Saturday, December 18, 2010

Letters to Mom-in-Law

Buttercup's Mom occasionally forwards emails from the conservative action sites she frequents.  This morning, she sent one from GOPUSA the contents of which led to a link for a Stansberry Research letter  [ad].  (If you click to close the tab it will ask you if you want to skip the video but stay on the page.  I exercised that option.)

Below find the contents of my commentary response email while also remembering:
  1. this blog's disclaimer (see very bottom of the page);
  2. I am not qualified, certified, or entitled to provide anyone advice;
  3. to have a Merry Christmas and/or Happy Holiday;
  4. that anonymous charity is a true Gentleman's calling.
i had to stop listening because there was too much self-promotion at the beginning, but when it offered to let me read the note that he wrote i skimmed it -
facts are facts - the us fed now owns more treasury debt than any other sovereign nation in the world, china, britain, etc. that is true -
also true, those 14-17% of americans on food stamps are a continuing flow of inflation via debt monetization as they exchange a parallel cash currency for products - on the other hand, we must ask ourselves if the world casts the US into a confidence crisis would our money be more, or less valuable?  our debts more or less impactful?  as an inflationist, i believe that people who hold money are actually in favorable position because they can generate flow to offset relative declining flow against real property - for those without cash coverage on their notes, the above is actually the very reason why i would recommend any unsophisticated investor that is around my age to treat houses not as investments, but as expensive necessities - in paying down a mortgage you earn 4-8% compounding interest by not owing the bank that same interest - addition by subtraction, as it were -
in my view, gold bugs are late to the party, while silver remains cheap relative to its industrial applications -
ultimately, currencies and economies built in fiat money are confidence based, and are therefore the very definition of ponzi schemes - many times i have posited that governments do not act to protect their citizens, but to keep them indoctrinated in a system through bank debt, taxation, and some semblance of a legal system etc., to keep them believing that everything is real, even if it isn't - that everything is fair, even if it isn't -
all of the above noted, i'd rather own my house than a stock i'd want to hold for 10 years, i'd rather have knowledge of how to grow food than have dehydrated milk stuffed in the floor boards, and i'd rather own guns than gold - in other words, preparing for every eventuality, even if rooted in fiscal misappropriation, extends well beyond the small, incestuous world of bankers and their political toys -

Thursday, December 2, 2010

The Six Stages of [Trader] Development

While drawing on the hunting metaphor for Insider Trading:  Where's the Sport in that? I recalled the Six Stages of Hunter Development** taught in local hunter education classes.  The stages read like a Disney plot of childish excitement, greed, then personal development, and a punchline.  And perhaps human nature always follows such a path.  While some mire in the early, greedy stages most of the rest of the world is deeper than that, and it's good to be reminded so when rising to an unwritten, unspoken cause seems lonely.
  1. Shooting Stage - The priority is getting off a shot, rather than patiently waiting for a good shot.
  2. Limiting-out Stage - Success is determined by bagging the limit.  In extreme cases, this need to limit out can cause hunters to take unsafe shots.
  3. Trophy Stage - The hunter is selective and judges success by quality rather than quantity.  Typically, the focus is on big game and anything that doesn't measure up to the desired trophy is ignored.
  4. Method Stage - In this stage, the process of hunting becomes the focus.  A hunter may still want to bag a limit, but places a high priority on how it is accomplished.
  5. Sportsman Stage - Success is measured by the total experience - the appreciation of the environment, the game, the process of the hunt, and the companionship of fellow hunters.
  6. "Give-Back" Stage - Hunters are interested in introducing others to hunting and passing on the proper hunting values.  These hunters also teach others about safety and the responsibilities of hunting.
If good deeds, like cards in their frailty, are many to build a house, then it only takes one developmentally stunted jerk to screw everything up.  Those who find joy in the construction, though, shall never be disappointed.

** - the numbered list above is copyright by Kalkomey Enterprises, Inc., it is reprinted without permission, but hopefully the fact that I don't make any money from this blog, as well as the fact that I am trying to make a point for the cause of idealism will earn me a pass.

Wednesday, November 24, 2010

Insider Trading: Where's the Sport in that?

Earlier today James Altucher wrote an article entitled Maybe Insider Trading Should be Legal, outlining a number of possible benefits associated with doing just that.  In my view, insider trading is endemic to people of a certain greed.  A greed that cares nothing about efficient effort and sound gamesmanship for maximizing returns.  Even if insider trading were legalized would an ethical person feel right about partaking in the activity?  What's the point in issuing common equity to everyone if only certain of the players are privy to details?

[ruminations on the risks of unregulated syndicated trading, in a future post]

Legalizing insider trading would be another step on a long, tall staircase toward the cheapening of trust and values in the United States.  As a small, individual trader I once told my buddy that trading against Goldman, HFT, and the Hedgies is like hunting bear with a club - visceral.  It is a challenge, it is heartrending, it is deeply rewarding, and the P/L statement is the scorecard.  But without a tilt of ethical fairness, the score would be meaningless.  The money lends itself to the superiority felt by knowing that you beat the odds.

Ultimately, though, in hunting and in life there exist people who pull on the boots and get dirty, and those that fill the feeders and show up.

In taking up challenge, John F. Kennedy masterfully spoke:
We choose to go to the moon ... and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.

Wednesday, November 17, 2010

2011: The Year of the Entrepreneur

In my view, an overarching theme for investing in 2011 should center on the rise of entrepreneurship.
  • Some jobs lost to technology and efficiency will not come back.  These jobs may have continued for years if not for a recession forcing companies to streamline;
  • Some unemployed will have developed a taste for not suffering the abject strains placed upon them by The Man, rather, seeking to leverage their expertise out of the home;
  • Some unemployed may have spent their time learning a new skill, or developing a business, and after a year or two of incubation will be prepared to take the plunge;
  • Some that survived the cuts will realize that their job is only as secure as the next recession, and seek to secure their futures ahead of such a recurrence;
  • The ever present awareness that their nest eggs are too little, as well as the constant delay of Social Security, will drive some of the retiring to side jobs as consultants or craftsmen;
  • We have only seen the beginning of a new industry that is the Cloud and the limitless technological possibilities it will unleash;
  • Globalization means that developing areas need all levels of experience to speed their indoctrination into a world that seems ordinary to most Americans.  The internet avails remote knowledge transfer;
  • Those unwilling or unable to take small business loans, especially those currently unemployed, will take advantage of government initiatives (forcing SB lending, not unlike subprime loan policy) with the understanding that you can't get any broker than broke;
  • American business has lost its way.  The impersonal nature of national companies, and the resulting customer abuses will drive some to business formation with the idea that customer service can still beat bottom dollar;
  • Entrepreneurs relish the challenge.  True entrepreneurs who may have been hobbled or wiped clean by the last few years' economic decimation will get back on the horse to apply what they have learned in new endeavors.
I like Capital Source, CSE, a well capitalized lender to medium and small businesses as one of my most likely to double picks for 2011.  Without a doubt, much of the forced lending to small businesses will be lost by virtue of the fact that a preponderance of new startups fail within the first few years, however, the early stages of loan growth will candy up balance sheets with expanding credit extension and nearly 100% servicing payments.

Monday, October 11, 2010

Notes from the Paddock: CHDN Looking Rough

Check out the red flags waving in Churchill Downs news releases.

Saturday, October 9, 2010

This Country Needs a Hero

Out of such crises as the world now faces, heroes arise because the public wants, needs, order.  These heroes needn't be protagonists.  Indeed, Adolf Hitler was a hero to the German people who found themselves left in physical and economic ruin subsequent to World War I.

The United States of America must scour its ranks over the next two years to find a leader which will instill, restore, to this country the following qualities, at a minimum:
  • Hope - must see opportunity, not obstacles;
  • Trust - must be honest, act with good faith, inherently apolitical, or probably deemed "a loose cannon" by opponents within and outside the standing political systems;
  • Honor - does the right things when no one is watching, does not hide behind FOIA redacted texts;
  • Accountability - holds others and is held to personal culpability for decisions;
  • Creativity - not indoctrinated by the status quo, would not lean on "it's complicated" as an excuse to continue dysfunctional causes.
Any longer, politics have become a means by which integrity goes on the negotiating block next to reason.  Thusly, trustworthy people are labeled "loose cannons" by their parties because they cannot be counted on to vote against their conscience, even if the party line dictates that they do so.  @JPCounihan thinks that perhaps the world as we know it must go to zero before the citizens will accept such radical qualities in a leader.  I say that such qualities are the foundations on which the country was built.  We need not go to zero, perhaps stopping at the top-of-slab would be sufficient.

To be sure, if every object relates to another as posited here, then the entropy accelerating this country into disaster can be likened to the inexplicable acceleration of the bounds of our universe.  Can we explore balance in our reality, or shall we simply resign ourselves to impending doom, by fire, by ice, by Big Rip, by alien invasion, by nuclear holocaust.

