799 stocks

28th chairman of the United States Securities and Exchange Commission, Chris Cox was appointed by Dubyah in 2005. If he hadn't removed time proven protections like enforcement against naked shorts and the uptick rule, there would have been no need for the dangerous precedent of a 2-week ban on the short-selling of 799 stocks. I agree with analysts, senators and pundits that this man is a loose cannon. What will he do next?

3Q

The outperforming sectors of 3Q were Consumer Discretionary (automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing) and Health Care (equipment & supplies, providers & services, biotechnology, pharmaceuticals).  The big loser was Energy, down 15%.

2Q end

The commodities boom of 2008 is the rocket that successful stocks rode in the first two quarters of the year (which end today). Energy commodities like NatGas and Crude were the easiest for companies to profit from because they're able to quickly pass their costs on to the consumer at the pump/meter/etc.

A good chart to review at the end of every quarter is SPDR Performance. The only sectors of the S&P500 that aren't losing money are (you guessed): Energy and Materials (chemicals, construction materials, containers, metals & mining, paper & forest products). And the stinker of the sectors? financial.

Now, was it really hard to predict this?

Inverse ETF

ProShares has exchange traded funds which are the inverse of major indices. Great if you're bearish on some part of the market economy for the next year e.g. small cap like Jeremy Grantham, Chief Investment Strategist, GMO.

This is a way you can keep your money invested, but actually profit when the recession worsens; great for non-sheltered accounts too, where holding positions 12 months to avoid the short term capital gains tax is a concern.

This is also a conservative way to hedge your long positions in the market, if you want some insurance "just in case" your portfolio loses value or the market sells off to a lower bottom. If you don't have insurance in a crash, whose fault is that?

IPO Visa

Thursday, Visa Inc will have the largest Initial Public Offering (IPO) of shares in the history of the world, raising about $15 billion, two-thirds of which would go to suffering member banks including Citigroup, Bank of America Corp and JPMorgan Chase & Co. This is the biggest IPO of all time, the Mother of all IPO's -- twice the size of the next 2 largest IPO's combined.

Suffering, I say, because of big losses on subprime derivative investments and a deteriorating consumer credit market as recession sets in. Good for cash starved banks, and good for investors, shares of Visa will rocket; but unless you're already cozy with an underwriter, look for some other angle to profit from this singularity e.g. Mastercard (MA) shares may decline short term, as capital is re-allocated in a lower risk higher return new issuance of V.

Biography: I've only gotten in on one IPO so far: the stock of the dot com which employed me in 1999 as an ecommerce java developer. I got the IPO stock through our local Morgan Stanley broker, who told me to hold the stock when it was going down and failed to explain that a stop would not protect me in case of a gap. He didn't last long at the company; I hope he chose a new career outside of finance.

RIP Carlyle Capital Corp

Today S&P published "hopes that the [subprime] crisis can be contained over the next few quarters." In other words: we don't have an accounting of the damage yet, less than half of which has been publicly disclosed so far, but we think we may get a grip in the next nine to twelve months. This report assuaged investors today? Incredible.

S&P says that we know 110 billion USD has been written off by Merrill, UBS, Citi, AIG, Swiss Reinsurance, et cetera; and guesses there is at least 135 billion USD to go. Oh heavens, that futurenews is going to be understood when it turns news, right? Because S&P has warned us it would surely come, right?

Perhaps the news at Carlyle Capital Corp. prompted such kind words from S&P? Carlyle stock plummeted 88% as they hit the point of asset seizure and liquidation: failure. "Nevermind the dead body, folks, nothing to see here, move along; we knew this was coming, no surprises, move along, move along."

In other words, we see a bottom a few quarters off - there are going to be a few hundred billion dollars in write-offs soon - but don't panic we have it contained.

Financials bounce briefly

Today's band-aid from The Fed: lending up to $200 billion in Treasury securities for up to 28 days to primary dealers in the bond market, accepting Fannie Mae, Freddie Mac, AAA-rated CDO's collateral. Pro's acknowledge this is short-term relief aimed directly at the heart of the problem, subprime CDO depreciation.

This delays the inevitable, giving brokers and banks with huge exposure to subprime debt some breathing room to continue to raise cash through asset liquidation, so they don't have to accept "fire sale" pricing and take larger losses due to the urgency of their capital need. This is room to maneuver, so instead of stumbling in haste and looking the fool, they can look respectable as they do what must be done to get more cash. That's nice, huh?

This may be a good time to buy bearish put options on the financial sector (XLF), Citigroup (C), Merrill Lynch (MER), and/or Wachovia (WB), while the euphoria lasts, to profit from the plummet, which shall continue; yes, it shall continue.

MSFT, YHOO, GOOG

If Microsoft does succeed in their hostile takeover of Yahoo, they will have a huge integration problem on their hands, with largely incompatible interfaces and redundant products; but of course, they chiefly want the brand name and reputation of Yahoo, not its engineers or products, no matter what kissy huggy language they may use to try to prevent fight flight of talent and/or customers.

Google, on the other hand, has purchased many properties in the last two years and is mature in its cycle of integration into its plans with existing products. I'm bullish about Google's technologies coming online this year.

The MSFT + YHOO merger is good news for GOOG and bad news for MSFT and YHOO. The markets will get this wrong; take advantage of their error.

buy on descent, sell on climb

Successful traders know that a simpleton's "buy low, sell high" methodology almost always results in buying on the way up, and selling on the way down, antithetically buying high and selling low, because predicting tops and bottoms can be very tricky business.

Cramer taught me to accumulate in batches, never all at once, starting small and increasing in position as the deal sweetens on the way down; and in exit strategy, do the opposite, sell in batches of increasing size as the price goes up.

