Wednesday, December 17, 2008
Some SKF
Bought some SKF this morning day after the .75 basis point cut by the Fed, the euphoria should subside and reality set in...looked at QID but it had legs early..
Thursday, November 13, 2008
Thursday, October 23, 2008
Friday, October 10, 2008
VIX @ $76!
Wall Street's "gauge of investor fear" reached an all time high of $76 today as the market once again lost over 600 points at one time in this trading day...With market conditions severely oversold its time for a near term rally and I will try tp position myself accordingly...
VIX!
VIX!
Thursday, September 25, 2008
Richard Duncan's "The Dollar Crisis". 2003
Is the most accurate and sober analysis of what has and will come to fruition in the economy and subsequent capital markets. This book published in 2003 has provided detailed analysis into how the housing and credit markets will unravel(and did) and how the NPR II (New Paradigm Recession; End of the American Consumer) will make the 2001-2 recession feel like a walk in the park...He predicts (accurately) that the government will step in and bail out financial institutions and firms which will only prolong the inevitable...A few exerpts from Chapter 9, Global Recession: Why, When, and How Hard? follow...the only thing Mr. Duncan miscalculated was the year (2004-5) which makes our problems all the more troubling
"The outlook for the global economy is profoundly disturbing. During the 1990's, the booming U.S economy served as the world's engine of economic growth. Surging credit expansion in the United States allowed businesses to increase their investments and consumers to boost their consumption, producing the longest uninterrupted economic advance on record."
"The U.S's trading partners expanded their industrial capacity to meet U.S demand, and rising investment allowed increasing consumption as well. U.S demand for imported goods meant more jobs. more corporate profits, and more economic growth throughout the rest of the world" Think New Paradigm
"All that is coming to an end. The over-indebted American economy has entered a recession that is likely to be as extreme and prolonged as the economic boom that proceeded it. The downturn began in 2001 with a sharp fall in U.S private investment. The repercussions of that reduction in investment-primarily technology related investment-were felt around the world. Despite the fall off in investment and rising unemployment, consumption in the United States remained robust in 2001 and 2002, providing a crutch for the wounded economy. A rapid reduction in interest rates to 40 year lows enabled the American consumers to continue increasing their indebtedness and their consumption. Future developments, however, will show that this aggressive monetary easing was nothing more than a palliative that merely prolonged and exacerbated the disequilibrium in the economy. The second, and more profound, phase of this recession will result in a steep decline in personal consumption. The American consumer is over indebted and will soon be forced to curtail the profligate behavior he embraced during the 1980s and 1990s. The downturn in consumption will cause a further reduction in investment. Falling U.S imports will throw the world into recession.
Mr. Duncan also goes into detail about the unsustainable Current Account deficits, they cannot continue to expand because they are deflationary in nature and undermine corporate profitability around the world by facilitating over investment and excess capacity. (think new cars in lots, new homes barren, a glut of consumer and business products)
I can go on and on with exerpts from just this one chapter but if you are interested in more of his analysis I suggest picking up this book...be prepared for the worst however...
"The outlook for the global economy is profoundly disturbing. During the 1990's, the booming U.S economy served as the world's engine of economic growth. Surging credit expansion in the United States allowed businesses to increase their investments and consumers to boost their consumption, producing the longest uninterrupted economic advance on record."
"The U.S's trading partners expanded their industrial capacity to meet U.S demand, and rising investment allowed increasing consumption as well. U.S demand for imported goods meant more jobs. more corporate profits, and more economic growth throughout the rest of the world" Think New Paradigm
"All that is coming to an end. The over-indebted American economy has entered a recession that is likely to be as extreme and prolonged as the economic boom that proceeded it. The downturn began in 2001 with a sharp fall in U.S private investment. The repercussions of that reduction in investment-primarily technology related investment-were felt around the world. Despite the fall off in investment and rising unemployment, consumption in the United States remained robust in 2001 and 2002, providing a crutch for the wounded economy. A rapid reduction in interest rates to 40 year lows enabled the American consumers to continue increasing their indebtedness and their consumption. Future developments, however, will show that this aggressive monetary easing was nothing more than a palliative that merely prolonged and exacerbated the disequilibrium in the economy. The second, and more profound, phase of this recession will result in a steep decline in personal consumption. The American consumer is over indebted and will soon be forced to curtail the profligate behavior he embraced during the 1980s and 1990s. The downturn in consumption will cause a further reduction in investment. Falling U.S imports will throw the world into recession.
Mr. Duncan also goes into detail about the unsustainable Current Account deficits, they cannot continue to expand because they are deflationary in nature and undermine corporate profitability around the world by facilitating over investment and excess capacity. (think new cars in lots, new homes barren, a glut of consumer and business products)
I can go on and on with exerpts from just this one chapter but if you are interested in more of his analysis I suggest picking up this book...be prepared for the worst however...
