Tuesday, June 30, 2009

Boeing, Ford and Freeport Mac

Had a chance to take a peek at Boeing ticker BA (chart above).

CNBC

Recently I have tried my utmost to "back off" with my criticism of the financial porn, put out by the boobs(female) and boobs(male) on CNBC, pawned off as financial reporting. Of late, the talking parrots have taken to hi-liting the breathtaking moves off the March lows of many stocks.

Excitedly reporting how names like Ford, ticker F, rising from $1.00 to $6.50 or Freeport-Mcmoran, ticker FCX, rising from $16 to $60 are just tearing it up. What these empty suits and dresses neglect to mention is that they are only giving out half the story. They conveniently, or purposely neglect to inform the viewer that Ford used to trade at $27 and Freeport at $125.

I am not happy about this nor am I reporting this with any glee, but no matter how much we don't like it, nor how much we omit it, it is still a matter of fact. I would hazard a guess that the majority of Ford stockholders did not purchase it at $1 or $2 or $3. I would also take a stab that the manager of that fund in your IRA or 401k account didn't buy it either as he was chasing the dogs tail up north of $20 when the news on Ford and the auto industry was indeed glorious headed for perpetual nirvana.

Ditto FCX which used to trade $125 and now trades $51.50 and which needs to rise just a smidge more to get many 'whole' on their position.

Yes dear readers, wonderful gains abound in this market. Just remember there is a little more to the story than the wonderfully coiffed, self aggrandizing, book pimping, stock cheering, government apologizing propagandists on CNBC will tell you.

Window Dressing.

From all the chatter and general acknowledgement of this issue you would think it legal. You think the SEC is doing any investigating of this? Don't count on it as this would take some backbone. I heard a rumor that Chris Cox, (remember him?) is now found employment researching jellyfish, as he is eminently qualified to do so. The communique reporting this stated that he is perfectly qualified as it takes one missing a backbone to really know another one.


Housekeeping notes;

Yesterday I was stopped out of 1 unit of SDS at $54.38 for a loss of 1/2 pt. This now leaves me with 2 units long.


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


Open Positions:
Long 2 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84/18.94
Long 2 units Ultrashort S&P500 ticker SDS @ $54.75 stop @ $52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit FTSE/Xinhua 25 ticker FXP @ $12.22 stop @ $11.69
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $158.11
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $35.56
Short 1 unit Darden ticker DRI @ $33.05 stop @ $33.56
Short 1 unit Blackrock ticker BLK @ $177.15 stop @ $178.51

Monday, June 29, 2009

Getting Long FXP....again

I realize I was stopped out of FXP on Friday but I am prepared to punt it long once again this morning which I shall do here at $12.12 with a stop at 11.69



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


Open Positions:
Long 2 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84/18.94
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stop @ $52.38/53.38/54.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit FTSE/Xinhua 25 ticker FXP @ $12.22 stop @ $11.69
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $158.11
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $35.56
Short 1 unit Darden ticker DRI @ $33.05 stop @ $33.56
Short 1 unit Blackrock ticker BLK @ $177.15 stop @ $178.51

Friday, June 26, 2009

Netflix and Elan


Boy oh boy did NFLX roll over today on big volume. Fitting I could not get that position on but that is how things go. I hope the NFLX bulls, of which there are legions because of course this is a great stock to own in a recession, blah, blah blah, have their stops in place.

Betcha dollars to doughnuts the cheerleading Wall St. brokers put a 'double down' recommendation on this dip as a buying opportunity pullback, sorry I mean to say reiterate buy recommendation, sorry. There is no commissions for being in cash so buy recommendations thou shalt get !

A friend emailed me looking for a long idea, actually he wasn't looking he was pleading. So after my obligatory "in an equity bear market the vast majority of equities go down" speech, not that this is groundbreaking news though you'd be surprised by how many out there in the markets forget this simple yet basic fact. Anyway he was desperate for a 'mainstream' long idea so here goes. I thought I would share it for all to see.

Please refer to the chart above for more details on Elan ticker ELN.

Enjoy the weekend.

Housekeeping notes;

I was stopped out of my FXP position at 12.09, the low of the day mind you, for a loss of 1 1/4 pts on 1 unit long.

I was also stopped out of 1 unit of my SRS position at $19.78 for a gain of 3/4 of pt on 1 unit leaving me with 2 units remaining.



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


Open Positions:
Long 2 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84/18.94
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stop @ $52.38/53.38/54.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $158.11
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $35.56
Short 1 unit Darden ticker DRI @ $33.05 stop @ $33.56
Short 1 unit Blackrock ticker BLK @ $177.15 stop @ $178.51

Netflix - NFLX chart


I was scanning some charts and had a look at the crowd favourite Neflix, ticker NFLX. You remember it, that recession proof stock. The one that will go to the moon because the bad economy will force everyone to stay home and watch movies. The daily chart (above) shows what looks to be a nice bear flag,rising into a resistance area, amidst a larger (potential) measured bear move. I will be interesting to see if the bulls can close the stock above $42 as this is the level it broke down from back in early May.


Based on this, I would like to get short some Netflix here around $42.25. I would also like to put my stop just above the intraday high set June 19 at $42.81 but this is far to close barely giving the stock room to breathe. Therefore I would place my stop at $44.31. Please notice the use of I would as I cannot via the fact if I cannot get any stock to short. Unfortunately, or maybe fortunately for me I cannot get any for now. As it should be as shorting is so unpatriotic now isn't it.


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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84/18.94/19.78
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stop @ $52.38/53.38/54.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $158.11
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $35.56
Short 1 unit Darden ticker DRI @ $33.05 stop @ $33.56
Short 1 unit Blackrock ticker BLK @ $177.15 stop @ $178.51


Thursday, June 25, 2009

Proper Focus

I realize that one always needs to give a position the appropriate room to breathe. That said I am not a nervous nelly but I really focus on loss management. My gramps always said 90% out there are focused on how much they can make on a position, you need to focus on how much you can lose.

With this in mind, I have browbeat myself of late as positions I have put on have very quickly become profitable or insulated if you will only to reverse and stop me out. I have been contemplating moving my stops down more quickly to break even given all the shenanigans, yes dear reader shenanigans

So with this in mind I am moving my stop down on my BLK short which was put on earlier today to just above the recent highs of $178. at $178.51

I am also moving my stop down on my DRI short also put on earlier today to $33.56 which is just above the highs of today.