Perhaps we should all study the Tao, or at least the Three Jewels thereof:  Compassion, Moderation, Humility.

Tuesday, October 5, 2010

Free Markets and Free Enterprise: Not Synonymous

I may or may not come back and complete this stub of a post.

The essence of the point is that Free Markets will allocate resources to the most favorable environs for profit.  Whereas Free Enterprise means maximizing the advantage of such environs, even if by impinging the basic rights of such locale as defined by the most comprehensive body of rights represented among involved parties.

Too often corporations hide behind the banner of Free Enterprise, counting on fools to misunderstand the subtle differences between it and Free Markets for the purpose of returning shareholder profit at the cost of the local citizenry, present and future.

Examples include Apple's Foxconn workers jumping from buildings after enduring unsavory working conditions for years, among others.

It is most important, even for a libertarian, to recall that without affording others our version of basic human rights we are animals and hypocrites.  Too, corporate profits measured against human suffering should duly taint all bearers' karma.

Monday, October 4, 2010

Happy Election Season

If you haven't read Machiavelli's The Prince stop wasting time and get a copy.  May I be so bold as to recommend the version edited by Quentin Skinner and Russell Price and labeled on the cover as a part of the "Cambridge Texts in the History of Political Thought."

These guys do a beautiful job in distilling the oft misunderstood Machiavelli.  Below, please find a quote from the Introduction to the translated body, which I assume was written by the aforementioned editors.
Since our circumstances vary, while our natures remain fixed, political success is simply a matter of having the good fortune to suit the spirit of the age.
Qualifications?  Citizenship?  All taxes paid?  None of it matters.  And it has never mattered for over 500 years.

Vote wisely, Suckers.

post script.  The Tea Party are not libertarians, but they're also just as fucked up as any other political regime.

A Cockle Warming Post Script

Well, it's been a month since last we visited the train-wreck that is JPM Chase and their home mortgage business.  Today, in reviewing cash flows, Wells Fargo showed a full deduction for mortgage payment in line with the direct draft we had set up through Chase's website.

So I go over to Chase and log in to make sure that the correct moneys had been applied against principal and interest, since they fucked (purposely screwed) up so royally last time.  Lo, Chase only reflected the base payment and did not reflect the overage we had set up THROUGH THEIR GODDAMN WEBSITE against principal.

Quiz:  If my monthly mortgage payment is 1600 (principal and interest inclusive) and I set up payment of 1750 with the added 150 going directly against principal how should monthly payment be recognized on online statements?

Chase's Answer:  Show 1600 and claim that their system is not setup to indicate principal reduction.

Real World:  A statement is a motherfucking receipt.  If it says a goddamn payment has been received, it had better show the total deduction that came from the other account.

I have an idea how JPM Chase is trying to make interest by holding overage back until the last day of the month as a way to gain small interest on the difference and there's a real problem with it.

Situation developing.

Tuesday, September 7, 2010

Middle America and Too Big to Fail: A Cockle Warming Tale

In the past 30 days your humble correspondent refinanced the homestead into a 15 year fixed note bearing 4% (hey, we can't all be IBM).  After easily closing the underwriting with a local yokel, and friend, we waited a few days to determine who would buy out our A paper gem.  Sure enough, information was not forthcoming, and the check went in the mail the exact same day as the required legalese arrived indicating that JPM Chase had gotten into the business of quality loan products.  As such, the check had to be overnighted from the underwriter to Chase, and all went smoothly, until it didn't.

You see, in that check we had decided to knock another 16% off of the principal in addition to the required monthly payment, rather than blow it on four more weeks of snorting coke off of hookers asses.  In reading the "Welcome to your monthly mortgage statement" papers from JPM I noted the following, quoted exactly, bold text theirs, underlines mine:
Please designate how you want to apply any additional funds.  When sent with this coupon undesignated funds first pay outstanding late charges and fees, then principal, provided your loan is current.  Undesignated funds sent without this coupon may be placed in suspense rather than applied to your loan as principal until Chase determines how you want to apply those funds.
Multiple Choice Question.  Since the check was made out to the underwriter, who then endorsed it over to Chase, meaning that the above was not seen prior to creating said check, how were the funds deployed?:
  1. Monthly Payment made, Overage placed on hold pending contact to determine what to do with the balance.
  2. Current Monthly Payment made, arbitrary number of Forward Payments made, the remainder deployed against principal, no attempt to contact detailing course of action.
  3. Monthly Payment made, Overage applied against principal, no attempt to contact detailing course of action.
  4. Monthly Payment made, Overage applied against principal, attempt to contact detailing course of action.
If you guessed Number 2 you win the prize.  With further action detailing the provenance of big banking in the 8th Circle of Hell (that of Fraud) the ass clowns at Chase decided to make three mortgage payments before applying the overage to principal.  This choice meant a 4.1% decrease in the amount intended to be applied against principal due to the fact that the forward payments were split roughly 50/50 between P&I.  Additionally to that, no attempt to contact was ever made prior to heading down this path.

So there.  MOTHERFUCK YOU, JP MORGAN CHASE.  And fuck you Uncle Sam for abetting this horseshit.  Along with all the other shortfalls the Topsy-turvy States of America face, we have completely disconnected honest business from human lives.  No one does the right thing without being specifically told because no one looks at anyone in the eyes anymore.  The greed, the fraud, the theft, the innocence by diffusion of responsibility, and the willingness to play the odds of hammering most suckers and apologizing to the few that figure it out feeds the cancer enveloping the hapless sheep who comprise most of what's left of the Spirit of the USA as intended by the Founding Fathers.
Money equals business which equals power, all of which come from character and trust.
Of all forms of tyranny the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of plutocracy.
- both quotes credited to JP Morgan
One of these days I'd like to visit Mr. Morgan's grave and spit on it.  A fitting homage for what the legacy of the name has become.

Sunday, September 5, 2010

For Posterity: NI v. CfO v. FCF

As a student of the art of balance sheet decryption I now save the following charts for posterity and future reference.  They came from an article on the Motley Fool's website, and were sourced by CapitalIQ, a division of Standard & Poor's.

Thursday, August 26, 2010

Here We Are, Now What?

GDP equals consumer spending plus investment plus government spending plus the difference between exports and imports.  For the past two full years, our economic saviors have dunked the markets in "money" not to repair the structural issues of consolidated risk, financial fraud, and an unsustainable economic model, but rather, to maintain some semblance of confidence in this rapidly fraying system.

Now, as before, the problem remains that there's no plan following Operation Market 'Roid Rage for which to transform our economy into something stable.  Sure Obama likes to jump in front of crowds and talk about how important it is to focus on exporting, but does policy even lay the ground work to begin reasonable corporate effort to repatriate production?

If I'm being honest, Cuban was right, the market is for suckers.  The market is for suckers and assholes, and the financial sector is a zero value added enterprise.  For some reason, our culture has come to accept that we absolutely must put our future into stocks, bonds, and mutual funds, instead of ourselves.  To all those deriding housing as an investment consider that over the past 10 years the market is more or less even.  Consider that if houses cost about the same as 10 years ago, the savings of compounding mortgage interest ( ~8% on a 30 year fixed back in 2000) actually pays the homeowner by not being a future expense.  Add to that that the homeowner would not have to worry about paying a mortgage during retirement, the preponderance of most Americans' core monthly expense.

If anything has been learned, I think we're going to see the leverage coming out of this market as the kick of the can was meant for time-released stimulus and taxation, more commonly known as an inflationary transfer of wealth to those who survived recent history, from those so deeply indoctrinated by fear that they don't know what to do.  (They do know where the unemployment office is, though.)  Until there is a plan, expect disappointment, and receive it, because this leaderless, spineless, partisan, nouveau-Aristocracy cannot be relied upon to think philosophically and with regard for complex payoff, rather than insta-profit.

Sunday, August 22, 2010

Mind. Your. Own. Business.

MYOB.  Call that the libertarian motto.  I am always amazed about the fights people put up to preserve the status quo, even if directly contradicting the Constitution.  After three centuries of running this little experiment called the United States, we have seen:
  • Slavery Abolished;
  • Women's Suffrage;
  • Civil Rights Movement;
  • Repeal of Ban on Gay Marriage.
At the end of each battle, usually including physical altercations and hundreds of casualties, but always including mountains of time and money, the Supreme Court hears the merits of each argument and that group of cornerstone principles called the Bill of Rights comes down on the side of ... equal rights.  Just like we learned in 3rd grade?  Go fig.

The problem with being a self-righteous prick isn't that one can't handle one's emotions, though that's certainly a factor, the problem is that self-righteous pricks earnestly believe that the status quo somehow turns wrong into right.  None of the above issues should have been politicized.  None of the above issues should have been issues in the first place.  Neither should the Ground Zero mosque be such a hotly debated topic.  Does it make America look like trite, stupid, douche rockets to constantly ignore our own Constitution?  Yes, it most certainly does.  Are there more serious issues to spend time and money addressing than fighting a battle that cannot be legally won?  I think the unemployed 20% of Americans would probably agree that there is.  At least they would if ever the specter of cessation of extended benefits became real.