Monday, September 15, 2008
SKF, Time to take the gain
With the SKF up $17.00 on the day ~ 15% its time for me to realize a gain, i dont have the time to sit around and be greedy and the thought of getting priced off of a stop sell limit on a bounce tommorow is just to irritating...although I feel there is money on the table, I need money in my pocket $$$ ....time for work...cheers
Wednesday, September 10, 2008
SKF
Trying to initiate a position in the SKF as volume begins to build in this ultrashort financial index, I put in an after hours order for purchase at 117.50 which is about 1% over yesterdays closing price, hopefully I do not get priced out tomorrow morning...also looking at the vix, and dxd
reasoning to come, i have to run
reasoning to come, i have to run
Wednesday, September 3, 2008
What I'm Reading
that's $2 trillion of debt related losses
buffet sees economy weak until 2009
The long and winding recession
How bankruptcy would wreck GM and Chrysler
Commercial Property Loans may be next stage in downturn
FNM, FRE, China, S&P 500
Bove upgrades Lehman
Bernanke says inflation outlook uncertain
When in doubt just buy the SKF
Lehman Korea Deal may be CEO Fulds last hurrah
buffet sees economy weak until 2009
The long and winding recession
How bankruptcy would wreck GM and Chrysler
Commercial Property Loans may be next stage in downturn
FNM, FRE, China, S&P 500
Bove upgrades Lehman
Bernanke says inflation outlook uncertain
When in doubt just buy the SKF
Lehman Korea Deal may be CEO Fulds last hurrah
Thursday, August 21, 2008
Newt Gingrich
Former Speaker of the House Newt Gingrich has been spot on about America's energy crisis for sometime, everything he has to say in this clip is spot on about the situation we face today, his leadership for America is certainly missed in congress today, as Nancy Pelosi and Harry Reid continue to do NOTHING
3 Ways To Lower Gas Prices
Also, his web address at American Solutions
American Solutions
I encourage everyone to sign up and keep this petition moving.
3 Ways To Lower Gas Prices
Also, his web address at American Solutions
American Solutions
I encourage everyone to sign up and keep this petition moving.
Wednesday, August 6, 2008
Coattails on Kraft
Interested to see how this KRAFT Trade plays out, I came across it today through Volume Spike Investor, as they talk about giant August call option volume in both 35 and 37.50 calls. I am really interested to see how this plays out, however I have no money at stake at this point.
Kraft Call Volume
It is easy to see the giant disparity in the call vs put buying, how this will translate I do not know, but they are certainly expecting an upside movement.
The following is a chart from yahoo finance, illustrating 3 month action and the interaction of the 20 and 50 day moving averages, 20 recently crossing the 50 a bullish trend.
Kraft 3 Month
*****************************************************************************
8/21: Nothing ever came of this.
Kraft Call Volume
It is easy to see the giant disparity in the call vs put buying, how this will translate I do not know, but they are certainly expecting an upside movement.
The following is a chart from yahoo finance, illustrating 3 month action and the interaction of the 20 and 50 day moving averages, 20 recently crossing the 50 a bullish trend.
Kraft 3 Month
*****************************************************************************
8/21: Nothing ever came of this.
What I've been reading
"Oil Prices Could plunge below $80 a Barrell Gartman"
If this is the case refining stocks are the play for a large upswing.
"Consumer Recession Looms, Merrill Economist Says
History says betting against the US Consumer is not wise, however I agree things are different this time around.
If this is the case refining stocks are the play for a large upswing.
"Consumer Recession Looms, Merrill Economist Says
History says betting against the US Consumer is not wise, however I agree things are different this time around.
Tuesday, August 5, 2008
Excerpt From John Mauldin's Outside the Box
"Investors insight"
I have been recieving John Mauldin's enewsletters for over 2 years now for the best insight into the inner workings of both the Financial Markets and the Geopolitical landscape that affects them. I highly encourage you to sign up for his free enewsletters. In this issue Michael Lewitt of Hegemony Capital Management discusses the many problems that our Financial Markets face and he reiterates alot of what I have been posting about since my latest trade.
A couple exerpts:
The latest example of regulatory malfunction in the financial markets is the SEC's limitations on selling short the stocks of 19 financial firms. Readers should understand that this stopgap measure will have absolutely no impact on the underlying value or the long-term stock prices of these companies. This is merely a political bone being thrown to those who would sooner blame short-sellers for the credit crisis than the institutions (and the individuals responsible for mismanaging them) who acted in a wholly irresponsible manner. Leon Cooperman, one of this generation's great investors and a man always willing to speak his mind, described the situation very frankly in a recent interview in Barron's: "The financial economy is in disarray and that is really a result - and you can quote me on this - of imprudent financial activity by the commercial banks and investment banks. They levered themselves up. They did things that were foolish. They should be ashamed of the way they conducted themselves, and now they have to right that, and they are de-leveraging."1
By engaging in selective protectionism of a few favored companies rather than re- imposing the uptick rule and treating all companies equally, the SEC furthered the appearance of favored treatment for large institutions that raises serious moral hazard concerns and dampens confidence in U.S. financial markets. The following is the list of the 19 firms that the powers-that-be decided were worthy of special protection from market forces:
BNP Paribas Securities Corp.
Bank of America Corporation
Barclays PLC
Citigroup Inc.
Credit Suisse Group
Daiwa Securities Group Inc.
Deutsche Bank Group AG
Allianz SE
Goldman, Sachs Group Inc.