I am also moving my lowest stop on SDS up from 51.38 to 54.38 while leaving the other 2 stops as is.

Housekeeping notes;

No sooner do I move my stop down I was stopped out of my MSFT short at $23.86 for a 1.2 pt loss on 1 unit short.

Now all the MSFT shorts can make some money as I no longer on board. As well they well should when this cash rich, (but no worry all is fine, they just need to raise 6 billion via debt, but they're cash rich mind you) institutional favourite breaks $23.

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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84/18.94/19.78
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stop @ $52.38/53.38/54.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $158.11
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $35.56
Short 1 unit Darden ticker DRI @ $33.05 stop @ $33.56
Short 1 unit Blackrock ticker BLK @ $177.15 stop @ $178.51

Short Some BLK and DRI

Time to look back to my old pal Darden Restaurants, ticker DRI. I am using todays weak volume rally to get short 1 unit of DRI here at $33.15 with a stop at $34.12

The chart on Blackrock, ticker BLK (above) looks interesting. BLK has rallied right back into 'the box' or Fibonacci 50-62% retracement of it's move down from 245 to the 90 level. This move has also formed a nice channel (red).

I am getting short 1 unit of Blackrock here at $ 177.25 with a stop at $184.21



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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84/18.94/19.78
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stop @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $158.11
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $23.86
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $35.56
Short 1 unit Darden ticker DRI @ $33.05 stop @ $34.12
Short 1 unit Blackrock ticker BLK @ $177.15 stop @ $184.26


Adjusting Some Stops

Some stop management looks to be in order right now.

I am adjusted my stops on the following positions;

SRS new stops raised to the following staggered levels at $17.84/18.94/19.78
AZO lowered down to breakeven at $158.11
MSFT lowered down to $23.86
ARO lowered down to $35.56

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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84/18.94/19.78
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stop @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $158.11
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $23.86
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $35.56

Wednesday, June 24, 2009

Message vs Messenger

Tuesday of last week, in a post entitled Chart on Darden Restaurants, I delved into the concept of a speculator versus an investor. For those that missed it, here is what I wrote;


I have received some questions regarding my ever present blog ending missive. "Good speculating to you all and please don't ever, ever forget that "an investor is a speculator who made a mistake and will not admit it".

Translation: We are all speculators no matter what your perception of the term. We are engaging in a transaction that item X will rise or fall, period. Nothing more nothing less.
The investor reassures his/her self that he is smarter, saner and more rational than the speculator whom he regards as a recklessly, impulsive gambler. The investor convinces him/her self that they have done more homework studying the "value" in item X and that they are long term investors. Based on this superior investigation the investor will hang on to a losing position or worse still, will dollar cost average that position, (that is buying more of said underwater position) rather than admitting the error of is his/her ways and exiting the position ASAP, thereby taking the loss now while it is small before it becomes breathtakingly enormous.

I note the following 'investors' of some infamy;


Nick Leeson of Barings Bank

Yasuo Hamanaka of Sumitomo Copper

Jerome Kerviel of Societe Generale

William Miller of Legg Mason

John Meriwether of Long Term Capital Management

Brian Hunter of Amaranth Capital

In an almost perfect bout of timing, it seems my friend, the trader, and fund manager Dennis Gartman, of the Gartman Letter has stirred up a proverbial hornet's nest with his untowards comments regarding 'the Oracle' Warren Buffett.

I do not know Mr. Buffett, nor have access to him like say a Becky Quick may have, but I do know Dennis. This is not an attempt to take sides as I take issue with friends all the time when I feel they are wrong or misguided, of that rest most assured.

At issue was an comment Dennis made, subsequent to a speech up in Oregon recently, when asked of Mr. Buffett's investment style during which the term idiot came up. Dennis has been pilloried by many in the blogosphere and mainsteam financial media for calling Buffett, or rather his strategy one of idiocy for riding this market down as he has.


First off , just a couple of introductory points.

  1. I am not here to defend or promote either Dennis or Mr. Buffett, but rather to look at the issue, idiocy or not and come to a conclusion.
  2. One does not have to be an idiot to act as one. We all, some more than others, have had our moments where we say "Gosh, I can't believe I did/said that".

So using some rough numbers, Berkshire shares, ticker BRK.B, (of which Dennis is short hedged by other longs mind you and which he has acknowledged) are down from a high of over $5000/share to a current level of $2800. This represents a decline of 44% even thought they have bounced from a low of $2300 previously hit.

Now I fully recognize the Oracle has his legions of devotees who worship and follow his every move. They will defend the legendary Buffett to the death and would likely follow him off the Golden Gate bridge were he to do so first. And with good reason, given his track record, but
these Buffett defenders/Gartman attackers fail to address Buffett's actions, or inactions if you will in this regard and seem quite willing to give Buffett a pass, content with focusing on the messenger.

Gartman is spot on to point out that to sit and suffer through a decline like the one Buffett's shareholders have experienced of late is more akin to idocy than genius, even if it is the Oracle. Just because Buffett did it does not make it okay.

In his letter today (TGL), Dennis Gartman posted a defence of Buffett sent to him via an associate, whereby the excuse is given that the long term corp. tax rate of 35% was responsible as the stock would have to decline this much as to make any sales by Buffett worthwhile due to his low cost base on positions. Dennis does not reveal who wrote this but I would bet dollars to doughnuts it was written by another one of these Ivy League MBA Dr. Frankenstein genius' we have scurrying about the financial landscape.

Dennis goes on to ask the pertinent question his detractors seem to have missed,

"could Mr. Buffett not have hedged his positions via selling S&P futures?"

I would have taken it a step further and inquired as to the use of that new invention on the financial scene called the 'stop loss order'. I realise it is not as sophisticated a tool as a Harvard or Princeton MBA might prefer but it seems to work now and them.

In reality Mr. Buffett did the exact opposite to selling futures which would have been a hedge against a market decline. When the market was tanking, he was writing puts on the market indices, which is a derivative trade that is bullish. (Those wishing for more details of the joys of writing puts can refer to Victor Neiderhoffer's escapades some years back but again I digress.)

By effecting this strategy, a synthetic long, Mr. Buffett was effectively doubling down his already existing 'long' position. He was simply buying more of what was already moving against him, or as your broker would recommend averaging down.

You can refer to my list of 'investors of some infamy' at the top of the page to see how their attempts at this strategy of averaging down worked out. Peter Lynch of Fidelity Magellan fund fame had the humility to admit he had the mother of all bull markets as the fortunate back drop to manage money. Could Buffett simply be a similar beneficiary of this fortunate backdrop? Tis worth pondering.