Did you know that people feared JFK becoming President for fact that they believed he would make policy decisions based on the Pope's whims?  Absolute buffoonery.  Here's what he had to say:
I believe in an America that is officially neither Catholic, Protestant, nor Jewish ... where no public official either requests or accepts instructions on public policy from the Pope, the National Council of Churches or any other ecclesiastical source ... where no religious body seeks to impose its will directly or indirectly upon the general populace or the public acts of its officials ... and where religious liberty is so indivisible that an act against one church is treated as an act against all.
So, unless you plan on imploding St. Paul's, St. Peter's, or vigorously fighting the reconstruction of the Greek Orthodox church building, put your pretty head to rest, and mind your own business.

Buddha, Jesus, Mohammed, Ra, Thor, Viracocha, the walking Darwin fish, and all the other gods are probably up there playing poker anyway ... and talking about what retards we all are, for acting with hate under the guise of "defending their ideals."

Saturday, August 21, 2010

I think he said it all.

Watched the video below on John Lee's (a/k/a @weeklyta) blog.  The whole clip is great, but I feel that the commentary at 31:33 resonates profoundly in its sublime simplicity.  The following is a quant's response to whether or not he believes that computer models were responsible for the most recent market collapse:
No ... There have been an increasing number of financial crises in the world since 1994 ... and people are used to constant growth and acceleration and every time it's slowed down the government stepped in and tried to stimulate it again by lowering interest rates, just like they're doing now.  And so you get these [sic] sort of rise and collapse, and people don't like the collapse, so they lend money cheaply and force a rise again.  And each time the oscillations get bigger and bigger. 
When previously alluding to the United States economy as exhibiting similarities to the life cycle of sun-like, or larger stars, here, this gentleman's prognosis was what I tried to contemplate.  Large stars burn progressively heavier elements as they age.  The larger a star, the more elements it will fuse, with each element being consumed more rapidly than the last.  Indeed, we have seen time compression between booms and busts since the early 80's, much the same as a large star progresses through its feed cycle.  Red stars last much, much longer than blue ones, by factors of hundreds, and even thousands.  Though their mass, and therefore energy output, may not be as great, red stars are able to reach a better harmony between gravity and energetic expansion.  Without finding some kind of balance by acknowledging that painful results must be accepted as a way to offset gluttonous excess, the fate of our economy rests on ever greater gambles, and ever fewer options.  Soon the pressure on our core driver, the American spender, will be too great.  Philosophical changes must be made before that limit is reached, as supernovae typically occur afterward.

Friday, August 20, 2010

Quick and Dirty Market TA for 8.20.2010

I feel that there remains an over confidence in the strength of the US markets, and an irresponsible inclination toward equity price growth, or at least horizontal action without adequate appreciation for downside movement.  Remember, leverage as liquidity isn't liquidity at all.  Below a weekly SPX chart, click to enlarge, as always:

Light blue lines of resistance and support, as I see it:  1118, 1067, 1021, 944, 876.  Also, please note that 1141 has not been marked on the above chart, but it is a level that I am watching overhead.  This week's inverted hammer is entirely below a 50 week moving average that's on the cusp of rolling over.  Additionally, the MACD rebuffed the 0 line and is beginning to widen down.  No bueno.  An analagous situation from 2007 has been highlighted for effect.  I feel that next week's candle could bring -2 to -4% barring a major interventionist move over the weekend.

As tweeted earlier, "[I] feel like there will be a lot of chipper covered call writers tonight, and grumpy new longs next week."

Good luck.

Thursday, August 19, 2010

Corporate Boards are like Pro Athletes.

Corporate boards are like professional athletes.  Very few of them care about anything but their personal way of life, even if that means forgoing maintenance on the vehicle which put them in such a position in the first place.  Corporate boards, like athletes, are actually slaves to the people who manage the funding underpinning their way of life, not because they're too dumb to figure it out for themselves, but because they are able to partition their responsibilities neatly, "It's just a job, when can I get the private jet to Bali?"

Recall Capital One releasing tons of reserves after 1q2010, Home Depot raising their dividend after 1q2010, STI instituting a dividend while still saddled with TARP and a Texas Ratio over 40, and so many other examples of common idiocy at the highest levels of corporate management.  At least one hopes it's idiocy.  COF gapped the morning after the release and hasn't been within 2% of that opening tick since.  Try to remember that these measures develop at the behest of Wall Streeters who, through voting power, control the lifestyles of board members via appointments, comp packages, and ultimately advice and share price when it comes to option exercise and expiry.  Wall Street also does not care about investing.  It's just a job.  It's just a trade.  As long as the board member keeps his ticket on the gravy train, Wall Street gets assuaged, even if at the cost of the business and/or the retail shareholder.

In this office, any company buying stock, raising dividends, and/or acquiring at this point in time goes on the watch list for shorting.  If a company can't support its stock price through performance then all the rest ain't no different than the gold plated gas cap on my '86 Cutlass Supreme.

The longer a market defies its nature, the larger the reversion candle will be.

Book Idea

Someone should go around the country to high school reunions of various anniversaries, regions, etc. and interview the people about their old perceptions, of themselves, of others, of the world, and try to ferret out some links between attitude, behavior, and success from an early age.

Historically, we have seen studies whereby the only folks interviewed are classically "successful," typically meaning those who have abundant money.  I believe this method taints the populace's view of what success really is, what it can be.  The method also fails to adequately study the perceptions of those around the successful person from an early age.

Wednesday, August 18, 2010

Freeform Ruminations

  • Eat. Pray. Love. See. Bridge. Jump.
  • For a dude not quite out of his 20's I have prematurely developed a rather visceral distaste for shit head kids and their jerk off parents, particularly related to mall behavior.
  • Tricked up movie screens are really just over-sized projections meaning the people in the front, not the back get screwed, and the theater can cram more talkers, texters, candy grubbers, and smelly, fat fucks into the stadium.
  • Tricked up movie sound (a la THX, etc.) basically amount to turning the volume up seven notches above the normal pain threshold, and then breaking the knob off.
  • Neither are worth the money.
  • The United States government, can be likened to HFT.  Both desire to keep money changing hands at all costs.
  • Our economic model, which I call Western Financialism, can be likened to the life cycle of a sun-like star, and depending on what happens over the next few years, maybe even a blue star (think supernova and black hole).
  • I think EMC is taking a big gamble continuing to load up on VMW stock at these levels.  For sure VMW is throwing off the cash, and in a good segment, but they're not without competition and the valuations are up there in this still uncertain market.  (see past blog post:  Green Lining)  One wonders what kind of deal the two would strike.  Right now, I tell myself that EMC's board is rolling out bid support to back up their 2.4 billion dollar position since company insiders at VMW are selling while EMC is buying.  Alternatively, there could be a cash and stock deal in the cards, which wouldn't be surprising, but would be better launched from lower prices.  Maybe even a new joint product.  I don't know, but VMW's chart remains weak even if I don't hold my short positions over night in this goofy market environment.
  • When it's late and sleep isn't coming easy, I throw a Benadryl or two down the hatch.  While waiting for that righteous drowsiness to set in, dude will often browse through wikipedia, the greatest of all websites, or urbandictionary, the latter to stay ... relevant.
  • BIDU is still a bomb composed of opaque quarterly reporting, huge tail risks, stretched valuation, increasing competition, and coming soon, a bad chart.  I am looking for new 52 week highs in order to start shorting against momo chasers.
  • I am not sure why folks don't care for Zerohedge.  I love Zerohedge.  I love everyone's opinions, most especially the free ones.  Zerohedge does more to encourage questioning (which is the well spring for knowledge) than just about any other market site out there.  The tone, user comments, and checkered history of cribbing others' work notwithstanding, Zerohedge is a must on any market participant's blogroll, in my view.
  • I expect the DJIA in the 4 digits again within the next two months.
  • I am tired of hearing Pimco's opinions on everything.  If the government wants money spent to support the economy, one questions taking advice from a firm that manages over 1 trillion dollars ... of savings.
  • Having read about this guy Druckenmiller's surprise retirement, link here, I have to wonder what took so long?  Dude, I love this job, and I like the money, but it wouldn't take me becoming a millionaire 70 times over, much less 2600 times over in order to decide to hang it up.
  • MON is a short.
Good luck tomorrow.

Saturday, August 7, 2010

BIDU == doodoo.