Royal Bank ADS
HSBC Holdings PLC ADS
J.P. Morgan Chase & Co.
Lehman Brothers Holdings Inc.
Merrill Lynch & Co., Inc.
Mizuho Financial Group, Inc.
Morgan Stanley
UBS AG
Freddie Mac
Fannie Mae
Among the more interesting aspects of this list is the fact that more than half the names are non- U.S. firms enjoying the protection of the U.S. regulators and the fact that some large U.S.-based firms that are clearly being pummeled by short-sellers are missing from the list (i.e. Wachovia Corp., AIG International Group, Inc., Washington Mutual). The ostensible basis for inclusion on the list - status as a primary dealers plus Fannie and Freddie - speaks to the reactionary nature of the rule-making. Finally, this desperate measure is yet another example of the capitalism-for-the poor, socialism-for-the-rich economic model that American financial authorities have adopted over the past two decades.
As a result, when it announced that it would enforce the rule selectively with respect to a select number of financial stocks that had been battered by short sellers (ignoring the fact that a number of these companies had posted tens of billions of dollars of losses due to gross mismanagement and deserved to be sold), the agency effectively admitted that it had been failing to enforce its own rules. The SEC's announcement predictably sent holders of naked short positions scrambling to borrow stock while other short sellers ran to cover their positions in these and other financial stocks in anticipation of a rally in these shares. The result was a historic rally in financial shares that was given a boost by the bailout of Freddie and Fannie but was wholly unrelated to any improvement in the underlying businesses of the companies whose stock prices rose so sharply.
And now to Merril:
And naturally Merrill Lynch's announcement, which included a highly dilutive share sale to compensate for the multi-billion capital loss suffered by the firm, led to a rally in the firm's stock price. Let us get this straight - the firm admits that it grossly mis-marked its book, reports a(nother) multi-billion dollar loss, announces a hugely dilutive stock offering, and the stock rallies? Makes perfect sense to us. And people wonder how and why the financial markets continually fall into crisis!
Finally, troubling insight into the American Car Manufacturing Industry, I suggest you read the entire article but here is an excerpt:
Just prior to S&P's move came the effective collapse of the automobile leasing industry. In the days prior to the S&P downgrade, the automobile financing industry came totally unglued. This is the latest indication of how severely credit is being rationed at all levels of the U.S. economy. Chrysler Finance was the first of the Big Three automakers' finance arms to announce that it would stop extending automobile leases. This decision, which is nothing less than catastrophic for Chrysler's vehicle sales despite unconvincing protests to the contrary by the privately-owned carmaker, was due to the fact that leasing has been rendered unprofitable by Chrysler Finance's rising borrowing costs and the plunging residual value of Chrysler's gasguzzling vehicles. Chrysler debt is trading at levels that suggest an imminent bankruptcy filing.
GMAC and Ford Motor Credit are not expected to eliminate leasing entirely but are likely to severely cut back on auto leases since they can't make any money on these transactions. Wells Fargo has also withdrawn from the business of financing car leases. Other financial institutions are sure to follow.
The latest news out of Detroit makes it abundantly clear that the endgame for the Big Three is going to be massive bankruptcy restructurings. One would hope that politicians in Washington, particularly the two Presidential candidates, would begin formulating national energy plans that include restructuring plans for the American automobile industry. No viable energy plan will meet this country's needs without creating the proper tax and other economic incentives to build fuel-efficient vehicles. Rather than continuing to be one of the problems that lie at the heart of the American economy, the recovery and revitalization of the auto industry could be a major component of an economic and energy policy that could lead this country out of the difficult times we are experiencing and are doomed to repeat unless we take some bold steps right now
I have been recieving John Mauldin's enewsletters for over 2 years now for the best insight into the inner workings of both the Financial Markets and the Geopolitical landscape that affects them. I highly encourage you to sign up for his free enewsletters. In this issue Michael Lewitt of Hegemony Capital Management discusses the many problems that our Financial Markets face and he reiterates alot of what I have been posting about since my latest trade.
A couple exerpts:
The latest example of regulatory malfunction in the financial markets is the SEC's limitations on selling short the stocks of 19 financial firms. Readers should understand that this stopgap measure will have absolutely no impact on the underlying value or the long-term stock prices of these companies. This is merely a political bone being thrown to those who would sooner blame short-sellers for the credit crisis than the institutions (and the individuals responsible for mismanaging them) who acted in a wholly irresponsible manner. Leon Cooperman, one of this generation's great investors and a man always willing to speak his mind, described the situation very frankly in a recent interview in Barron's: "The financial economy is in disarray and that is really a result - and you can quote me on this - of imprudent financial activity by the commercial banks and investment banks. They levered themselves up. They did things that were foolish. They should be ashamed of the way they conducted themselves, and now they have to right that, and they are de-leveraging."1
By engaging in selective protectionism of a few favored companies rather than re- imposing the uptick rule and treating all companies equally, the SEC furthered the appearance of favored treatment for large institutions that raises serious moral hazard concerns and dampens confidence in U.S. financial markets. The following is the list of the 19 firms that the powers-that-be decided were worthy of special protection from market forces:
BNP Paribas Securities Corp.
Bank of America Corporation
Barclays PLC
Citigroup Inc.
