protest pictures and in no way do I condone violence against peaceful protesters. When the results were announced, I was not shocked to hear that the incumbent president won. Listening to NPR, I heard Iranians who supported him and felt that falling oil and the United States were the culprits of the weakened economy. however, my outrage comes as politicians voice there disgust and anger about how protesters are being attacked by government forces. I can recall other countries where government forces attacked their citizens peacefully protesting. To keep my post shorter I will focus on the United States. Throughout the Civil Rights movement, African Americans were hosed, beaten, attacked by dogs and jailed for peacefully protesting. So, while I hear journalist and politicians scream they have never seen any human rights violations this egregious, they quickly forget that for more than a decade the same violence was taking place in their backyard.

Penny Stocks

2009-06-24T08:56:00.004-04:00

I have been asked about investing in penny stocks quite a few times. Keep in mind this is my opinion based on personal experience and I do not have any quantitative figures to support my argument, honestly I would like to hear from those with a different take on the issue. My posts are not meant to confirm my beliefs or ideas, but to find falsification in my theories or hypothesis. I do not look for penny stocks to purchase but if I see an opportunity (real or perceived) I would be willing. Usually when a stock trades under $1 it deserves to be there. When the stock trades below a penny, I am less likely to make a purchase. There are many exceptions of stocks going from under $1 to $4 (Citi) but many penny stocks do not have the analyst coverage of Citi or the daily volume of Citigroup. I would rather short a falling penny stock if I see weakness in cash flow and more debt than cash. Right now, I do not use debt to assets because in a deflationary environment fixed assets might not sell for book value and inventory may be sold at a steep discount. I know it is easy to own 100k shares of ABC because it trades at 5 cents compared to 10 shares of XYZ because it trades at $500. But again my experience has shown me greater profit from XYZ, when in a bull market or fundamental events are occurring. Happy hunting, I do not know which way we are headed but the best advice I can give is to stay flexible.

Goldman Sach Conviction List

2009-06-23T15:30:00.004-04:00

Here is a copy of Goldman Sachs Conviction List . I do not agree with all recommendations, however Goldman does provide a target time frame, so intraday movement may not reflect their target prices. Information and facts change constantly so never use outdated data to make decisions without considering the changing micro and macro environment.

Pull Back Heaven

2009-06-22T13:04:00.002-04:00

In the next couple weeks if equities are still declining, I like oil service providers, agricultural companies and I will take a short position on long term treasuries. Like the previous post I like REITs but I am selective in this group. I do not want to name particular issues because it will influence or make your research bias. Good hunting and if you do not like prices, you could wait or pyramid. Pyramiding a losing position is not recommended but in my experience it can make money even though I would recommend pyramiding only winning positions.

Commerical Real Estate

2009-06-21T14:03:00.003-04:00

This is the next shoe to drop. That has been the comment spoken since late March and I continuously hear it everyday. Unlike residential real estate, commercial buildings were not built as frequently a single family homes however there may be an over supply. Also, one lessee missing a payment does not ruin an owner (hopefully not the anchor tenant) unlike a single family household. While I do not doubt there is still trouble in the credit environment, the one thing that makes me uncomfortable about this trade is it is oversubscribed. I am not claustrophobic in real life, but I am in markets. Crowded trades bother me, because when the fire alarm goes off I might get trampled on or burned alive. So, I will rather stand by the exit and wait patiently. I am not saying there is no problem or that there will not be large CMBS defaults, however in my experience when general consensus is reached it is sometimes a collection of misconceptions.

Dissecting the Past

2009-06-19T01:17:00.001-04:00

If you are not a student of history you are bound to repeat it. I have no doubt that this is a true statement, however time after time society goes into recessions, fights wars and struggles with problems that plagued our planet thousands of years ago. One book every market participant should read or listen to is "Reminiscences of a Stock Operator". The narrator states, Another lesson I learned early is that there is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again.. I believe that the problem occurs with the fact the humans overestimate their understanding of what occurred in the past and underestimate the probability of making the same foolish mistakes. Humans are still involved with markets, therefore whether the NYSE goes all electronic or the NASDAQ goes virtual reality markets will still propel up and crash down.

Where is the Smart Money?

2009-06-17T01:19:00.000-04:00

With more than 70% of US equities being held by institutional investors, why do guest of CNBC start recommendations with "Well, Erin most of the smart money is moving into....". Therefore the viewer at home should run to the phone or Internet and follow this wise shepherds into 50% market declines. CDOs was a rich man's game, however if I had the capital I might have followed my peers into the Labyrinth of write downs. But the problem is this group is subject to the same delusion, however they control your pension, 401k and life insurance policy. To make matters worst, they come on television and give recommendations that influence viewers' selection. This week, I am conducting a self experiment by not watching, listening or reading any news other than AP bulletins that are mostly subjective and deal with securities. I do not think I will make a tremendous leap into enlightenment by blocking out the noise but I want to see how much my decision making is influenced by the media.

The Reflectionary Theory

2009-06-14T16:16:00.001-04:00

I spent yesterday listening to work by one of the greatest hedge fund managers, George Soros. He spent the first 2 hours of his book discussing philosophy. Soros bases his strategy not on financial or economic theory but on philosophical and behavioral study. I might not be doing Mr. Soros justice but I want to give a brief summation of his theory which will be helpful for all those trading overseas today and domestically tomorrow. Markets are inefficient due to participant manipulation. These participants influence prices based their perceptions, rationalizations (sometimes deluded) and biases. Most market panics and crashes are a return to reality. In essence individual participants turn objective facts into subjective actions. Rising prices can reaffirm a participant's rationalization of the valuation of a security. However, general consensus is sometimes a growing collection of misconceptions.
Bottom Line: You are your portfolios worst enemy. But you just have to give yourself a margin of error for the market participants skewing prices either upward or downward.