Reasons BIDU sucks:
  • As tweeted this morning, I made at least two rookie, retard mistakes while trading in the name on Friday;
  • "Reiterations" from analysts;
  • COMP weakness;
  • Foreign filer;
  • China stock;
  • Shady past (see also China stock);
  • Valuation;
  • Chart.
Personal Vendetta.  Going into Friday I had decided that BIDU looked soft based on valuation, chart, and every other factor mentioned above.  Before the unemployment number came out I had decided to lay out the opening hour since it was such a hyped report.  After the bottom-buster got officially released I knew for sure we'd be in a gap down, down trending day.  In retrospect, laying out that first hour was probably the smartest thing I did all day.  On the snap back, the determination was made that the terribleness of the report must not have been adequately front-run and that the window became open to dump stock/short, the latter of which I did, at 86.31.  In a matter of minutes the stock imploded 1% and hit a technical level at 85.41 thusly I pulled half off the table and committed to let the rest run to a level that I felt needed to fill (at least) down around 81.  The action felt right, and I felt like I was right on.  For the past 3 weeks or so dude has been like Neo seeing the market in 3D strings of numbers and stuff, so all was going beautifully, until it didn't.  The market caught a bid, not from buyers stepping in, but from algos (or possibly the PPT) hitting offers to squeeze shorts into unloading the morning's newfound inventory.  Now, rather than put on a trailing stop, or even flat out selling, to lock in 1%+ profits, I decided to leave a little room for backfilling and further pressure.  To no avail.  Where a hard sell should have taken place without excuse at the breakout of technical level 85.40ish, I let the fucker run all the way back to 86 before bailing, effectively cutting my win down to < 0.70%, nice, but not the same.  Later that day I would re-short the name, but in less size such that there exists a hard $10 stop.  Tomorrow morning, after another day of rumination will decide if that position represents my best shot at making swing money on this name.  If it doesn't the position will come off.   Below are the one and ten minute charts as of the close of business on Friday.  As always, click to enlarge.

All Analysts are Scumbags.  Buy side, Sell side, who gives a shit.  All market participants have an agenda, and in a world driven by money, all participants have their price.  People who sell subscriptions trade against their subscribers, ratings agencies, as we have seen, will lipstick any pig if the honey's right, and analysts are no different.  So when I see three companies come out on July 22nd reiterating their buy/outperform positions on a "beat and guidance raise" the first thing that comes to mind is "no shit," the second is, "how much are they trying to sell?"

Nasdaq Composite's looking rough.  No need for a chart here, the fucker's barely holding the 200 dma, chips are not responding to earnings, and there's serious cause for review of a potential head and shoulders pattern developing that hasn't gotten much attention yet.  Frankly, I'd like the COMP to consolidate for about 3 months because it's component stocks are going to have to step up to the plate in order for earnings to carry us through the next phase of the market, as originally posited here, but that doesn't mean that bullshit numbers from the likes of internet search companies with checkered pasts should buoy hope.

Foreign Filer.  Three pages of commentary on quarterly 6F's followed by unaudited statements, with one 20F annually?  Sure buddy.  I'm confident that the company has deep concern for hiding their dirty laundry under those stringent circumstances...

All China Stocks are Scummy.  At some point there will be a discovery by the greater investing public that all co-listed Chinese stocks are scams run against the yield pig Americans.  MPEL, NEP, UTA, ADY, LPH the distance from hither to yon is too great to overcome the greed inherent in human enterprise.  Think about a mirror reverse situation.  If it was 7USD/CNY, and America was undergoing a culture shift, would you not find any excuse possible to go public in China?  You could raise a paltry sum (to them) 10MM and be set for life with no further motivation to perform.  China's need for resources, expertise, and technology are the benefit to America, not their shit stocks.

A Questionable Past.  Cursory google web searches give rise to support for the above held opinion that the moral compass for this company is, er, broken to say the least.  They have over the years:  abetted free music downloads (very similar to Napster) on parallel networks, understated revenues and use from their music search and download business, generated false click-throughs to boost page views for ad subscribers, to name a few.  Those are not questionable tactics at the fringes, they're flat out fraud in core businesses.  There's no reason to think that a company that would participate in the above wouldn't also overstate revenues, market share, and traffic for financial gain.

Valuation.  Valuation always gets tricky, especially with aggressive growth companies because I feel they're more about psychological reinforcement than actual value.  Being "standard" for a stock to trade 15x it's annual income never made much sense, considering that most private company sales can get done for 2-3x annual revenues and it's easy to crash a corporation of any size.  Alternatively, stratospheric PEs lead to rubes like me trying to sell the stock instead of waiting for a fundamental shift.  As @traderflorida says, "when a stock looks too expensive to buy, then buy it."  However, the company has begun hyping its expansion plans and ramping up R&D expenses.  For now, those costs have proven relatively tame as they need to be considering their cash position of about 875MM, or $2.50 per share.

Chart.  The daily chart is consolidating in a range and the lack of interest in heading toward the gap means that higher must be in the cards.  However, the weekly put in another candle almost entirely outside of the Bollinger so it's something to keep an eye on.

Conclusion.  I think it's funny in a sneering ironic kind of way, that after the 10:1 stock split BIDU is trying to model itself like GOOG, right down to the share count.  Fact is, one is the gold standard for corporate ethics, also produces superior search algorithms, as well as innovative, secure, and efficient software, and the other is, well, a search engine head with social media arms ... like YHOO.  There will be no mention of their new mobile operating system, which is easy to announce, tough to do well, and has yet to be seen.

Post Script.  All of the above go to an idea that this company found one of those golden veins in the market that make it impervious to reason, but it's too much effort for such an otherwise forgettable position.  Therefore, the actual conclusion is that pride has controlled about two hours of my time over the last two days writing this half-assed short thesis, as if the world would tomorrow realize "Oh yeah, BIDU is a big piece of shit and I need to dump it unceremoniously.  How do I know this?  Because some no-name waxed philosophical about three year old ethical misgivings."  Not to mention the 30 hours of angst over what amounts to a bad series of trading decisions.  I'm beating my brains out ... over a profitable trade!  After all this, vitriol, I have to remind myself that "investing" isn't a style I want, and therefore, will close the ego driven short position Monday and keep an eye on the price action, the only thing that really matters to me.

Friday, August 6, 2010

A Suck-Out isn't a Win

Bulls 1 - Bears 0.  The nose ring crowd bellied up to the bar when it counted today and snatched victory from the jaws of defeat, or did they?  Know without question that I am bearish and envisage the streets running red with the blood of dopes chasing price action, but frankly, wrong is wrong and when it pays to win, losing sucks.  Bitterness aside let's throw some entrails on the table and read the tea leaves.  As always, click to enlarge.

First, a SPX 60 minute 10 week chart as seen at left.  We clearly have a right angled ascending pattern with what appears to be a false break down.  In a hat tip to bulls everywhere, the closing candle got above the trend by a smidge, though volume was light, and conviction appeared weak all day.  As mentioned in yesterday's blog post, here, I still don't feel like I've seen any good selling in the last few days and fortunately for sheep bulls, sometimes the only way to unload stock is by jamming prices higher in order to induce herding instinct.

Next, let's ask our "Spirit Guide" to bring us clarity via the SPX daily chart over the last 6 months.  Heavy blue lines are support and resistance (respectively):  1067, 1102, 1122, and a fib level at 1141, which is also a two sigma Bollinger.  The light pink horizontal at 1107 denotes an unfilled gap, no matter how small, there is one between 1106.5 and 1107.  Note on this chart something that I like to Tweet frequently, "bullish TA in a bearish environment is a combustible mixture, indeed."  I see grinding against, and slight break over of a clear resistance area at 1122, as well as a 50% retracement area at 1118.  Given the facts, I believe a move to 1141 could ensue, however, without Earth shattering news, this market feels like one of those Saw movie puzzles where everyone ends up with their grapes blown off.

As a wholly unsophisticated middle American with zero appreciation for stock market skullduggery I post the the diagram shown at right, lifted from  Based on my cursory observations everyone had their hula skirts and flaming batons out this afternoon, celebrating the bear hunt that occurred this morning.  So am I seeing Thrill or Euphoria after witnessing a broad market that almost went green with a 20% effective unemployment rate, the specter of numerous state defaults, and regional banks with Texas Ratios over 40 trading for $20+ per share?  I think we'll know better when 1141 comes around.

In closing, know your dojis.  I don't trust dragon flies at the top, gravestones at the bottom, or long shadows at any time.  Monday will be a circus of weekend news and maximum choppiness that hopefully falls in my favor as traders grabbed shares like douchebag kids in the skate party cash booth this afternoon.  Enjoy the weekend my sweet chums.

Cordially, and most unabashedly bearishly yours.