Credit Suisse Group
Daiwa Securities Group Inc.
Deutsche Bank Group AG
Allianz SE
Goldman, Sachs Group Inc.
Royal Bank ADS
HSBC Holdings PLC ADS
J.P. Morgan Chase & Co.
Lehman Brothers Holdings Inc.
Merrill Lynch & Co., Inc.
Mizuho Financial Group, Inc.
Morgan Stanley
UBS AG
Freddie Mac
Fannie Mae
Among the more interesting aspects of this list is the fact that more than half the names are non- U.S. firms enjoying the protection of the U.S. regulators and the fact that some large U.S.-based firms that are clearly being pummeled by short-sellers are missing from the list (i.e. Wachovia Corp., AIG International Group, Inc., Washington Mutual). The ostensible basis for inclusion on the list - status as a primary dealers plus Fannie and Freddie - speaks to the reactionary nature of the rule-making. Finally, this desperate measure is yet another example of the capitalism-for-the poor, socialism-for-the-rich economic model that American financial authorities have adopted over the past two decades.
As a result, when it announced that it would enforce the rule selectively with respect to a select number of financial stocks that had been battered by short sellers (ignoring the fact that a number of these companies had posted tens of billions of dollars of losses due to gross mismanagement and deserved to be sold), the agency effectively admitted that it had been failing to enforce its own rules. The SEC's announcement predictably sent holders of naked short positions scrambling to borrow stock while other short sellers ran to cover their positions in these and other financial stocks in anticipation of a rally in these shares. The result was a historic rally in financial shares that was given a boost by the bailout of Freddie and Fannie but was wholly unrelated to any improvement in the underlying businesses of the companies whose stock prices rose so sharply.
And now to Merril:
And naturally Merrill Lynch's announcement, which included a highly dilutive share sale to compensate for the multi-billion capital loss suffered by the firm, led to a rally in the firm's stock price. Let us get this straight - the firm admits that it grossly mis-marked its book, reports a(nother) multi-billion dollar loss, announces a hugely dilutive stock offering, and the stock rallies? Makes perfect sense to us. And people wonder how and why the financial markets continually fall into crisis!
Finally, troubling insight into the American Car Manufacturing Industry, I suggest you read the entire article but here is an excerpt:
Just prior to S&P's move came the effective collapse of the automobile leasing industry. In the days prior to the S&P downgrade, the automobile financing industry came totally unglued. This is the latest indication of how severely credit is being rationed at all levels of the U.S. economy. Chrysler Finance was the first of the Big Three automakers' finance arms to announce that it would stop extending automobile leases. This decision, which is nothing less than catastrophic for Chrysler's vehicle sales despite unconvincing protests to the contrary by the privately-owned carmaker, was due to the fact that leasing has been rendered unprofitable by Chrysler Finance's rising borrowing costs and the plunging residual value of Chrysler's gasguzzling vehicles. Chrysler debt is trading at levels that suggest an imminent bankruptcy filing.
GMAC and Ford Motor Credit are not expected to eliminate leasing entirely but are likely to severely cut back on auto leases since they can't make any money on these transactions. Wells Fargo has also withdrawn from the business of financing car leases. Other financial institutions are sure to follow.
The latest news out of Detroit makes it abundantly clear that the endgame for the Big Three is going to be massive bankruptcy restructurings. One would hope that politicians in Washington, particularly the two Presidential candidates, would begin formulating national energy plans that include restructuring plans for the American automobile industry. No viable energy plan will meet this country's needs without creating the proper tax and other economic incentives to build fuel-efficient vehicles. Rather than continuing to be one of the problems that lie at the heart of the American economy, the recovery and revitalization of the auto industry could be a major component of an economic and energy policy that could lead this country out of the difficult times we are experiencing and are doomed to repeat unless we take some bold steps right now
Thursday, July 31, 2008
DOG trade cont..
Trade is now in positive territory at 68.30 as Energy & Materials pull back today, the catalyst for my trade; a reversion in the financials has not exactly panned out as WB, BAC, C, and other banks have remained higher after the Naked Short Selling legislation...Will bump up my stop-limit order to 67.60 or so to lock in a profit...
Edited 8/4
*********************************************************************************
As the trade has once again moved in my favor I have decided to bump my stop limit up towards (-3%)or 65.15, no sense in losing money if you do not have to. I have learned to get away from a losing trade asap or within a certain margin for error.
Thoughts: Selling an entire index short is not an easy proposition because there are components of this economy/market that are working and right now Fiscal policy is doing everything they can to make sure this economy recovers in the short run.
Edited 8/4
*********************************************************************************
As the trade has once again moved in my favor I have decided to bump my stop limit up towards (-3%)or 65.15, no sense in losing money if you do not have to. I have learned to get away from a losing trade asap or within a certain margin for error.
Thoughts: Selling an entire index short is not an easy proposition because there are components of this economy/market that are working and right now Fiscal policy is doing everything they can to make sure this economy recovers in the short run.
Wednesday, July 30, 2008
Stop Limit on the DOG
As you can see from the link for the DOW vs DOG chart in my previous post my trade has not moved in my favor in the last two days.