Yes the market has bounced off the March lows, permanently or temporarily is subject to much debate. But is this double down style of managing money more appropriate for a casino visit or for the capital markets?


Maybe this will all work out for Mr. Buffett and his shareholders or maybe it won't.
I can assure you this much, that if it does not work out for the best, Dennis Gartman's criticisms will look preposterously tame compared to the venom that will come out of the woodwork. If you doubt me, read some market history, in particular the history of some of the more venerable market oracles of days gone by. Names such as Richard Whitney, Charles Mitchell, Irving Fisher, among others.


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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stops @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $38.31

Tuesday, June 23, 2009

$134.5 Billion in Bonds

I have refrained from commenting on the $134.5 Billion Bond story not because I did not find it significant but simply because so many others were covering it so well. The other reason was that I wanted to chew on it a little longer.


June 8 U.S. Gov't Securities Siezed from Japanese Nationals
June 13 Saga of the Bearer Bonds by Karl Denninger
June 18 U.S. Says Bonds Siezed in Italy are Clearly Fakes
June 18 Bearer Bond Saga: Resolution by Karl Denninger
June 21 The Bond Saga: It Gets More Odd by Karl Denninger

Here is the quick and dirty on the story as I know it now based on what I have read from overseas reporting, as all the journalists here are far to busy with more important matters, and fellow bloggers with appropriate links included above.

  • Two Japanese nationals arrested at the Italian Swiss border attempting to cross into Switzerland with $134.5 billion with a 'B' in U.S. treasury certificates contained in a false bottom suitcase.
  • The bonds were 249 U.S. Federal Reserve bonds in denominations of $500 million each along with 10 Kennedy bonds of a each worth a cool billion apiece.
  • They were crossing via a commuter train used by migrant Italian labourers.
  • The owner of the bonds would be a top 10 creditor of the U.S. government globally.
  • Immediately after they were caught Japan announced before a G8 meeting that "its faith in U.S. treasuries is absolutely unshakable."
  • Representative of the U.S. Bureau of Public Debt says the bonds are fakes.
  • The 2 Japanese nationals have been released.
  • There has been an absolute muzzle on news of this story via the mainstream financial media here.
  • Rumors on the internet are swirling that the 2 Japanese nationals are employees of the Finance Ministry.


You just cannot make this stuff up for if you did, everyone but Tom Clancy(who would sit you down for more details), would laugh you out of the room. That said, the rumors of the two being finance ministry mules is what has me putting on my tin foil hat right now.

I will say this here and now, I truly used to believe that there are much more important things to focus on rather than griping and complaining about the plunge protection team (PPT) and their machinations as equities or bonds were gunned in the opposite direction to your stance but now I am not so sure.

The reason for this is that we do now know that noted administration official have acknowledged the Presidents working group on financial markets (PPT), that the Fed is openly intervening in the bond market via purchases (quantitative easing), and for some strange reason late day gunning of the SPY's has become commonplace at critical technical junctures.

Go given this shameless intervention and meddling in markets (did I mention AIG, TARP, PIPP, TALF) am I to believe that another government, the Japanese, would never attempt to covertly or clandestinely dump something like U.S. treasuries?

Forget the idiocy or lack of sophistication in their attempt to do it, for that's exactly what they want you to focus on. These 2 with the "fakes" could easily have been the lambs sent to slaughter as the real mules got by. Crazy huh. Dope smugglers do it all the time

Doesn't a rancher in the Amazon take his cattle upstream, then taking the sickest of his herd and walk the sacrificial one downstream to cross the river thereby occupying the piranha while the herd crosses safely?

I am putting aside everything else I am pondering right now regarding this issue and ask you this; tell me what the hell is going on here because from where I sit, some out there think we (myself included) are either too stupid or too medicated to think for ourselves and notice what is going on.

Readers know I am no Ivy league MBA but I am do possess a room temp IQ which qualifies me emminently.



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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stops @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $38.31

Friday, June 19, 2009

Steak or Sizzle ?

Regular readers know that I am a huge fan of the boys over at Comstock Partners. Charlie Minter and Marty Weiner and their straight to the facts, hard hitting fundamental analysis may lack the fancy frills you get from most firms on Wall St. but then again do you want sizzle or steak?

Sadly far too many truly want sizzle. So for them I suggest they continue to listen to the shameless shill in chief, Kool-Aid Larry Kudlow and his daily array of circus clowns. Or, if you miss him you can catch the ultimate clown Jim Cramer in the evening, he of perpetual bottom calls in the housing market.

So without further adieu, lets have a peek at some of the steak Comstock has to offer in this regard;

Comstock Partners, Inc.

A Close Look at S&P 500 Earnings

June 18, 2009

We are surprised to see so many analysts and portfolio managers discussing the first quarter's earnings for the S&P 500. Almost everyone believes that the earnings have come in above the forecasts and the only disappointment came from revenue shortfalls.

We wrote a report on April 16th (the beginning of 2009 first quarter earnings announcements) about a discussion in the Wall Street Journal on whether the $13 of estimated "operating" earnings for the first quarter would hold up. We concluded that the earnings would not match the estimate and we quote from the comment, "we don't expect them to reach the $13 estimated for the first quarter". Now that the earnings season has ended, the first quarter earnings are now a lot clearer and look to be just above $10. You can see these earnings estimates by clicking on this link --http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS .

You have to add up the four quarters in order to come up with the annual number. As you can see, the "operating" earnings for the first quarter have come up far short of the estimates and the "reported" earnings (the only ones that make any sense at all to us-see the special report on home page "What is the Real P/E?")-- have also come up short of expectations. They were expected to be about $9 in March and early April and they came in at $7.53.

Another thing we would like to point out, and that you can find on the same S&P website, is the discrepancy between the two sets of "operating" earnings for 2009 and 2010. S&P shows "operating" earning (which exclude write-offs) as both "top-down" and "bottom-up". Both of these "operating" earnings exclude write-offs. The top down numbers are reflective of the various strategists on Wall Street who look at the macro economic factors as well as profits and profit margins in general. The bottom-up methodology studies each stock in the S&P 500 by the analysts at S&P in conjunction with consensus estimates of Wall Street analysts. The "bottom-up" process is expecting the earnings to be about $56 (we are rounding all the numbers) in 2009, while the "top-down" methodology would have the earnings for 2009 at about $43. The real surprise, however, are the estimates for 2010. The bottom up approach has an estimate of about $74 while the top down has an estimate of $47. That is a $27 difference!! We believe the strategists will be too high but closer to reality than the analysts. This $47 number would still put the stock market at about a 20 multiple, and that multiple is associated more with stock market peaks than the norm or troughs.