Thursday, August 5, 2010

Good Morrow, Dudes

I hate going more than two days without blogging, on the other hand, dude doesn't really feel like writing too much at present.  Here's what's on my brain rapid-fire style:
  • VMW/CTXS - look for VMW to start closing the PE gap;
  • If there is a September swoon regional banks like ZION and STI are at the top of my list;
  • I don't feel like I've seen any good selling over the last two days, I think quite a bit of hope lies in tomorrow's employment status for continued melt up;
  • Remember that the unemployment number is a window between employment and serially unemployed;
  • I cannot bring myself to leave money in the market over night right now, mostly because as a middle American I don't believe the numbers I am seeing, if right there's a big time correction coming;
  • GOOG is far from correctly priced, 800 bucks is the beginning of reasonable;
  • BIDU is a piece of shit and a momo pig, the air will exit that scam much quicker than the effort taken to blow it up.
I think that's it.  Good luck tomorrow.

Monday, August 2, 2010

The Magician's Rabbit is Under the Table.

Given recent history's presumption of stock market growth without bound for economic reality I have set about learning the trickeries associated with balance sheet reporting.

Below are some quotes from a post on July 30th called Background Check. don't have to be a forensic accountant to spot trouble on a financial statement. Here are several line items on a balance sheet you should focus on to gauge a company's strength, including inventories, free cash flow, and accounts receivable.
Inventories.  Typically, inventories should rise at about the same pace as sales. If a company's inventories are growing faster than sales or expected sales growth, it's a clue that products aren't moving. In that case, gross margins could get squeezed.
Free Cash Flow.  A significant drop in free cash flow may occur when a company makes a big acquisition, buys new equipment, or throws money behind a new product.  Free cash flow is cash flow from operations minus capital expenditures.  Why is free cash flow important? It's the money left over at the end of each quarter after all the bills are paid. A company can use this money to pay a dividend, trim debt, make an acquisition, or buy back stock.  "You want to see cash growing or what the companies are doing with the cash," said Eric Heyman, director of research at the Olstein Funds. "Companies with cash on their balance sheet have lots more flexibility than a company that doesn't, regardless of economic conditions."
Accounts Receivable.  Another area to check is accounts receivable, or payments due from customers. In addition to how much a company is owed, receivables also tell when it expects to be paid.  To make this calculation, divide revenue by the number of days in the reporting period. Then divide the figure given for receivables by this result.  What you don't want to see is receivables rising at a much faster pace than sales. This suggests a company is shipping too much product into the channel and possibly extending collection payment terms.
Always Making the Number.  Does the company have a history of meeting the consensus analyst earnings target each quarter? Dell Inc. had that reputation...on July 22 [it] agreed to pay $100 million to settle the Securities and Exchange Commission's civil charges that it used improper accounting to cover earnings shortfalls.
Continual Restructuring Charges.  Middleswart of Behind The Numbers says restructuring charges tell him a company made a mistake, especially when they come up often.  "They are telling you they screwed something up," he said.
Thickness Test.  Can't lift the 10-K or 10-Q from your mailbox? Printer runs out of paper? This is another sign. Sure, a company's 10-K is likely to be larger than normal if they've made a big acquisition or sold assets.  Otherwise beware: "If it's a big fat one," Middleswart said, "you know there is something going on.

Friday, July 30, 2010

Don't Forget the Second Part

Having a one time transferable note will facilitate the delivery of assets to people who will service those assets.  Back when I discussed this the first time, I likened it to putting out a camp fire with one of those airplanes that strafe water, but now the campfire has spread and it may be the last resort.  Remember, what follows isn't a system to get rich, it's a plan to restore stability, predictability.  Importantly, writing down unrealized future interest ranks far superior to putting hundreds of thousands of families on the streets and onto the federal government's subsidy programs, their departure from which grows increasingly unlikely the longer they are enrolled.

The greatest shame isn't the idiocy that put this country here in the first place, rather the fact that the People's representatives first moved to protect the system, the elite, the way it's always been, rather than taking the opportunity for extreme measure to raise the country up.  Now we've got "moral hazard" at the corporate office, and somehow, that's better than in the hands of the minority who would not know how to wield it.

Click to enlarge.

Say what you want about financial firms, if this economy is built on consumer spending, consumer shelter and financial indoctrination are truly the cornerstones for our future.  Some rich assholes rolling paper over do not add to the economy, they "grow the economy" through interest on fractional banking.

Wednesday, July 28, 2010

Trading Rules

Disclosure.  The following list contains some original content, as well as a good deal of material that I simply wrote down because it sounded good.  Here's a raised martini to the inventors of the copied content.
  • When looking for trend reversals start with low beta names.
  • When a new macro trend is set deploy into small cap reversion.
  • Do not trade options before 345 if intending to hold overnight.
  • Most of your money is made when the markets are closed, through preparation.
  • Remember that institutions are cumbersome, press investments until the chart makes a blowoff.
  • When a stock closes at or near the high of the day on volume, think about taking half overnight.
  • Do not miss a good trade over penny pinching the execution, pick good spots and pull the trigger.
  • Scaling is the only way to trade unless a major macro move is on.
  • The longer a sector non-leader defies comparable intraday gains/losses the larger the reversion candle will be.  (Attributable to ETF rebalancing?)
  • Try to determine early on if the issue at hand (stock or market) is in for a trend day or a range bound day.
  • Always be accountable for your plan and always hold your plan accountable for its results.  Existing conditions factor into the plan, they are not excuses for its failures or successes.
  • Fade the loudest crowd in a counter-trender on any scent of a reversal and reversion to the broad market.
  • When in doubt, palms out.  (Love that, just saw it on Twitter a few weeks ago.)
  • Create a risk limit before buying.
  • Do not overnight uncertainty.

Monday, July 26, 2010

The Whatever Bro Award

After beefing their 2q2010 to the tune of (0.84) per share against the expectation of only a 55 cent loss ZION ran over 10% in three days to close the gap left by that train wreck they called earnings.  They also announced a penny per share dividend as of last Friday.  How kind.

Charting.  Down trend remains intact until the $23 level, which also happens to be the present location of the 50 dma.

As a bottom picker, the weekly chart actually looks good for a shot if you can get past their consolidation of loan assets in the Western sand states.  These things aside, I have resolved to hate super regional banking into the core of my soul.  They're all telling bald faced lies in collusion with the same Fed and SEC that charged Goldman with failing to accurately disclose.

This blog post serves no purpose but to highlight the fact that this past week's run has been an equity grab of cosmic proportions.  Squeezing shorts may bring nice appreciation over the short to medium term, but eventually there better be fist behind the mouth.  For anyone feeling brave, or perhaps suicidal, Ford just hung two consecutive gapped candles into the nether regions outside of two standard deviations on the daily.

Sunday, July 25, 2010

Quick and Dirty Market TA for 7.26.2010

In this edition of the Q&D I have divined some analysis from the SPX chart since everyone loves to talk about it so much.  As always, images can be clicked to enlarge.  Behold:

Friday's candle closed inside of an existing range, and signals a potential revisit to the lower side.  Quite a few Twitterers feel that present conditions warrant an overbought reversal, and should retrenching occur I'd be looking for support around 1065.  However, the weekend press feels quite bearish, and short covering adds the power needed to wipe out old resistances.

An aside.  The reason I prefer charting the DJI lies in the fact that the larger, lower beta components of the Dow better indicate institutional money flow, in my view.  Last Friday's candle on this index closed above two downtrends I have been charting, as well as above the 200 dma.  These in addition to its MACD which also made a decisive move off the zero line over the last 3 days of last week.

Returning to the SPX, see the blue boxed MACD making a nice series of increasingly tall bars in the histogram and with a good angle on the signal line when taking out the zero.  If the market wants higher, I feel like we need to open at or above Friday's close and put in another full bodied candle or two before back-testing the 1102 level.  The confluence of 200 dma and 2 standard deviation Bollinger indicate clear resistance at the 1113-1115 level.

Going back to the Q&D for 5.24.2010 take a look at the DJI weekly.  Presently we see a curling under of the MACD on the DJI weekly here, and a weekly close right at the 10430-ish area that marks the top of a developing resistance area.  Here again, the angle of incidence on this indicator says time to put in a weekly candle above 10434 with an objective toward 10610 over the next few weeks to months as we put in our next lower high.

Many, many stock specific charts have set up with individuals beginning to go off like bottle rockets.  For now, I've got the consolidation scanner at the top of the daily checklist, especially favoring those right angled ascending triangles like the one FNSR broke out of last week.  Props to @ldrogan and @downtowntrader for picking up on that one just days before it exploded.

Good luck.