The DOW has rallied over 380 points over the past two days forcing me to put in a stop limit order at 64.15 for the DOG -(4.5)% from the initial 67.17 price. As it stands today at 66.40 my stop loss will be exectued in another 2-3% to the downside.
Trading this market certainly isnt easy, Tuesday Merril Lynch the Nations(Worlds) 2nd Largest Investment Bank had a firesale on mortgage related assets and an announced but unexpected 9 Billion Dollar additional quarterly loss. How did the DOW react? By rallying over 200 points.
In the next two trading days the only thing that will come as encouraging to my trade is a continuation in the rise of Oil...
Mood: Cautious
The DOW has rallied over 380 points over the past two days forcing me to put in a stop limit order at 64.15 for the DOG -(4.5)% from the initial 67.17 price. As it stands today at 66.40 my stop loss will be exectued in another 2-3% to the downside.
Trading this market certainly isnt easy, Tuesday Merril Lynch the Nations(Worlds) 2nd Largest Investment Bank had a firesale on mortgage related assets and an announced but unexpected 9 Billion Dollar additional quarterly loss. How did the DOW react? By rallying over 200 points.
In the next two trading days the only thing that will come as encouraging to my trade is a continuation in the rise of Oil...
Mood: Cautious
Tuesday, July 29, 2008
Back In the Market
Last Tuesday (7/22) I re-entered the Market for the first time since my last post describing the direction I thought the Markets were headed. I am still Bearish in the near term and I believed that the short covering rally we saw in Financial Stocks due to SEC Chairman Christopher Cox's testimony that new short selling techniques would be implemented in 4 business days. This Statement led to an artificial market rally because the targeted 'naked" short sellers were forced to close out their positions in a timely fashion. The S&P Financial Index gained nearly 15% in 3 trading days and large banks like Wachovia, WM, Citi, BAC, Fannie and Freddie saw their stocks rise well over 50%.
What was inherent in this rally was that it was largly artificial in nature, that the short sellers would regain the positions held prior to the announcement of the SEC, and that these new rules that were put in place in no way help these troubled balance sheets or add value to the percieved worth of these banks.
I initiated a position in the DOG at 67.17 on Tuesday (7/22) at 12:43pm as the DJIA traded at 11,492. The DOG invests 80% of assets in financial instruments with economic charachteristics that should be inverse to those of the index.
Here is a look at the chart of my trade since inception, comparing the rally of the DOG (blue) to the fall of the DOW (red). The percentages nearly identical.
"DOG vs DOW"
What was inherent in this rally was that it was largly artificial in nature, that the short sellers would regain the positions held prior to the announcement of the SEC, and that these new rules that were put in place in no way help these troubled balance sheets or add value to the percieved worth of these banks.
I initiated a position in the DOG at 67.17 on Tuesday (7/22) at 12:43pm as the DJIA traded at 11,492. The DOG invests 80% of assets in financial instruments with economic charachteristics that should be inverse to those of the index.
Here is a look at the chart of my trade since inception, comparing the rally of the DOG (blue) to the fall of the DOW (red). The percentages nearly identical.
"DOG vs DOW"
Thursday, July 3, 2008
Tuesday, June 24, 2008
How to play the market short as a buyside Investor
Being a buy side investor in a sellers market is a difficult proposition. Investing in any stock or market sector is a daunting task without some type of downside protection. Or, if your just looking to profit from further market decline and you do not have the margin to sell short, here are a few downside reccomendations.
DOG- The DOG can be purchased to replicate the inverse of the Dow Jones Industrial Average. Take the monthly/yearly chart of the DJIA and flip it over and you have the chart of the DOG, a very profitable proposition over the past several months. The Dog can be used as a great downside hedge/protection in junction with a small alloaction of individual stocks.
QID- Like the DOG the QID can be purchased to replicate the inverse of the NASDAQ Composite and offers all the same downside protection as the DOG. Have a portfolio of Technology stocks you would like insurance on, the QID is a profitable way to hedge against losses
VIX- The Chicago Board Options Exchange Volatility Index (VIX) is a gauge that measures the anxiety of the market. When anxiety in the market is high, the VIX is high, and when the market is complacent, the VIX is low. The VIX can be bought and sold just like any other equity but reccomended to do so only for the active trader. Buyers of the VIX are afforded protection against large market downturns because the VIX rises as stocks fall.
There are also a surplus of reverse ETF's that are available for purchase that allow you to single out a specific area of the market. Reverse ETF's exist for the Banking/Finance Sector, Technology, Energy, and so on and are a great way to hedge a portfolio to the downside. Google Search: Reverse ETF's for suggestions.
DOG- The DOG can be purchased to replicate the inverse of the Dow Jones Industrial Average. Take the monthly/yearly chart of the DJIA and flip it over and you have the chart of the DOG, a very profitable proposition over the past several months. The Dog can be used as a great downside hedge/protection in junction with a small alloaction of individual stocks.