As we have stated in many of our comments of the past, the only earnings that make any sense are "reported" earnings and the discrepancy there is incredible. Reported earnings were about $15 in 2008 relative to $50 of "operating" (bottom-up) in 2008. And "reported" earnings in 2009 are expected to be $29 and $38 for 2010. This means the difference between "reported" earnings and "operating" (bottom-up) earnings for 2008 was $35, in 2009 it is expected to be $27, and for 2010 it is expected to be $36. These differences total $98 of "write-offs" and will be excluded from the "operating" (bottom-up) earnings of $180 over the years 2008, 2009, & 2010 that are focused on by almost all of Wall Street. This also means that the $98 of write-offs which should be included in the "operating" earnings (meaning they would be reduced by that amount) over the past year, this year, and next is greater than the total of "reported" earnings of $82 ($15-2008, $29-2009, and $38 2010) over this same period!

We stay shocked that the analysts on Wall Street continue to focus on "operating" earnings. We now find it even more incredulous that the difference in the two earnings numbers total write offs over the years 2008, 2009, and 2010 are larger than the "reported earnings" for the same period. Also, the P/E on the "reported" earnings of 2008 of $15 is over 61, on estimated "reported" earnings of 2009 of $29 is over 35, and on estimated earnings of 2010 of $38 is over 24!!




So I ask you, does it make you a permabear to be bearish with this fundamental backdrop or rational. Yes I know the tape is ignoring it but then again the tape ignored everything on the horizon back of 2007 as well. When the short bus riding, performance chasing to make bonus, trained seals who run YOUR pension fund, YOUR mutual fund or YOUR 401k managed account, realise this is any ones guess as this is the multi-million dollar question.

Rest assured though, that when they do realise it there will be a mass rush for the lifeboats. Problem is only there are NEVER, EVER enough to go around not to mention the masses locked in steerage.



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

Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stops @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $4.46
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $38.31

Short Some Aeropostale

I bring your attention back to an old favourite Aeropostale ticker ARO. One of the mistakes I have made in the past is that I have found an idea, proceeded to get long or short, get stopped out a couple of times only to lose sight of said trade only to see it move big in our expected direction.

Hence my persistence, if you will with some of my ideas.

This morning I will take yet another opportunity to get short ARO doing so here at $35.10 with a stop just above the recent highs.

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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stops @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61
Short 1 unit Aeropostale ticker ARO @ $35.00 stop @ $38.31


Thursday, June 18, 2009

Getting Short China via FXP

Remember that post this morning, China... Truth or Lies? Well, after chewing on it for the bulk of the day I have come to the conclusion it might be lies. At least I am prepared to punt it that way. I shall do so via the Proshares Ultrashort FTSE Xinhua 25 ticker FXP.

Maybe it had something to do with the Chinese industrial profit growth chart or maybe the electricity output/GDP chart. Either way I smell a rat which aligns with what I have been hearing from associates regarding the Chinese banking and financial sector which makes our banks and all their shenaniganian obfuscation (is that a real phrase?) look like Mother Theresa taking collection at the Sistene Chapel.


Based on my view I am getting long 1 unit of the FXP here at $13.20 with a stop at $12.09


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

Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stops @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Long 1 unit Ultrashort FTSE Xinhua 25 ticker FXP @ $13.30 stop @ $12.09
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61

Adding More SDS


I am using today's market strength in the overall indices to add to my S&P 500 short position. Readers know that I am executing this trade via the ultrashort S&P 500 proshares ticker SDS. I am adding a 3rd unit of SDS here at $55.55

I am also staggering my stops on SDS accordingly.

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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 3 units Ultrashort S&P500 ticker SDS @ $54.75 stops @ $51.38/52.38/53.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61

China.... Truth or Lies

I came across an interesting piece via Zero Hedge, yet again, regarding China. The Global Strategy Weekly report from Albert Edwards over at Societe Generale. The most interesting chart was included in his work which can be seen above, industrial profits and electricity output overlapped by GDP.

I recommend you read the report in it's entirely by clicking the above link. It is short, and to the point. Here are some hi-lights from the his report

Yet few dare to point out that the emperor’s clothes might be absent. When, for example, the
International Energy Agency had the temerity, a few weeks back, to suggest that the Chinese
authorities were inflating the data, they were met with a robust broadside from the
Chinese National Bureau of Statistics. The NBS said on its website “"It is regrettable that the
point of view in the original article is groundless…...We believe that, for an international
organization, this approach lacks seriousness”". I think this is a case of me thinks thou
doth protest too much. Nevertheless, an article on Radio Free Asia reported that The National
People’s Congress had found “serious fabrication” in official statistics.

That is not to say that the fiscal stimulus has not had a beneficial effect on Chinese activity
this year. What I question is the quaint notion the markets now seem to have that the Chinese
economy can grow at a respectable rate when the rest of the world is in a deep recession. The
Radio Free Asia article also quotes Philip Andrews-Speed, a China energy expert at the
University of Dundee, Scotland as saying “Whenever you look at Chinese statistics, you say ‘is
it incompetence, is it confusion, is it conspiracy?’” He thinks it is a combination of all three.

My own view is that to the extent that the renewed surge in commodities and the Metals and
Mining sectors are based on the Chinese growth miracle, the markets are relying on a
combination of hype, lies and wishful thinking. Just over a decade on from the World Bank
publishing Thailand’s Macroeconomic Miracle: Stable Adjustment and Sustained Growth, that
economy’s performance can be best described as unspectacular with an increasingly
unstable and dangerous political backdrop. Personally I believe the bullish group-think on
China is just as vulnerable to massive disappointment as any other extreme of bubblenonsense
I have seen over the last two decades. The fall to earth will be equally as shocking.


Which got me to thinking, which usually is not good as it gets me not only in trouble but quite frankly, makes my head hurt. That said I punched up the FXI for a look see.



A weekly view (above) of the FTSE Xinua China, ticker FXI.


A daily view (above) of FXI.


Just listening to Geithner's presentation this morning in the background. Is it me or is anyone else sick to their stomach listening to him grovel before the ultimate grovellers?