Thursday, July 22, 2010

Notes to El Presidente (0)

Found another email that I had sent to President Obama this past spring, March 8th, 2010, to be exact.
President Obama - 
While "spreading" aid in the form of government stipends and mandated earmarks for housing relief, please consider how the fiscally responsible feel. 
I grow ever more weary of my federal tax dollars going anywhere but for causes of the preservation of global democracy. 
Like pigeons, giving free aid simply for the idiot to arrive and take breeds and positively reinforces laziness. We have seen this for years in medical malpractice and workers comp suits whereby the marginally employed (abuse the system and) take the hard working to the cleaners. And again we see this with food stamps where having greater numbers of illegitimate children rewards the bearer with increasing handouts all at the cost of the common tax paying man. 
I feel like I see in you a pragmatist, though your agenda is railroaded by pandering to Wall Street and your increasingly liberal Democratic Party. 
There come times when the government must admit its fault. Now is that time. The GSE's need to exercise every contractual ability to return falsified mortgages to their original preparers and let the banks solve these problems on their own. 
If the banks feel they can sit on all of this shadow inventory and come out ahead, let them. 
Generational changes such as fiscal responsibility do not come from fringe pain, they come from deep, personal regret precipitated from personal action. 
Action > Reaction > Lesson, in that order.
Now that almost five months have passed, emergency unemployment just got extended again, FinReg is [string of expletives] over complicated, misses point, fails to act in a practical time period, and the GSE's became fully nationalized, I suppose I got my answer on whether or not he reads these emails...

Wednesday, July 21, 2010

Green Lining: Will Cloud Conversion drive a new Tech Bubble?

Stayed up too late last night going over the changes between Citrix's 2008 and 2009 Form 10K's and experienced a lightbulb moment.  Given that:
  • Tech is one of the few sectors that the United States still leads,
  • large companies have enormous sums of cash on their balance sheets,
  • near to medium term economic reticence leaves these companies seeking more avenues to streamline,
  • stupid shit like NFLX are finally starting to give up their Nasdaq "leadership" roles,
  • and that The Cloud is an important technology still young in its wide acceptance,
could we not expect the tech sector, to be even more stretched due to reallocation into this last bastion of growth?  While it may seem that widespread recognition has already occurred given the PE's of companies like FNSR, CTXS, JNPR, FFIV, and VMW, their market penetration has only just begun.

As we remain in a buyer's market, smart enterprises, like smart people, will continue invest in themselves,  laying the foundations for future growth, before gambling with uncertainty.  I like tech here but make sure to keep tabs on market share data.  Some segments have begun to get crowded and there will be winners and losers, first though, widespread recognition of the trend must occur after more companies perform handily in this blood bath of a market.

Monday, July 19, 2010

The White House - Presidential Correspondence (1)

In a nod to the tough task of sending an email without ending up on someone's spam list I received the following today from,
Dear Friend:
Thank you for writing me. Each day, I hear from concerned Americans who are struggling in this economy.  Their stories encourage me to work harder to ensure every American can find a good job so they can support their families and their communities.
I have listed below just a few of the actions we are taking to help hard-working American families get through these tough economic times.
My Administration has taken critical steps to get us back on our feet. Our economy is growing again, and last year's flood of job losses has slowed considerably. These are good signs for our future, yet they are little comfort to those who are out of work or struggling to keep their home. We are working tirelessly to push our recovery forward and promote economic growth, accountability, and transparency. To follow developments and track local projects, visit: and
There were many causes of the turmoil that ripped through our economy over the past two years. But above all, this crisis was caused by failures in the financial industry. It could have been avoided if Wall Street firms were more accountable, if financial dealings were more transparent, and if consumers and shareholders were given more information and authority to make decisions.  But that did not happen. Special interests have waged a relentless campaign to thwart even basic, common-sense rules-rules to prevent abuse and protect consumers. In fact, the financial industry and its powerful lobby have opposed modest safeguards against the kinds of reckless risks and bad practices that led to this very crisis.  The consequences of this failure of responsibility-from Wall Street to Washington-are all around us: 8 million jobs lost, trillions in savings erased, countless dreams diminished or denied. We must do everything we can to ensure that no crisis like this ever happens again. That is why I am fighting to pas set of Wall Street reforms that would put an end to taxpayer bailouts; bring complex financial dealings out of the shadows; protect consumers; and give shareholders more power in the financial system. To learn more, I encourage you to read my April 22 remarks given at Cooper Union, just a few blocks from Wall Street.
My Administration is also working to help Americans who have had their credit lines reduced orinterest rates increased without clear justification. Last year, I partnered with Congress to pass the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act. This landmark law took effect in February, and promotes greater fairness, transparency, and accountability in credit card practices. It requires companies to inform credit card holders of payment timetables and accrued interest, and it ends retroactive rate hikes and sudden changes to terms and conditions. To read more about CARD and how it affects you, please visit: and
These reforms will have a tangible impact on the ability of American families and businesses to achieve their goals. For information on credit and consumer protections, please visit: or call 1-888MYMONEY.
Many Americans are also struggling to stay in their homes. Access to the American Dream is being tested by a mortgage crisis that threatens the stability of families, neighborhoods, and our entire economy. While many Americans have received help, far too many are still unable to refinance their mortgages or obtain loan modifications. This crisis has not only hurt home values nationwide, it has also had a dramatic effect on the credit Americans need to purchase cars, pay college tuition, and grow small businesses.
For assistance with a home foreclosure or to find a local housing counselor, I encourage you to call your mortgage servicer directly, speak with a housing specialist at 1-888-995-HOPE, or contact the Department of Housing and Urban Development at 1-800-569-4287. You can also visit or
As our economy recovers, we must continue to help those who are losing their jobs and struggling to pay their bills. Every day, I meet with my economic advisors to make sure we are doing all we can to create good jobs and help Americans support their families and pursue theAmerican Dream. My Administration is helping Americans return to work by emphasizing job training in industries that cannot be outsourced. Recently laid-off workers receiving unemployment benefits have new opportunities to pursue higher education and job training programs, including easier access to Pell Grants. To encourage job creation in the United States, I am replacing tax laws that send jobs overseas with new incentives to create them here at home. Available assistance can be found online at: or 
Together, we can help more Americans find and keep good jobs and enjoy a healthy standard of living. To locate an employment center near you, select your state at: For information on benefits and opportunities for those out of work, I encourage you to visit: To find career resources, you may call 1-877-872-5627 or visit:
While it will take time to turn our economy around, I am confident that we will emerge from this crisis stronger than before. For more information on jobs, health benefits, housing assistance, and other public resources call 1-800-FEDINFO or visit: Thank you again for writing. 
Barack Obama
Please bear thee in mind that this letter came in response to my Notes to El Presidente series with installments found here, and here.  Commentary on the above letter to follow.

Disclosure.  Apparently the press corps still uses teletypes because the above came in courier text without formatting of any kind.  Any errors or omissions are likely mine as there were hard returns and spacing through out the debacle.  That said, I took a speed read over the body of the edited version above, and the ideas appear to be communicated in whole as intended by the original text.

Restoring Urgency

In an increasing interest rate and dropping unemployment benefit environment, a real world clamor should arise as Americans angle to lock in the maximum benefits afforded under crisis conditions before spigots close for good, or at least for now.

Ingenuity often derives from desperation, and while desperation without hope can do irreparable harm, triply redundant safety nets disincentivize effort and risk entirely.  Likewise, if a comfortable living can be made off of unemployment benefits, there exists no reason to wake up early and beat the streets.

Untenable decisions shall soon be made, perhaps later than hoped, but the backlash against reckless spending by a government living in ways that its citizens have proven dangerous, coupled with mid-term elections mean that nigh looms our Age of Austerity.

This Age lays the foundation for revival.

I'll be watching deposit trends in regional banking as well as keeping some news-flow shorts handy.

The 50 week moving average presently sits at 10213, with the 21 week moving average at 10491, and the lower Bollinger is about 9687.  Values in most names, especially financials, continue to look expensive.  Manage the difference between headline news quoting time frames for "normalized earnings" against mark-to-market accounting and other reporting trickery.  When employment materially improves, expect personal financial retrenchment in earnest, and only then would I believe that credit losses had seen their trough.  For now, companies keep their middle of the pack earners working full throttle/hammer down without raises, in order to "streamline" most effectively.  A few more months of this in a somewhat stable market environment should see turnover beginning to increase, and overpaid workers as indexed by internal corporate ratings should see their departure replaced with cheaper parts.

The bourgeois has shown us that they are back in black and free to spend.  I wouldn't bet against the high end going forward.

I really wish Barrons hadn't come out in favor of Google over the weekend as those goofballs have supplanted Jim "Krammer" Cramer in terms of group-think and fishy timing.  One thing's for certain, both Krammer and Barrons blow medium term trade planning out of the water, and are reliable contrarian indicators after the intermediate retail pop.  For now I hold a starter pack with a covered call against, with high expectations for the Chrome OS to be launched sometime the second half of this year.  If Chrome OS performs anything like their browser expect sleek, speedy performance, built on an instinctive, handy, and customizable frame.  I will not be a first adopter, but expect to get involved with a late first or early second edition.

Have a good week.

Friday, July 16, 2010

The Finer Living Segment (1)

As I sit here enjoying a vodka martini mixed Trocktini Style, I recount all past entries into The Finer Living Segment, including:
  • .270 WSM ammo;
  • Monopolowa Vodka;
  • Vizio Razor products;
  • ErgoHuman ME7ERG.
If you love yourself, and if you have earned it, please take care to enjoy the finer things in life.