QID- Like the DOG the QID can be purchased to replicate the inverse of the NASDAQ Composite and offers all the same downside protection as the DOG. Have a portfolio of Technology stocks you would like insurance on, the QID is a profitable way to hedge against losses
VIX- The Chicago Board Options Exchange Volatility Index (VIX) is a gauge that measures the anxiety of the market. When anxiety in the market is high, the VIX is high, and when the market is complacent, the VIX is low. The VIX can be bought and sold just like any other equity but reccomended to do so only for the active trader. Buyers of the VIX are afforded protection against large market downturns because the VIX rises as stocks fall.
There are also a surplus of reverse ETF's that are available for purchase that allow you to single out a specific area of the market. Reverse ETF's exist for the Banking/Finance Sector, Technology, Energy, and so on and are a great way to hedge a portfolio to the downside. Google Search: Reverse ETF's for suggestions.
Wednesday, June 18, 2008
Economic Outlook: Bearish 6/18/08
DJIA: 12,029
S&P: 1,337
NASDAQ: 2,429
In order to invest in this market one must try to gauge the direction of it. Although current market levels appear low and equities appear cheap compared to July-August highs, I believe the direction of the market continues downward for the intermediate future (6-8 months) and that investors like myself must remain patient for opportunites to present themselves. For the mean time I will be keeping the majority of my portfolio in either cash or within short term trading ranges i.e stop gain/loss orders. And the reasonings behind my beliefs are as follows...
1. Today 6/18/08, Economic Bellweather Fedex missed analyst expectations and issued lower guidance through 2009 citing higher fuel costs as a major hinderance on profits. When the distinguished straight shooting management from Fedex speaks the street listens. What this means: if high fuel costs are showing up in the balance sheets of Fedex they will shortly be showing up almost everywhere else.
- On a side note I heard the apprehension on the state of the economony from the CEO of Fedex himself, Frederick Smith, firsthand as he delivered the commencement address to Penn States SMEAL College of Business class of 08'
2. Follow the "smart" money. As in my previous post about the 20 tips, it is easy to become distracted by the talking heads on television who are often swayed in their opinions by those writing their paychecks. "Smart" money is hedge fund manager John Paulson, http://online.wsj.com/public/article/SB120036645057290423.html, who made Billions of dollars over this past year as he shorted positions in the credit markets and financial stocks that payed off dearly as the Housing Market unraveled. Today, Paulson remains short the credit markets and will avoid equities as the U.S consumer gets squeezed forcing the U.S economy into a prolonged recession.
-An excerpt from Economist Nouriel Roubini will follow suit...
3. The Triple Whammy: Higher Inflation in the form of Food & Energy prices, Rising Unemployment (4.5%), and continuing weakness of the USD are all working in unison to curb the purchasing power of the American Consumer. Market pundits and analysts continue to preach that the worst of the credit crisis is behind us. The only thing that will be shortly behind us are the band-aid like government stimulus checks designed to pump up the consumer. With gasoline at a national record of 4.08 a gallon the only thing getting pumped is the gas into our cars.
4. Investor Sentiment is low, Bulls seem to have run out of steam, buy the dips and sell the rallies has been hearsay the last month. Value investors will always remain in markets providing temporary relief and support when needed. They have 2 luxuries that I lack at the moment, millions of dollars and a 3-5 year time frame although I am working on achieving both. Besides the fact that equity prices look relatively cheap compared to recent levels I cannot foresee any catalyst but one to spark the next bull market. Fact: GDP is slowing, unemployment is rising, inflation is higher than the Fed's comfort level, Mortgage defaults continue, extension of credit tightening, and the value/direction of the USD is stagnant. All in combination should pull down the projected earnings forecast of equities across the board. Analyst projections for $130-140 bbl place many U.S Airline Carriers back into bankruptcy circa 2001. If sustained the question will be when not if the first will fail.
-I believe the only catalyst worthy of reversing this trend is a reversal in the price of oil, if it in fact does reverse course than a prolonged recession may be avoided.
In conclusion, how much lower do we have to go? I have no idea but I will leave you with Bob Janjuah's, credit strategist at RBS, prediction that the S&P may have another 300 points to the downside and the DOW below 11,000.
My next post will map out a strategy for a buy side investor like myself to take advantage and make gains in this market in line with this stated projection.
S&P: 1,337
NASDAQ: 2,429
In order to invest in this market one must try to gauge the direction of it. Although current market levels appear low and equities appear cheap compared to July-August highs, I believe the direction of the market continues downward for the intermediate future (6-8 months) and that investors like myself must remain patient for opportunites to present themselves. For the mean time I will be keeping the majority of my portfolio in either cash or within short term trading ranges i.e stop gain/loss orders. And the reasonings behind my beliefs are as follows...
1. Today 6/18/08, Economic Bellweather Fedex missed analyst expectations and issued lower guidance through 2009 citing higher fuel costs as a major hinderance on profits. When the distinguished straight shooting management from Fedex speaks the street listens. What this means: if high fuel costs are showing up in the balance sheets of Fedex they will shortly be showing up almost everywhere else.
