Friday, July 24, 2009

They Look Cheap

I received an email from a reader (thx N.S.) regarding Microsoft, Bank America and General Electric. In particular he remarked how cheap they were, from their historical highs and that they are so close to zero they must be worth a punt. Jesse Livermore, in his book Reminiscences of a Stock Operator, said that the average person in the market measures his/her bargains by how many points off the top the item has sold off.

One could take his statement even further and apply that to its price in relation to zero, the closer it is to it the better the buy. Especially one with a household name.

I have oft counselled in the past that the wave of the future hallmark of the bear market will be reverse stock splits which is nothing earth shattering given it is the exact opposite of the splits that accompanied the bull. So with this in mind lets look at Microsoft and General Electric.

Here is the split history on Microsoft. Amount and date.

2:1 - 9/21/87
2:1 - 4/16/90
3:2 - 6/27/91
3:2 - 6/15/92
2:1 - 5/23/94
2:1 - 12/9/96
2:1 - 2/23/98
2:1 - 3/29/99
2:1 - 2/18/03

What this all means is that for an individual who bought 100 shares of MSFT in 1986 would now own 28,800 shares, assuming he hung on in Buffettesque style. Who is to say Microsoft cannot come out and announce a reverse 1 for 5 split. This would then result, using the above example, the individual now owning 5760 shares with the current share price rising from last nights close of $25.56 to $127.80.

I would now ask reader N.S. if MSFT would look "as cheap then" as it does now?

Let move on to General Electric and it's split history

2:1 - 6/871
2:1 - 6/2/83
2:1 - 5/26/87
2:1 - 5/16/94
2:1 - 5/12/97
2:1 - 5/8/00

This results in the 100 share lot owner now possessing 9600 shares. With GE trading as of the close last night $11.95 a reverse 1 for 5 split would leave the holder with 1920 shares and the share price would jump to $59.75.

The point I am trying to make is that when you think the stock cannot go any lower as it is hovering in the single digits or is a teenager just remember that this could change very quickly. Your premise for punting should be based on more than just being close to zero.


I want to talk about the game for the the privileged few the market has become. Joe Saluzzi over at Themis Trading has been at the forefront of the HFT (high frequency trading) debate, along with Zero Hedge and Market Ticker. The NY Times has finally shed some light on this issue with an article today.

Karl Denninger over at Market Ticker in his piece High Frequency Trading is a Scam outlines how wrong this practice is but as it is working in your favour (hint, the market is going up so its okay) no one cares to complain.This will only become an issue once the market rolls over and the scheme stops working in the desired direction.

HFT is just another perk the Wall St. boyz think they are entitled to, which harkens back in the good ol' days of the internet bubble and the pay to play games that were played in the white hot IPO market. Remember the thug Frank Quattrone? Anyway, this is just more of the same that the purported smartest, best schooled, better pot to piss in crowd think is their God given birthright to take.

Notice how 'lucky sperm club' poster boy Steve Forbes is mum on this issue but will hoot and holler for an abolition of mark to market accounting. You think he is plain stupid on this account or just conflicted? Above all else, keep the charade going as you cannot have a financial magazine, let along a market scam without the fresh suckers continually lined up. If Mom and Pop public takes their roll and goes home would spell enormous doom for the perpetuators of this game and they know it, hence the propaganda!

I continue to recommend you all watch and re-watch the movie The Sting. It should be required viewing for anyone considering participating in the markets in any fashion.

Zipper your pockets because as sure as shootin' anything that isn't nailed down will be taken.

Housekeeping notes;

I was stopped out of my SDS position at $49.92 for a loss of just shy of 1 pt as SPY hit my sotp of $96.31

Good speculating and remind them to please don't ever forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit US Gold ticker UXG @ $3.05 stop @ $2.28
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Apple ticker AAPL @ $158.15 stop @ $162.11

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