Trocktini Recipe
  • 1 ea. low ball tumbler;
  • 6 ea. full sized ice cubes (or equivalent volume of ice);
  • Monopolowa Vodka to cover ice (ice should barely float);
  • 1 tbsp. Manzanilla olive juice;
  • 4-6 ea. Manzanilla (bar olives) with pimentos;
  • 1-2 ea. drops Martini & Rossi dry vermouth.
  • Directions:  Place each ingredient, in order, directly into tumbler and swirl upon final addition, using wrist-action.  For best results, let rest for one to two minutes to let ice melt balance flavoring.  Swill at leisure, and at length.
Disclosure.  All credit for the Trocktini goes to the one and only Trock.  The Trocktini does not recognize any other than Monopolowa Vodka.  Any substitutes to the recipe cannot be guaranteed for tastiness.

Bulletin Board Skepticism

For anyone that doesn't know by now, I came up through the Bulletin Boards.  Most folks with a formal education and dedicated careers, and trading with an ethical bent, avoid the OTCBB and Pinks with the kind of physiological aversion developed by girls after spending months on the school yard hearing ghost stories.

Everything you hear about these exchanges are true.  They are the wild west, they are illiquid, they are scummy, and they are scammy.  These exchanges are also exceedingly honest.  If you're looking at a stock and it stinks, you're going to go broke holding too long.  If you're looking at a stock and it seems too good to be true, it is.  Effectually, these exchanges contain the unfiltered truth behind every stock seen around us, because the leadership most likely hasn't been indoctrinated into the Wall Street culture, and therefore, infrequently understands how to maintain a ruse longer than a couple of capital raises.

Trading over-the-counter sharpens what should be an already innate skepticism toward the world for people who deploy their own money.

If I could prove that someone sponsored Monsanto's recent multi-million dollar insider buys then I'd be able to short without regard for price action, however, that's simply not the case.  On the other hand, one has to make sense of the information given.  Namely:
  1. Management has been completely caught off guard by the patent expiration of RoundUp;
  2. The tone of the most recent conference call sounded confused, and uncertain;
  3. The company remains heavily involved in anti-trust and patent litigations;
  4. The company has committed to buying back shares.
Those are some big cannon balls to dodge if one's going to buy shares.  Item 1 goes to the case of single minded, institutionalized, management.  Item 2 is purely a developed sense that I trust.  Item 3 never looks good for future price action based on unreasonable expectation of stability.  And Item 4 never happens except with the express purpose of trying to arrest share price declines, assuage analysts and large institutional holders, and/or goose CNBC into giving some Kramer Koverage.

You can't put all your faith into balance sheets anymore, the convolution of rules has made it next to impossible to stay ahead of all the ways to find the fraud they hide.  On top of that, the government passed legislation all but requiring banks to irresponsibly under-state the loss risks they face.

This short post isn't meant to bag on MON in particular, there are plenty of other righteously overpriced doo doo equities out there (STI, RCL, COF ...).  No, I would like to emphasize that folks should look past the ties, slick hair, SAT words, and seemingly good news in order to locate logic, knowing for certain that corporate executives care about one person alone, themselves.

Good luck.

Disclosure.  I passionately dislike all stocks mentioned in this article, but own none of them long or short as of the time of this writing.  I have traded them all short at various times over the past 3 months with varying success, and will likely continue to do so.

Wednesday, July 14, 2010

Editorial: Missing the Point

Mortimer B. Zuckerman (does anyone know or care who that is?) became the latest corporate scumbag to ascend the media soap box yesterday in an Op-Ed piece entitled Obama Is Barely Treading Water.  Who doesn't derive great joy from bourgeois pontifications about serfdom sentiment, right?  But after Mr. Zuckerman states obvious point after obvious point and statistical "fact" after statistical fact with no punchline at all, one is left to wonder his angle?  Below, a sampling:
A year and a half ago Obama was walking on water. Today he is barely treading water. Then, his soaring rhetoric enraptured the nation. Today, his speeches cannot lift him past a 45 percent approval rating.
There is a widespread feeling that the government doesn't work, that it is incapable of solving America's problems...They are outraged and feel that the system is not a level playing field, but is tilted against them. The millions of unemployed feel abandoned by the president, by the Democratic Congress, and by the Republicans.
The American people wanted change, and who could blame them? But now there is no change they can believe in.
The fundamental problem is starkly simple: jobs and the deepening fear among the public that the American dream is vanishing before their eyes...Some 6.8 million people have been unemployed in the last year for six months or longer. Their valuable skills are at risk, affecting their economic productivity for years to come. Add to this despairing army the large number of those only partially employed and those who have given up their search for work, and we have cumulative totals in the tens of millions.
Millions cannot make minimum payments on their credit cards, or are in default or foreclosure on their mortgages, or are on food stamps. Well over 100,000 people file for bankruptcy every month.
Some 25 million jobless or underemployed people now wish to work full time, but few companies are ready to hire. No speech is going to change that.
The promise of economic health that might salvage industries and jobs, and provide a safety net, has proved illusory. The support for cutting spending and cutting the deficit reflects in part the fact that the American public feels the Obama-Congress spending program has not worked.
Apparently, Mortimer's unfamiliar with the common corporate party line that one should not complain unless one has suggestions on how to fix it.  Had Mort embraced the notion of our crumbling structure based on Western Financialism, made a few salient suggestions, or even plead a cause it may have been excusable for an elitist purveyor of "Class A Properties" (from Boston Properties' website) to appeal to the masses in the manner undertaken, yet he did none.  For the above reasons this writer must believe that the piece was constructed solely for the purpose of snuggling up to the incoming Republican Congress with hopes of getting into the negotiations on how commercial real estate can be saved.

Populism for profit, nothing more.

Monday, July 12, 2010

Should Gold be Compared to the Indicies?

The following musings relate to James Altucher's WSJ blog post from today, Why Gold is the Worst Investment Right Now.

First, and most importantly, I respect James Altucher's opinions even if not always agreeing with them.  He has made some incredible calls over the past 18 months, not the least of which was identifying Genworth as a potential 20 bagger when it traded for a dollar and some change.  However, I do not believe one can accurately compare a single asset like gold to the Dow, an index of companies regularly rebalanced in order to insure that the quality of the underlying meet the standards of the name.  As long as there is money in the game the Dow performs as a self-fulfilling response to belief in the confidence that underpins the equity markets, and indeed, our entire economy.  Further, forecasting from historical performance analysis inherently reduces the bleakest outlier risk metric to zero since there came no events large enough to completely wreck the system.  If gold were only a rock, an asset naked of inherent value, it would have held, or decreased in time adjusted pricing over the quoted periods.

In the past I have described my sentiments toward gold as "insurance against the insurance."  You can buy stocks or bonds, and you can buy CDS or option strategies against them for protection, but what happens during a world-wide strike against confidence in the buying power of paper currency?

We, he and I, can agree that gold seems silly when compared to arable land, survival skills, or well preserved food in the above instance, however, if philosophizing about end-times I charge that one should consider the operant conditioning associated with trading in currency, rather than straight-up barter.

To James gold may be the worst investment right now, but I speculate that the pace of information flow correlates to the speed at which civilizations rise and fall.  With fiber-optic cables we now move information worldwide at the speed of light, where in 1972, radio waves over concentrated areas were the first source of news.  According to my own logic then, outlier risk is actually increasing while Mr. Altucher makes the case against the metal.

If given the choice between a wholly owned house and hunting skills, or four-score bars, give me the former, but let me know who took the bullion ... just in case.

Sunday, July 11, 2010

A Bit of Fatherly Advice

Dad and I maintained a "business relationship" throughout childhood.  A sort of pseudo-boss whose tutelage centered around an affinity for parsing action with skepticism, and perpetual armchair quarterbacking.  He inspired detailed cause/effect analysis and successfully passed forward a none too subtle disdain for group think.  We used to joke a bit, but there never came a time when our roles got confused ... until the day he dropped me off at college.

We took separate vehicles and caravaned.  Just the two of us.  For four hours I now like to think that the road over which our trucks passed were the first miles traveled under banner of a more complex relationship.  Having arrived, a sort of stoicism strained our two emotions, both knowing that nothing would be the same.  Dad's home would no longer be my home.  A First Mate had taken command of his own vessel armed with the practical knowledge that only a salty old sea farer could teach.  Yes, the training wheels were coming off.

We labored to carry everything up stairs, and ate a late lunch heavily steeped in bilateral feelings of uncertainty, and of change.  After moving everything into the room, Dad and I scoured the vehicles for any forgotten items, audibly rehashing a checklist of essentials:  computer, towels, cellphone, wallet.  Just a few more minutes to spend together, each second cementing the gravity of our mutual milestone.