- On a side note I heard the apprehension on the state of the economony from the CEO of Fedex himself, Frederick Smith, firsthand as he delivered the commencement address to Penn States SMEAL College of Business class of 08'
2. Follow the "smart" money. As in my previous post about the 20 tips, it is easy to become distracted by the talking heads on television who are often swayed in their opinions by those writing their paychecks. "Smart" money is hedge fund manager John Paulson, http://online.wsj.com/public/article/SB120036645057290423.html, who made Billions of dollars over this past year as he shorted positions in the credit markets and financial stocks that payed off dearly as the Housing Market unraveled. Today, Paulson remains short the credit markets and will avoid equities as the U.S consumer gets squeezed forcing the U.S economy into a prolonged recession.
-An excerpt from Economist Nouriel Roubini will follow suit...
3. The Triple Whammy: Higher Inflation in the form of Food & Energy prices, Rising Unemployment (4.5%), and continuing weakness of the USD are all working in unison to curb the purchasing power of the American Consumer. Market pundits and analysts continue to preach that the worst of the credit crisis is behind us. The only thing that will be shortly behind us are the band-aid like government stimulus checks designed to pump up the consumer. With gasoline at a national record of 4.08 a gallon the only thing getting pumped is the gas into our cars.
4. Investor Sentiment is low, Bulls seem to have run out of steam, buy the dips and sell the rallies has been hearsay the last month. Value investors will always remain in markets providing temporary relief and support when needed. They have 2 luxuries that I lack at the moment, millions of dollars and a 3-5 year time frame although I am working on achieving both. Besides the fact that equity prices look relatively cheap compared to recent levels I cannot foresee any catalyst but one to spark the next bull market. Fact: GDP is slowing, unemployment is rising, inflation is higher than the Fed's comfort level, Mortgage defaults continue, extension of credit tightening, and the value/direction of the USD is stagnant. All in combination should pull down the projected earnings forecast of equities across the board. Analyst projections for $130-140 bbl place many U.S Airline Carriers back into bankruptcy circa 2001. If sustained the question will be when not if the first will fail.
-I believe the only catalyst worthy of reversing this trend is a reversal in the price of oil, if it in fact does reverse course than a prolonged recession may be avoided.
In conclusion, how much lower do we have to go? I have no idea but I will leave you with Bob Janjuah's, credit strategist at RBS, prediction that the S&P may have another 300 points to the downside and the DOW below 11,000.
My next post will map out a strategy for a buy side investor like myself to take advantage and make gains in this market in line with this stated projection.
20 Tips For No-Nonsense Investing
I have been hanging onto this article for nearly two years now since I came across it in the WSJ, each time I go through my bag to clean it out I cannot seem to get myself to discard it, so why not make it the outline for my blog...A few of the bolder numbers are reminders to myself, but I believe all those who read these 20 tips from Jonathan Clements will surely benefit.
Twenty Tips for No- Nonsense Investing
Getting Going/ By Jonathan Clements, WSJ 02/19/06
1. You don’t have any friends on Wall Street. You may want to make money but so does the street. And the more the street makes, the less investors pocket. Get an attitude. Market Strategists, your brother in law Bob, the television talking heads and the local brokerage firm’s slick salesman all spew an endless stream of utter nonsense.
2. Your neighbors are delusional. They spend too much, they own investments they don’t understand and their overall portfolio isn’t fairing nearly as well as the one or two stocks the boast about.
3. Most stock mutual funds are laggards and it’s hard to find winners. Sure, there are funds with great 10 year records. But you can’t buy past performance.
4. There are no “magic” investments. Yes, investments enjoy brief surges of popularity and, for a few months or even years, they can seem like a sure thing. Think technology stocks in early 2000, hedge funds in 2003 and real-estate and energy stocks in 2005. But the magic never lasts. See a crowd gathering? Grab your cash and start running in the opposite direction.
5. You can control risk and investment costs, buy you cant control returns. So why do investors spend so little time on risk and costs and so much time on returns?
6. There’s no substitute for saving money. Next time you crack open your wallet, think on this: The dollars you spend today are delaying your retirement.
7. Sophistication is usually an excuse for Wall Street to charge fat fees. If you don’t understand an investment, don’t buy it. Most folks can do just fine with a handful of plain vanilla mutual funds, preferably market-tracking index funds.
8. Rich people often have more dollars than sense. Hedge funds? Venture-Captial Investments? Make no mistake: You have to be truly wealthy to afford the potential losses involved.
9. Your portfolio’s growth is driven, more than anything, by how much you save and by how much you divide your money between stocks and conservative investments.
10. If an investment is exciting it probably won’t be especially profitable. Investors love to buy hot growth companies, trade mutual funds and take a flier on an IPO. Before you join in on the fun, however, consider how much you might lose and how many paychecks it will take you to recoup.
11. Be leery of investment recommendations from commission salesman.
12. Land appreciates, houses depreciate. Like your car, your home sits out in the rain. You know your car is depreciating. Why should your home be any different? Keep that in mind the next time your neighbors tout the investment value of their new kitchen.
13. Sound Investment strategies don’t change with the news. By all means, read the personal finance magazine’s market prediction and listen to the television reporter’s breathless dispatch from the floor of the New York Stock Exchange. But for goodness sake, don’t act on this nonsense.
14. Your worst investment enemy is often found in the mirror. Even if you don’t get tripped up by Wall Street shenanigans or you’re some other foolish advice you could still end up with wretched returns if you chase hot investments or panic when the market declines.