Give the Fed more power, the Fed is best equipped to supervise financials, the Fed will be answerable to congress.... blah, blah, blah.

That's why they had to subpoena Bernanke to get any information on the Merrill/Bank America deal. that's why we know all about which bank got how much and on what terms.

Like I have said before if Geithner is the best we have to offer from this great country I truly fear for what lay ahead.

By the way, anyone know seen or heard from Paul Volcker ? Just wondering.


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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 2 units Ultrashort S&P 500 ticker SDS @ $54.25 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61

Wednesday, June 17, 2009

Daily Must Read

Thanks to Tyler Durden over at Zero Hedge, I came across this must read commentary from Andy Xie. As strange as it may seem none of the mainstream financial media here care to carry his comments. Would you really expect anything less though? I strongly urge you to take the time to read it or as Tyler aptly put it;

"If there is one post you read today, this month, or this year this should be it. Absolutely brilliant summary of the predicament interventionalism has gotten us into. If you are looking for insight that will save you money when the market turns, this is it."



Andy Xie: Tight Spot for Fed, Blind Spot for Investors
 

Market chatter over green shoots and rising prices has fueled a bear market rally that won't last, despite policymaker 'noise.'


By Andy Xie, guest economist to Caijing and a board member of Rosetta Stone Advisors Ltd.

(Caijing Magazine) A combination of growth optimism and inflation fear has catapulted asset markets in the past few weeks. These two concerns should drive markets in different directions: Inflation fear, for example, should limit room for stimulus and prompt stock markets to retreat. But the investment camps expressing these opposite concerns go separate ways, each pumping up what seems believable. As a result, stock and commodity markets are mirroring the behavior seen during the giddy days of 2007.

Regardless of what investors or speculators say to justify their punting, the real driving force is the return of animal spirit. After living in fear for more than a year, they just couldn't sit around any longer. So they decided to inch back. The resulting market appreciation emboldened more people. All sorts of theories began to surface to justify the market trend. Now that the rising trend has been around for three months globally and seven months in China, even the most timid have been unable to resist. They're jumping in, in droves.

When the least informed and most credulous get into the market, the market is usually peaking. A rising economy and growing income produces more funds to fuel the market. But the global economy is now stuck with years of slow growth. Strong economic growth won't follow the current stock market surge. This is a bear market rally. People who jump in now will lose big.

Over the past three weeks, the dollar dove while oil and treasury yields surged. These price movements exhibited typical symptoms of inflation fear, which is complicating policymaking around the world. The United States, in particular, could be bottled in. The federal government's fiscal stimulus and liquidity pumping by the Federal Reserve are twin instruments for propping up the bursting U.S. economy. The fiscal deficit could top US$ 2 trillion (15 percent of GDP) in 2009. That would increase by one-third the total stock of federal government debt outstanding. Such a massive amount of federal debt paper needs a buoyant Treasury to absorb. If the Treasury market is a bear market, absorption becomes a huge problem.

U.S. Treasury Secretary Timothy Geithner recently visited China to, among other things, persuade China to buy more Treasuries. According to a Brookings Institution estimate, China holds US$ 1.7 trillion in U.S. Treasuries and GSE paper (about 15 percent of the total stock). If China stops buying, it could plunge the Treasury market into deep bear territory. If China does not buy, the Treasury market will get worse. But China can't prop up the market by buying.

In the past few years, purchases by central banks around the world have dominated demand for Treasuries. Central banks have been buying because their currencies are linked to the dollar. Hence, such demand is not price sensitive. The demand level is proportionate to the U.S. current account deficit, which determines the amount of dollars held by foreign central banks. The bigger the U.S. current account deficit, the greater the demand for Treasuries. This is why the Treasury yield was trending down during the bulging U.S. current account deficit period 2001-'08.

This dynamic in the Treasury market was changed by the bursting of the U.S. credit-cum-property bubble. It is decreasing U.S. consumption and the U.S. current account deficit. The 2009 deficit is probably under US$ 400 billion, halved from the peak. That means non-U.S. central banks have much less money to buy, while the supply is surging. It means central banks no longer determine Treasury pricing. American institutions and families are now marginal buyers. This switch in who determines price is shifting Treasury yields significantly higher.

The 10-year Treasury yield historically averages about 6 percent, with about 3.5 percent inflation and a real yield of 2.5 percent. This reflects the preferences of marginal buyers in the United States. Foreign central banks have pushed down the yield requirement substantially over the past seven years. If marginal buyers become American again, as I believe, Treasury yields will surge even higher from current levels. Future inflation will average more than 3.5 percent, I believe. Some policy thinkers in the United States believe the Fed should target inflation between 5 and 6 percent. The Treasury yield could rise to between 7.5 and 8.5 percent from the current 3.5 percent.

A massive supply of Treasuries would only worsen the market. The Federal Reserve has been trying to prop the Treasury market by buying more than US$ 300 billion – a purchase that's backfired. Treasury investors are terrified by the inflation implication of the Fed action. It is equivalent to monetizing national debt. As the federal deficit will remain sky-high for years to come, the monetization could become much larger, which might lead to hyperinflation. This is why the Treasury yield has surged in the past three weeks.

One possible response is to finance the U.S. budget deficit with short-term financing. As the Fed controls short-term interest rates, such a strategy could avoid the pain of high interest rates. But this strategy could crash the dollar.

The dollar index-DXY has fallen 10 percent from the March level, even though the U.S. trade deficit has declined substantially. It reflects the market's expectations that the Fed's monetary policy will lead to inflation and a dollar crash. The cause of dollar weakness is the outflow of U.S. money, in my view. It is the primary cause of a surge in emerging markets and commodities. Most U.S. analysts think the dollar's weakness is due to foreigners buying less of it. This is probably incorrect.

The dollar's weakness can limit Fed policy options. It heightens inflation risks; a weak dollar imports inflation and, more importantly, increases inflation expectations, which can be self-fulfilling in today's environment. The Fed has released and committed US$ 12 trillion (83 percent of GDP) for bailing out the financial system. This massive overhang in money supply could cause hyperinflation if not withdrawn in time. So far, the market is still giving the Fed the benefit of the doubt, believing it will indeed withdraw the money. Dollar weakness reflects the market's wavering confidence in the Fed. If the wavering continues, it could lead to a dollar collapse and make inflation self-fulfilling.

