Dogs of the Dow December 31, 2007 (posted 6:00 PM)
I don’t care very much for the conventional wisdom or for herd like behavior. Whether its lemmings, cattle, or a pack of dogs, crowds annoy me.
For the last week, as it has been for a number of years, the last week of the year is reserved for discussion of the “Dogs of the Dow” theory.
Since my attention span doesn’t allow for much more than a nutshell synopsis, the Dogs of the Dow theory fits in quite well. It doesn’t take much to distill the theory.
You buy equal dollar amounts of the 10 Dow Jones Index stocks with the highest dividend yields. Buy them on the first day of trading for the New Year and sell them on the last day of trading for the year.
Numbers don’t lie, at least not on their own, but the theory seems to hold water.
Although now that everyone in the world knows about it, there’s probably some early buying of the Dogs and early selling. So you bend the rules a little. Who’s going to get hurt?
As with just about everything else in the world, the more people that are on the bandwagon, the less reliable history turns out to be.
So it’s no surprise that there are variants on the baseline theory. On top of the Dogs, there’s also a Small Dog theory. That one focuses in on the same 10 stocks, but further limits it on the basis of price per share. Anything above $40 per share is off limits according to this theory.
And there are other variants, as well, limited only by the number of people that have access to publishing their own website.
As you can see from having read this blog, you don’t really need much of a license to publish a web site. You certainly don’t need any original thoughts.
With today being the last day to sell, you might expect declines in the top gainers of 2007, but in a day when the Dow has been down all day, there really wasn’t a pattern of Dow related selling.
A couple of the Small Dogs, however, are up nicely today.
I bought one of them, but not because I love small dogs. I’m more partial to the larger breeds, although my wife has her eyes set on a small one, as our next pet. I don’t think she wants one a small as the mouse that I caught yesterday, but it will be a small one.
In fact, if you follow the theory, you really do need to purchase all 10 stocks. You can’t play stock picker and pick and choose. With your luck, and mine, you’ll choose wrong.
But I decided to follow 10% of the theory. I bought more Citicorp, because I believe that even if it does cut the dividend, it won’t have much more to drop. No doubt that Citicorp has been a dog. In fact, its been the worst performer in the Dow this year. To offset that, I’ve got some Honeywell, which has been the best Dow performer of the year.
Interestingly, I don’t recall anyone ever touting Honeywell this past year. It just quietly went about getting contracts and making profits.
But up until the very last minute, before sub-prime exploded all around us, everyone was extolling the virtues of Citicorp.
I bought the Citicorp shares at the low point of today’s session and by the close they were up nearly 2% from that point. But mostly, I bought the additional shares to bring my cost basis down and to start giving myself some options related opportunities.
Even then, Citicorp would still need to go up a couple of dollars before there’s even a remote chance of selling options.
One company that’s not in the Dow, although it really should be, is Goldman Sachs. Although they still have a reported 70 million more shares to go on their previously announced buyback, they announced plans to add another 60 million shares to that plan. That definitely turned it around for Goldman’s shares today, although the rest of the market failed to follow.
I don’t know what their announcement means. Since they are the smartest guys in the room, as everyone acknowledges, I don’t know if they are committing funds in anticipation of a further decline in its stock price, thereby not being in a position to pass up a bargain, or they are ready to snap shares up at the current levels.
Either way is still good news and should provide some kind of floor to the price, which has really been pretty volatile over the past 4 months.
Unfortunately, after an attempt at a comeback, the Dow decided to end the last 30 minutes of the trading year on a real down note. But it was only appropriate that the day should have ended with a more than 100 point change. That’s just the kind of year it was, although the last trading day of the year has been a downer for each of the last 4 years. Why would today be any different? Well, maybe a 100 point gain would have been nicer.
That didn’t slow down MasterCard, though. Despite the final sales numbers hanging over it, the specter of tax related post-New Year’s sales and the upcoming Visa IPO, MasterCard added on another $5.
I suppose that while people were busily using their credit cards, they were too busy to search for retailers on-line, as Google lost about $12, to finish the year below $700.
As the year comes to an end, I always consider New Year’s Eve as being my anniversary, because it marks the night that my wife to be and I finished our cross country drive from California to New York, as we began our lives together.
With the exception of that night 24 years ago and the infamous Y2K year, we’ve never made it past midnight.