15. Tax deductions are money losers. True, if you are in the 25% federal income tax bracket and you incur $1,000 of mortgage interest; you will save $250 in taxes. But the other $750 is coming out of your pocket.
16. Leverage Bites when you get it wrong. Most people wouldn’t dream of borrowing money to buy stocks. Yet, it’s considered prudent to borrow 90% of a homes purchase price. Most of the time, your leveraged real-estate bet will work out just fine. But cross your fingers and hope you don’t suddenly have to sell just as real-estate prices are sinking.
17. If financial forecasters are unanimous that stocks, or bonds, or the dollar are about to plummet, they almost certainly wont. The reason: presumably, these soothsayers and their clients have already acted on their prediction and thus it’s already reflected in current market prices.
18. Insurance is a necessary evil. When you buy insurance, you are paying somebody else to take on risk that you can’t afford to bear. Than can be a smart move. It will also cost you, however, so you shouldn’t buy more insurance than you really need.
19. You can’t get rich by spending money. The folks with the big house, fancy cars and designer clothes are, no doubt, loaded. But they may be loaded with debt.
20. Investment experts who promise market-beating returns deserve our profound skepticism After all, if they are so wise, why are they still working for a living? And if their investment ideas are likely to be so profitable, why are they sharing them with us?
Twenty Tips for No- Nonsense Investing
Getting Going/ By Jonathan Clements, WSJ 02/19/06
1. You don’t have any friends on Wall Street. You may want to make money but so does the street. And the more the street makes, the less investors pocket. Get an attitude. Market Strategists, your brother in law Bob, the television talking heads and the local brokerage firm’s slick salesman all spew an endless stream of utter nonsense.
2. Your neighbors are delusional. They spend too much, they own investments they don’t understand and their overall portfolio isn’t fairing nearly as well as the one or two stocks the boast about.
3. Most stock mutual funds are laggards and it’s hard to find winners. Sure, there are funds with great 10 year records. But you can’t buy past performance.
4. There are no “magic” investments. Yes, investments enjoy brief surges of popularity and, for a few months or even years, they can seem like a sure thing. Think technology stocks in early 2000, hedge funds in 2003 and real-estate and energy stocks in 2005. But the magic never lasts. See a crowd gathering? Grab your cash and start running in the opposite direction.
5. You can control risk and investment costs, buy you cant control returns. So why do investors spend so little time on risk and costs and so much time on returns?
6. There’s no substitute for saving money. Next time you crack open your wallet, think on this: The dollars you spend today are delaying your retirement.
7. Sophistication is usually an excuse for Wall Street to charge fat fees. If you don’t understand an investment, don’t buy it. Most folks can do just fine with a handful of plain vanilla mutual funds, preferably market-tracking index funds.
8. Rich people often have more dollars than sense. Hedge funds? Venture-Captial Investments? Make no mistake: You have to be truly wealthy to afford the potential losses involved.
9. Your portfolio’s growth is driven, more than anything, by how much you save and by how much you divide your money between stocks and conservative investments.
10. If an investment is exciting it probably won’t be especially profitable. Investors love to buy hot growth companies, trade mutual funds and take a flier on an IPO. Before you join in on the fun, however, consider how much you might lose and how many paychecks it will take you to recoup.
11. Be leery of investment recommendations from commission salesman.
12. Land appreciates, houses depreciate. Like your car, your home sits out in the rain. You know your car is depreciating. Why should your home be any different? Keep that in mind the next time your neighbors tout the investment value of their new kitchen.
13. Sound Investment strategies don’t change with the news. By all means, read the personal finance magazine’s market prediction and listen to the television reporter’s breathless dispatch from the floor of the New York Stock Exchange. But for goodness sake, don’t act on this nonsense.
14. Your worst investment enemy is often found in the mirror. Even if you don’t get tripped up by Wall Street shenanigans or you’re some other foolish advice you could still end up with wretched returns if you chase hot investments or panic when the market declines.
15. Tax deductions are money losers. True, if you are in the 25% federal income tax bracket and you incur $1,000 of mortgage interest; you will save $250 in taxes. But the other $750 is coming out of your pocket.
16. Leverage Bites when you get it wrong. Most people wouldn’t dream of borrowing money to buy stocks. Yet, it’s considered prudent to borrow 90% of a homes purchase price. Most of the time, your leveraged real-estate bet will work out just fine. But cross your fingers and hope you don’t suddenly have to sell just as real-estate prices are sinking.
17. If financial forecasters are unanimous that stocks, or bonds, or the dollar are about to plummet, they almost certainly wont. The reason: presumably, these soothsayers and their clients have already acted on their prediction and thus it’s already reflected in current market prices.
18. Insurance is a necessary evil. When you buy insurance, you are paying somebody else to take on risk that you can’t afford to bear. Than can be a smart move. It will also cost you, however, so you shouldn’t buy more insurance than you really need.
19. You can’t get rich by spending money. The folks with the big house, fancy cars and designer clothes are, no doubt, loaded. But they may be loaded with debt.
20. Investment experts who promise market-beating returns deserve our profound skepticism After all, if they are so wise, why are they still working for a living? And if their investment ideas are likely to be so profitable, why are they sharing them with us?
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