The Fed may have to change its stance, even using token gestures, to assure the market it won't release too much money. For example, signaling rate hikes would soothe the market. But the economy is still in terrible shape; unemployment may surpass 10 percent this year. Any suggestion of hiking interest rates would dampen growth expectations. The Fed is caught between a rock and a hard place.

Oil prices have doubled since a March low, even though global demand continues to decline. The driving forces again are expectations of inflation and a weaker dollar. As U.S.-based funds flee, some of the money has flowed into oil ETFs. This initially impacted futures prices, creating a huge gap between cash and futures prices. The gap increased inventory demand as investors tried to profit from the gap. Rising inventory demand caused spot prices to reach parity with futures prices. Rising oil prices, though, lead to inflation and depress growth. It is a stagflation factor. If the Fed doesn't rein in weak dollar expectations, stagflation will arrive sooner than I previously expected.

Stagflation in the 1970s spawned the development of rational expectation theory in economics. Monetary stimulus works by fooling people into believing in money's value while the central bank cheapens it. This perception gap stimulates the economy by fooling people into demanding more money than they should. Rational expectation theory clarified the underpinning for Keynesian liquidity theory. However, as they say, people can't be fooled three times. Central banks that tried to use stimuli to solve structural problems in the '70s saw their stimuli didn't work. People saw through what they tried again and again, and began behaving accordingly, which translated monetary stimulus straight into inflation without stimulating economic growth.

Rational expectation theory discredited Keynesian theory and laid the foundation for Paul Volker's tough love policy, which jagged up interest rates and triggered a recession. The recession convinced people that the central bank was serious about cooling inflation, so they adjusted their behavior accordingly. Inflation expectations fell sharply afterward. The credibility that Volker brought to the Fed was exploited by Alan Greenspan, who kept pumping money to solve economic problems. As I have argued before, special factors made Greenspan's approach effective at the same. Its byproduct was asset bubbles. As the environment has changed, rational expectation theory will again exert force on the impact of monetary policy.

Movements in Treasury yields, oil and the dollar underscore the return of rational expectation. Policymakers have to take actions to dent the speed of its returning. Otherwise, the stimulus will lose traction everywhere, and the global economy will slump. I expect at least gestures from U.S. policymakers to assuage market concerns about rampant fiscal and monetary expansion. The noise would be to emphasize the "temporary" nature of the stimulus. The market will probably be fooled again. It will fully wake up only in 2010. The United States has no way out but to print money. As a rational country, it will do what it has to, regardless of its rhetoric. This is why I expect a second dip for the global economy in 2010.

While inflation expectations are causing some in the investor community to act, the rest are betting on strong economic recovery. Massive amounts of money have flowed into emerging markets, making it look like a runaway train. Many bystanders can't take it any longer and are jumping in. Markets, after trending up for three months, are gapping up. Unfortunately for the last-minute bulls, current market movements suggest peaking. If you buy now, you have a 90 percent chance of losing money when you try to get out.

Contrary to all the market noise, there are no signs of a significant economic recovery. So-called green shoots in the global economy are mostly due to inventory cycles. Stimuli might juice up growth a bit in the second half 2009. Nothing, however, suggests a lasting recovery. Markets are trading on imagination.

The return of funds flowing into property is even more ridiculous. A property burst usually lasts for more than three years. The current burst is larger than usual. The property market is likely to remain in bear territory for much longer. The bulls are talking about inflation as the bullish factor for property. Unfortunately, property prices have risen already and need to come down even as CPI rises. Then the two can reach parity.

While rational expectation is returning to part of the investment community, most investors are still trapped by institutional weakness, which makes them behave irrationally. The Greenspan era has nurtured a vast financial sector. All the people in this business need something to do. Since they invest other people's money, they are biased toward bullish sentiment. Otherwise, if they say it's all bad, their investors will take back the money, and they will lose their jobs. Governments know that, and create noise to give them excuses to be bullish.

This institutional weakness has been a catastrophe for people who trust investment professionals. In the past two decades, equity investors have done worse than those who held U.S. market bonds, and who lost big in Japan and emerging markets in general. It is astonishing that a value-destroying industry has lasted so long. The greater irony is that salaries in this industry have been two to three times above what's paid in other sector. The key to its survival is volatility. As markets collapse and surge, possibilities for getting rich quickly are created. Unfortunately, most people don't get out when markets are high, as they are now. They only take a ride.

Indeed, most people who invest in the stock market get poorer. Look at Japan, Korea and Taiwan: Even though their per capita incomes have risen enormously over the past three decades, investors in these stock markets lost money. Economic growth is a necessary but not sufficient condition for investors to make money in the stock market. Most countries, unfortunately, don't possess the conditions for stock markets to reflect economic growth. The key is good corporate governance. It requires rule of law and good morality. Neither is apparent in most markets.

It's a widely accepted notion that long term stock investors make money. Actually, this is not true. Most companies don't last for more than 20 years. How can long term investment make money for you? The bankruptcy of General Motors should remind people that this notion is ridiculous. General Motors was a symbol of the U.S. economy, a century-old company that succumbed to bankruptcy. In the long run, all companies go bankrupt.

Property on the surface is better than the stock market. It is something physical that investors can touch. However, it doesn't hold much value in the long run either. Look at Japan: Its property prices are lower than they were three decades ago. U.S. property prices will likely bottom below levels of 20 years ago, after adjusting for inflation.

China's property market holds even less value in the long run. Chinese properties are sitting on land leased for 70 years for residential properties and 50 years for commercial properties. Their residual values are zero at the end. The hope for perpetual appreciation is a joke. If you accept zero value at the end of 70 years, the property value should only be the use value during those 70 years. The use value is fully reflected in rental yield. The current rental yield is half the mortgage interest rate. How could properties not be overvalued? The bulls want buyers to ignore rental yield and focus on appreciation. But appreciation in the long run isn't possible. Depreciation is, as the end value is zero.

The world is setting up for a big crash, again. Since the last bubble burst, governments around the world have not been focusing on reforms. They are trying to pump a new bubble to solve existing problems. Before inflation appears, this strategy works. As inflation expectation rises, its effectiveness is threatened. When inflation appears in 2010, another crash will come.

If you are a speculator and confident you can get out before it crashes, this is your market. If you think this market is for real, you are making a mistake and should get out as soon as possible. If you lost money during your last three market entries, stay away from this one – as far as you can.



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

Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 2 units Ultrashort S&P 500 ticker SDS @ $54.25 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61


Short MSFT

Based on the chart last night and the fact that we took out the lows of yesterdays shooting star candle I am now short 1 unit of MSFT here at $23.40 with a stop just above the highs of yesterday.


