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.

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."

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.

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.

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.

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.

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.

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 greekshares.com.  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.

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.

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 marketwatch.com post on July 30th called Background Check.

...you 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.