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?