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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 2 units Ultrashort S&P 500 ticker SDS @ $54.25 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61
Short 1 unit Microsoft ticker MSFT @ $23.30 stop @ $24.61

Tuesday, June 16, 2009

Microsoft Chart - MSFT



I was chart surfing after the close and the above chart caught my eye. The daily on Microsoft, ticker MSFT, shows an absolutely lovely shooting star today on heavy volume. Please note the large shadow, which is the stick above the body, of the candle. Traditionally the larger the upper shadow the greater the significance.

The shooting star is giving added significance as it was preceded by a virtually uninterrupted 3 week advance. A break of today's lows would draw me in on the short side of this perennial favourite of those that manage others money.


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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 2 units Ultrashort S&P 500 ticker SDS @ $54.25 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61

Chart on Darden Restaurants -DRI

The previously mentioned support area is still in play and as my notes indicate, I am flat on DRI and very fearful that it may gap thru this area and I may miss this via the fear of chasing a gap. But then again, when you are most fearful is when you should be most confident and vice versa.

If have received some questions regarding my ever present blog ending missive.


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

Translation: We are all speculators no matter what your perception of the term. We are engaging in a transaction that item X will rise or fall, period. Nothing more nothing less.

The investor reassures his/her self that he is smarter, saner and more rational than the speculator whom he regards as a recklessly, impulsive gambler. The investor convinces him/her self that they have done more homework studying the "value" in item X and that they are long term investors. Based on this superior investigation the investor will hang on to a losing position or worse still, will dollar cost average that position, (that is buying more of said underwater position) rather than admitting the error of is his/her ways and exiting the position ASAP, thereby taking the loss now while it is small before it becomes breathtakingly enormous.

I note the following 'investors' of some infamy;

Nick Leeson of Barings Bank
Yasuo Hamanaka of Sumitomo Copper
Jerome Kerviel of Societe Generale
William Miller of Legg Mason
John Meriwether of Long Term Capital Management
Brian Hunter of Amaranth Capital


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 2 units Ultrashort S&P 500 ticker SDS @ $54.25 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61

Adding to SDS, A look at Potash


I had a plate of things to do yesterday so my apologies for not posting and as for last Friday? Well that was just me playing hooky with the nice weather.


I would like to get short some Green Mountain Coffee Roasters, ticker GMCR. Unfortunately neither of my brokers have shares available and I have sworn off options as I am not bright enough to profit from them like the Najarians perpetually do.

I want to bring your attention back to Potash Corp. ticker POT, (chart at top of page). I was stopped out of this one recently after a very encouraging start to the trade. It looks to be putting in a very nice looking distribution top as the smart, or very gutsy traders who bought at much lower levels now unload their stake to the unsuspecting fund managing valets as they attempt to make up time, performance wise.


I keep hearing about the trillions of cash on the sidelines waiting to jump in. Caught a piece from the head of Calamos where he remarked that his European tour of managers led him to believe these guys are under weighted and must get back in. Yup, in the business of selling stocks, not managing money but rather SELLING or JAMMING stocks down your collective throat via direct or indirect methods. Ahhh Wall St. just gotta love market analysis. Speaking of which I caught this piece from Barry Ritholz yesterday over at The Big Picture.

Andy Xie, former Morgan Stanley star economist, wrote:

“While rational expectation is returning to part of the investment community, most are still trapped in institutional weaknesses that make them behave irrationally. The Greenspan era has nurtured a vast financial sector. All the people in the business world need something to do. Since they invest with other people’s money, they are biased towards bullish sentiment. Otherwise, if they say it’s all bad, their investors will take back the money, and they will lose their jobs. Governments know that and create noises to give them excuses to be bullish.”

This institutional weakness has been a catastrophe for people who trust investment professionals. In the past two decades, equity investors have done worse than owning bonds in the U. S. market, lost big in Japan and emerging markets in general. It is astonishing to see how a value-destroying industry has lasted for so long. The bigger irony is that the people in this industry have been 2-3 times as well paid as in other industries. The key to its survival is volatility. As markets collapse and surge, it creates the possibilities for getting rich quickly. Unfortunately, most people don’t get out when markets are high like now. They only go through the ride.”

That’s your quote of the day . . .

Like I said jamming stocks down your throat. Nice.

I am taking the opportunity today to add to my ultrashort S&P 500 position, ticker SDS here at $55.10

Housekeeping notes;

I was stopped out of my GFI position yesterday at $ 11.37 for a loss of almost 1 3/4 pts on 3 units.


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


Open Positions:
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 2 unitS Ultrashort S&P 500 ticker SDS @ $54.25 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61

Thursday, June 11, 2009

Green Mountain, Cool Breeze, and Chum in the Water.


The picture carries no notes as it should be self explanatory. This is not a chart of Nortel or Qualcomm or Cisco. Nor is it a chart of Foundry Networks or Sweaters/hats/shoes/underwear or giggles.com back from the heyday of the internet bubble. No dear reader it is Green Mountain Coffee Roasters ticker GMCR.

How shall I say....... gone parabolic?

Punting this short seems like an interesting trade with this one with a stop just above the recent highs. I'm gonna sleep on it but if the history I referenced prior is any guide the ride down should be interesting. Eyeballing it $60 seems like a number of some significance.

Before I go, is it me or does anyone else wish Bob Pisani had a little shame. Like a high school cheerleader on a Friday night he makes the money honey look tame and almost subdued anymore.

Me thinks Cool Breeze Pisani was getting some serious grief from friends and family who actually go to him for market advice (hard to believe huh) and were left severely under water as the market tanked into March.

So this rally is his prayers answered as he pounds the table constantly reminding all of the new highs for the year in the major indices. Forgot how much they are down just focus on the new yearly, which is 6 months for those counting, high.

And to think, as a young fella I made fun of Louis Ruykeyser for his monotone and, what I thought, lacklustre presentation style. Boy do I realise now what a absolute PROFESSIONAL journalist he truly was. Take a cue Bob and stop selling the market to everyone, it's not your job, leave that to your advertisers.

Speaking of which, I caught a commercial the other day on one of the bought and paid for mainstream financial media outlets, CNBC I think but cannot be sure. Regardless, it was a Lind Waldock commercial in which 2 cats at the gym talk about trading, commodities in particular. The line that caught my ear, was where one dude (customer of Lind Waldock) who was recommending the firm to his pal, said this beauty of a line "when I can't sleep I trade S&P futures". Gotta love that. Super idea. Now you know what chum in the water looks like.