I remember the spot where Dad shook my hand and passed into one of those handshake slash one-armed hugs that two dudes do so as not to be too emotionally showy.  Then he put a hand on the outside of each arm, just below the shoulder, and looked me square in the eyes.  After a brief pause meant to re-engage my role as concentrating pupil, he stated, 
Before you go off and do something stupid, always make sure to check out her mom.  She'll end up looking and acting just like her in the end.
I laughed a deep, hearty laugh as the weight of the day's emotional taxation briefly lifted.  He smiled and then did something he had never done before, resting a right paw open and to the side of my neck.  Another deep stare.
You're ready.
Challenge your kids, cherish your kids.  Show them the bedrock.

Friday, July 2, 2010

Market Psychology Diagrams by Nigam Arora

While organizing some desktop files just now, I came across two screen caps from Nigam Arora's website, The Arora Report, detailing his perception of the five phases of market psychology on the long and short sides.  Nigam is a sometimes Twitterer using the handle @TheAroraReport, but when he posts his moves, it's worth the time to take have a look.

Disclosure.  Through the above linked website Mr. Arora sells services, none of which I have used, nor is this post intended to promulgate the efficacy or quality of his products.  It's all about the pretty pictures, baby.

Operational Cash Flow per Share

Twitterer @smallcapanalyst came through with another nice read, here.  The piece linked indicates how operational cash flow per share can give a more accurate read on the health of a company than the typical earnings per share reported.
As a barometer of a company's health, OPS is more reliable than earnings per share (EPS), which can be too easily massaged, the brothers contend. A company either has cash or it doesn't. And, as Dartmouth business professor Rajesh Aggarwal notes, operational cash flow "does make adjustments for things like depreciation and amortization, and it takes into account changes in working capital."
Specifically, the gentlemen interviewed in the article, David and Mark Markowski, use the metric to try to predict the early stages of company-specific inflection points.
...a particular anomaly: negative OPS despite a company's reporting of "record" positive earnings. The phenomenon, which Mike Markowski calls "the EPS syndrome," often is the "first indicator that a company may be in trouble," David says.
Make sure to check the article, and if you're not following @smallcapanalyst already, do so without delay.

Wednesday, June 30, 2010

Remember when a house was a shelter?

As part of our move away from Western Financialism we must undertake skeptical review of widely held beliefs, and thoroughly debunk and debase false fiscal sentiments held by unsophisticated people that we may buttress the foundations of our capitalist system.

I briefly alluded to this idea here:
If secondary schools made the effort to blend focus on life skills like personal finance (balancing checkbooks, credit card interest policy, how mortgages work) with esoterics like higher order mathematics I submit that we would be empowering a generation of doers capable of anything and structurally buttressing the future economy.
From the time of the cavemen until some point in the last few decades a house was nothing more than a shelter from the elements.  Having a properly sized shelter meant that precious daylight hours could be optimized between hunting, trading, trekking, and searching for firewood.  If a shelter was on a north facing hill in Montana during November, that firewood search became a lot more important than hunting.  Likewise, having a well constructed, efficient house (square footage, insulating properties, etc.) today means diverting climate conditioning and cost to own per square foot dollars to more important fiscal needs.

I never figured out why companies got into pushing 401k programs so hard, but speculate that the management companies give fee kickbacks to upper management.  Did you know that it's allowable to own property in tax deferred accounts?  Bet you never heard "corporate" telling you to pick up a rent house on the cheap, finance it for 4% in a tax deferred account and let renters pay your asset off, did you?  The managers want you indexed by risk profile so they can run you and your money down the sluice, dropping your fees in their pockets along the way, no matter how poorly they do over time.

Invest in yourself.  Invest in your future.  We need to encourage fiscal stability.  Cut up the credit cards, get a house that meets your needs, and start paying that fucker down.  In this way one is not tied to the stock market or the economic idiocy forced upon him by politicians with no concept of a real world future without a government pension.  It doesn't matter if every bank in the country implodes, if one or both jobs are lost, or if gold becomes the only currency by which to conduct trade, the value of a home comes from the knowledge that the owner will always have a place to keep his tailfeathers out of the rain.  Assessing sheltering value simply, as the delta between present and future selling price is near-sighted, greedy, and stupid.

Besides, after fees, even with matching, should an unsophisticated investor expect to realize more than 6% compounding returns in a Kmart brand 401k program?

Notes from the Minervini Webcast

Twitterer @MarkMinervini, his blog site here, did a free webcast last evening last evening in Q&A fashion, with listener questions randomly selected by one of his sidekicks.  Below, find a bulleted list transcript of my notes in the same random order.

Disclaimer.  Since the webcast was free, and since he went out of his way to invite everyone on Twitter at least half a dozen times, I feel like Mr. Minervini would not mind me writing this with the sole intent of passing along information.  He currently sells a trading class and alluded to an upcoming book.  I have nothing to do with either of those, and none of the things he talked about last night seemed proprietary.  Indeed, much of that discussed should be known already, but he's quite succinct, and the consolidation of genuinely passed, truthful information made this webcast particularly golden.  Finally, the list below is a typed copy of my handwritten notes from an 80 minute long conference call.  The sentiments conveyed may or may not be what Mr. Minervini was trying to communicate.  These notes are answers to questions that did not get written down due to the pace of the call.  Any application of context is solely the responsibility of the reader.

  • generally, relative volume is an especially important indicator on small to mid-cap stocks because they are less affected by HFT -
  • for pilot trades (think weather balloon or windsock) start with a quarter to half position size -
  • look for accumulation on the major averages -
  • the second wave of pilots is when you expect follow through before ratcheting up [position sizing, leverage] -
  • the most favorable stock/entry point will have technicals, fundamentals, and market tone aligned -
  • keep a pulse on sentiment - question widespread agreement -
  • STICK WITH YOUR STRATEGY - know it inside and out - know the strengths and drawbacks -
  • erratic price action right of a base is indicative of distribution -
  • generally would buy within 25% of a 52 week high, not much more pull back acceptable because the trend could be broken -
  • mainly buys in the direction of a trade - (ie - adds to longs on breakouts and upticks) -
  • buy leadership and buy in order of breakout -
  • it's the sign of a professional to be emotionally detached - some of the best trades have come after getting stopped out 3 or 4 times -
  • not losing, not making big mistakes, consistency are the most important aspects for beginners to focus on -
  • keep a tight reign on risk - a good stock will give you several opportunities to get in - wait for the lowest risk entries -
  • BUY IN ORDER OF BREAKOUT (this was mentioned several times - i starred and bolded this in my notes to add emphasis because it seems like a key tenet of his strategy)
  • get over large losses by accepting small losses -
  • sell when risk outweighs reward -
  • looks for stocks in a long term uptrend and then medium to long term consolidation -
  • non-negotiable stock screening criteria:  long term technical action, tight base, volatility depression - referenced a mental reward-to-aggravation ratio vis a vis volatility -
  • buy with the trend -
  • generally, strong volume on the up days and low volume on the pull backs are what you want to see -
  • generally, he avoids gap trades because they are not a part of his core competency - he reinforced that you need stick to what works and not jump strategies all the time - if you play gaps and they work for you, roll with it - otherwise find your core competency and exploit it relentlessly -
  • stocks are his broad market indicator - if there are a lot of stock setups developing or in play it indicates to him a healthy market ahead -
  • novice shortfalls:  overtrading, not sticking to one functional strategy - success in this game takes time and discipline -
  • first assessment before entering a position:  "how much can i lose?" - advocates using stops - by choosing high probability entries, can keep losses in the mid-single digit range -
  • there is no money to be made in predicting trends (broad market, political, economic landscape, etc.) -
  • "i buy stocks that setup, and if it isn't what i want, i don't buy it" -
  • respect risk -
  • you have to sacrifice other things to focus on one thing - emphasized distinction between traders and investors -
  • predictions make less flexible traders -
  • the forces behind stock trading haven't changed [supply and demand] even though cost of a trade and speed has changed -
  • "i don't want to hear or read anyone else's opinions" - emphasized honoring his strategies and methods, not allowing his judgement to be clouded or questioned due to the success patterns and back testing -
  • trading skill is more important than the stocks - discussed a strong trader would likely do better with mediocre stocks than a mediocre trader with strong stocks because the strong trader is adaptable and disciplined -
  • preference to limit position exposure to 25% -
  • prefers to trade small companies because that's where the pricing inefficiencies are greatest -
  • mid single digit losses are pretty much all that is acceptable - think about a strategy having a success distribution - limiting losses while maximizing gains extracts the most value from the strategy -
  • using new highs and new lows profiles -
  • uses screeners for technical action, then uses technical, quantitative, fundamental analysis to further limit this list of potential trades - usually keeps 8 or 10 on watch and emphasized buying the breakout - must honor the system and not let ego, or love for a name preclude you from making money -