This strategy accepts that no trader or system's triggers will be on target picking the peak or valley (with predictable frequency), and seeks to average out entry/exit points in the general vicinity instead. "Bulls make money; bears make money; pigs get slaughtered" is one of Cramer's memorable sayings in which I find comfort when I fail to optimize such a situation. You have to stick to discipline, and believe in your model; don't let emotions affect your timing.

Of course, buying when the stock is falling, or selling as it rockets, is lonely and can be scary. Hey, nobody said this stuff is for the masses.

What do you think of Google's descent?

portfolio insurance

You wouldn't drive your car without spending (annually) 1% of its worth on insurance in case of a crash; why do you run your portfolio without insurance?

During precarious times such as these, buying a little portfolio insurance makes good sense. If you don't need your auto insurance one year, are you upset that you didn't need to file a claim and hence wasted the premiums? No! of course not. Even if your premium is completely lost, it accomplished the objective you assigned it to do -- to protect you in case of a crash.

Portfolio insurance is a strategy of hedging a stock portfolio against adverse price movements (that is, risk) in the market by a) buying put options on a market index or b) selling short a market index. Talk to your broker about this objective, to see if he will allow options or shorting in your account; if not, you may need to open an account elsewhere to accomplish this objective. Planning ahead is always wise!

A perfect hedge reduces your risk to nothing (except for the cost of the hedge), just as the perfect car insurance covers everything. Usually you can save money on your premiums by building in a deductible where you suffer the first 2% of the damage and the insurance gets the rest. So also with portfolio insurance: your monthly premiums will be lower if you buy to reduce but not eliminate all of your risk.

If you don't feel comfortable trading options or shorting stock, talk to your financial planner about how you can insure your portfolio from loss in case of a market crash. Especially if your portfolio is vital to your retirement, you'll sleep more soundly because you did.

collateralized debt obligations

Where is the San Andreas Fault of the market? All eyes on the bond insurers guaranteeing CDO's (collateralized debt obligations). FGIC corp lost love on St. Valetine's Day, losing their valuable AAA bond insurance rating yesterday. FGIC the 4th bond insurer of the United States, fell $4 billion short of the reserve necessary to retain their credit rating.

The governor of NY flew to DC today to testify before Congress that the effect of the bond insurers getting their credit rating downgraded would be catastrophic to the economy. Buffett has offered buy their non-CDO business to help them raise capital; unfortunately, this would seal their doom, leaving them irrevocably connected with the CDO business which is garbage.

The indices are gently declining now. When (not if) will the government intervene to prevent the downgrades - and how will that move the markets?

thin ice

The market bottom is forming like a lake beginning to ice over. With a Fed announcement due on Wednesday, that ice could thicken, if they announce another rate drop, or it could break if they do nothing more. Regardless, the subprime crisis will ensure that this winter doesn't get cold enough to make walking on water very safe. Enjoy short term gains but avoid "buy & hold" unless you prefer your bull "wet & cold."

2009 February 17th

On February 17, 2009, the analog TV transmitters of 1600 broadcast stations will be shut off for good. What US companies will rise or fall by the end of analog?

Volatility

Not much is certain in the markets. It appears we're in a short to intermediate term "bounce" with the big picture being bearish still. One certainty is observable: high volatility. One way to profit off of this volatility is to take the top ten highest volume stocks on the market, and look for one to make swing trades with options by setting limit orders. For example, with Google I'm trading GOPRJ puts within 14.0 buy to 24.0 sell and GOQIW calls between 7.4 buy to 11.7 sell. There is some danger that the market will decidedly choose to break up or down with momentum but until then some 50%+ gains per trade could be possible. Also beware earnings disclosure after market on Thursday 1/31 evening; typically Google's earnings in January have been unexciting, but a surprise could cause the price to gap up/down overnight. Don't follow me if you can't stand a 100% loss.

speculating on speculation

Today, Apple's Steve Jobs announced amazing new products, alliances, and sales numbers, but AAPL lost 5% because of the general market direction due to mainly to the news of Citi's subprime slime.

Yesterday was when the late-comers bought their positions in Apple, and yesterday I sold one, taking a 25% gain off the table, capitalizing on their speculation. In the shower today I reflected on the wisdom of "the day before the day before" as a general strategy for taking advantage of the speculators who come "the day before" some event such as an earnings report or product introduction. This was the strategy of Levi Strauss in the California Gold Rush of the 19th century; it worked out well for him!

Speculating on the speculation has a much better risk/return ratio than speculating on the actual event. The reward may be less, but the risk is lower.

Bears!

The chartists I subscribe to uniformly agree that the market has departed from a long term bullish trend, and is now in a neutral with bearish tendency mode. This is a radical technical change, indicating we are in a correction which will someday find its bottom. Investors would be wise to make at least half of their positions bearish in nature, or else to stay away from equities completely. Increasing percentage of portfolio held in cash is a very good idea, to be able to take advantage of the bottoms to come, along the way and at the equities 'clearance sale' megabottom.

the new cheap PC

Story here (In response to the One Laptop Per Child project's demand that Intel curtail work on its Classmate PC and other cheap laptops, Intel resigned from OLPC's board and canceled plans for an Intel-based OLPC laptop.)

What began as a noble charitable endeavor to help 3rd-orld primary education, has ignited an arms race in the new market it created for cheap PC's? Or is the market in 1st world countries for these low-cost digital devices really for use as PC's? or rather, I speculate, they will be sold as enlarged PDA's activated by signing a contract with a wireless service provider... like an iPhone on steroids. If this is the case, Apple is only the first PC maker to begin to compete with cellphone manufacturers.