I don't know is you had a chance to catch James Grant's appearance on CNBC yesterday morning. He is the author and proprietor of the extraordinarily well regarded publication the Interest Rate Observer. He had this to say regarding the Federal Reserve;

"The Federal Reserve's balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit. "


"With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions."

"If the Fed examiners were set upon the Fed's own documents—unlabeled documents—to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down,"

"The Fed is undercapitalized in a way that Citicorp is undercapitalized."


But what would he know right? What, when we have Cramer running around yelling buy, buy, buy. The fact that many out there are more familiar with Cramer than an intellect like James Grant should tell us volumes about how and why we are in the mess we are in. Lovely just lovely.


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

Open Positions:
Long 3 units Gold Fields ticker GFI @ $13.05 stop @ $11.37
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 1 unit Ultrashort S&P 500 ticker SDS @ $53.30 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61

Punting FAZ Long

You see Goldman rolling over today as the equity boyz party hard with a market rally. That is clue enough for me to get short financials which I will do a little different this time. I will do so via the Financial Bear 3x, ticker FAZ.

I am getting long 1 unit of FAZ here at $4.36 with a stop at $3.84

Housekeeping notes;

I was stopped out of my EFU position today at $57.80 for a loss of just over $6 1/4 pts on 1 unit long.

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


Open Positions:
Long 3 units Gold Fields ticker GFI @ $13.05 stop @ $11.37
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 1 unit Ultrashort S&P 500 ticker SDS @ $53.30 stop @ $51.38
Long 1 unit Financial Bear 3x ticker FAZ @ $4.36 stop @ $3.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61

Adding to SRS Position

The IYR broke thru $34 to the downside only to reverse late in the day and finish above that level. After an early session rally today, it has now turned back down and is breaking that $34 level to the downside once again.

I am using this reversal of a reversal to add a 3rd unit long to my SRS position here at $19.10

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


Open Positions:
Long 3 units Gold Fields ticker GFI @ $13.05 stop @ $11.37
Long 3 units Ultrashort Real Estate ticker SRS @ $18.85 stop @ $16.28
Long 1 unit Ultrashort MSCI EAFE ticker EFU @ $64.10 stop @ $57.88
Long 1 unit Ultrashort S&P 500 ticker SDS @ $53.30 stop @ $51.38
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61

Wednesday, June 10, 2009

Flation Debate

A ton of discussion is going on regarding inflation and deflation. I understand the inflationistas arguments and I respect them all it is just that some confuse symptoms with the illness. For me the heart of the issue lies with the simple fact that the credit losses are overwhelming the ability of the Fed and Treasury to paper them over with money.

One can slice and dice the argument any way you want but the water (losses) are coming into the boat faster that the Treasury can bail (print money). Forget getting into all the mind numbing arguments regarding the velocity of money, (fractional reserve lending) which is moot because those qualified to borrow are not stupid enough to do it and those that desperately need the money, well one would have to be a complete moron to lend to many of them, even if your money stash was stolen ! Hey you would need to behave like Countrywide or Golden West or Citigroup but I digress.


Don't bond yields rising signal inflation. No as the U.S. is broke, the Fed balance sheet is a debacle, and rates might just be started to reflect the risk of default. Higher risk, higher rate.

Rather than blather on about this suffice to say that I am still in the deflation camp and do acknowledge the inflation and more probably hyperinflation risk that is there but is aways off on the horizon.


Often I come across pieces of work that describe a situation so perfectly I must share them, not to mention wishing I had been smart enough to pen it myself !

That said, veteran trader Rick Ackerman had this to say on the subject on May 28, 2009 in a piece entilted "If Dollar is Bottoming, Killer Deflation Is Next".

World Massively Short Dollars

Scores of millions of homeowners who are mortgaged to the hilt have implicitly bet against the dollar. So have financiers who have used derivatives to borrow dollars in some leveraged fashion. There are hundreds of trillions of dollars worth of these instruments still in play, most of them denominated in U.S. dollars, and if they cannot be rolled forward, the borrowers will have to settle up in cash. Similarly urgent demand for otherwise shunned equity shares creates short squeezes in the stock market all the time, and there is no reason why a fundamentally worthless dollar could not be squeezed higher by the same implacable forces.
A rising dollar is most surely not what the world needs right now, since it will increase the real burden of debt on all who owe dollars. That is the crux of deflation, not the increase in the money supply that inflationists have been blathering about for years. Who cares what the supposed money supply is? Most of the yo-yos who cite growth in the money supply as inflation per se don't even know the difference between money and credit. You should pay them no mind in any event, since the far more important concern, at both the person and macroeconomic levels, is whether your and everyone else's debts are becoming easier to service, or harder. As long the the latter condition persists - and it will, unless a bailout package comes along that arbitrarily adds three or four zeros to every American's bank account - all who owe will be subject to the asphyxiating effects of deflation.

$13 Trillion Just 'Spit'

A deflationary outcome might seem highly unintuitive at the moment, given that the U.S. is in the throes of the biggest fiscal and monetary blowout since the founding of the Republic. but as we continue to point out, the $13 trillion that has been expended already on bailout this-or-that is just spit compared to a global asset deflation that has already sucked $60 trillion to $80 trillion of asset values into a black hole. We think this trend will continue and that asset values have much farther to fall before deflation has run its course is perhaps five or six years.



Like I said, wish I had been smart enough to pen that beauty. Thanks Rick for the insight!

At the end of the day, it is simply a matter of debt is either repaid or it is defaulted upon. The defaults are overwhelming the printing presses no matter what the inflationistas think or wish.



Just a thought on today's action which could be just another flash in the pan to the downside, when do you think the short bus riding equity boyz will wake up to what's happening with 10yr treasury yields. For those not aware or needing a reminder, what is happening with the yield ($TNX) is bad, very bad as rates are rising.


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


Open Positions:
Long 3 units Gold Fields ticker GFI @ $13.05 stop @ $11.37
Long 2 units Ultrashort Real Estate ticker SRS @ $18.65 stop @ $16.28
Long 1 unit Ultrashort MSCI EAFE ticker EFU @ $64.10 stop @ $57.88
Long 1 unit Ultrashort S&P 500 ticker SDS @ $53.30 stop @ $51.38
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $27.41
Short 1 unit Autozone ticker AZO @ $157.95 stop @ $162.61