Tonight, though, she is still in California, tending to family needs, as I am back home with the kids.
Tonight, I will likely be up after midnight, as my youngest son still has a midnight driving restriction on his driver’s license.
I guess I can use the extra waking hours to start crunching the end of the year numbers.
I wonder if Szelhamos did as well as 2006’s Dogs of the Dow?
Even if it did, what would I have done with all of my time. I don’t think that I could have kept my sanity with only 10 trades each year.
But for my New Years’ resolution, I promise to spend less time with my portfolio management and more time with my dog.
Who knows, he might have some great investing insights.
Happy New Year.
I Finally Get It December 28, 2007 (posted 9:00 AM)
It took being 35,000 feet above sea level, but I finally get it.
It’s not often that we have revelations, but I’ve just had two of them, while stuck in the middle seat, as we headed for Las Vegas, enroute to Los Angeles.
The first revelation was one that truly casts everything into a new light. In fact, I now have some pangs of guilt.
A couple of months ago, I was just part of the herd making fun of Idaho’s Senator Larry Craig. In fact, his “wide stance” plea was widely regarded as one of the Top 10 utterly ridiculous statements made by a politician in 2007.
But now I see the truth.
I see it, because the passenger to my left, on the aisle, the one wearing a “The College of Idaho” baseball hat, has encroached on my foot space from the get go.
After his Vodka and Tonic he became additionally bold in establishing his stance. By the fourth round, he was all over the place.
There was no toe tapping, but I get it.
I’m not interested, but I do get it.
For all I know, it may very well be the Senator right next to me. But, probably not.
Actually, he’s not next to me at the moment. He just got up, presumably to use the rest room. My guess is that we’re safe, unless he also had mile high membership.
But Larry Craig is innocent of all allegations. That is the natural Idaho stance.
The other revelation was more than 25 years in the making.
I always fly Southwest, but rarely on long flights. Usually, the flights are just barely long enough for peanuts and a quick drink. In the past, on longer flights, their snack box usually contained some cookies, maybe some cheese cookies and some gummie candy.
Not this time. The highlight of the snack box today was a “salami stick”, made by the good people at Kraft. Whose stock has done nothing since it was spun of from Altria. I’ve sold an occasional option, but its been a boring position.
Ordinarily, I would turn my nose at any cured meat or meat products. My great friend, as a beef jerky afficienado, and is always offering me some of his. After 25 years, he knows that the answer is always either “No, thanks” or a simple blank stare.
What I especially like is that whenever he returns from vacation he brings me some local jerky.
So I looked at the stick of salami and thought of my friend who was sunning himself in Hawaii at the moment. Then I thought about the return of my Idaho neighbor. Now his elbows seem to have taken on an extra wide stance, as well.
But back to the salami.
Lately, I’ve been having salt cravings and the cheese dip thing didn’t do it for me, so after reading the label, including the warning about how to cut the product for young children, I opened the salami.
A quick sniff and then a reluctant taste.
I needed the salt. What was I supposed to do?
That first bite led right to another and another, until all 0.56 ounces were gone.
Now, I find myself eyeing my son’s snack box.
I get it. Cured meat is good. Although, I must say, an entire airplane’s worth of “salami stick” smell is a bit much, I still savor the delightful blend of garlic salt and sodium nitrate.
I can’t wait to see what local Hawaiian cured delicacy he brings back. Probably some wild boar.
By the time we got off the flight yesterday, the market had been long closed. I really didn’t have any opportunity to delve into the market’s behavior, as there’s was lots to do in preparation for the day’s event.
My wife will be utterly exhausted when she finally returns home.
She asked for the “gift of time” from me to try in get things in order, as she tries to put life back together for her niece and nephew who are being re-acquainted with their father, after a number of years.
I don’t think that there are very many Jewish saints, but someone should nominate her.
I finally get that, too.
As we were getting ready to call it a night in preparation for today, I finally got to see that the events of the day were just too much and the Dow fell by 192 points.
So much for that end of December rally. Maybe the January effect will finally work, instead.
Today’s blog was written before the market opened, because I have no clue when we will actually get back to our hotel room and what state of mind everyone will be in.
So far, based on the pre-open future, my mind is in a good state.
But I also now get it that things can change in the blink of an eye.
Happy Birthday December 27, 2007 (posted 9:00 AM)
In a couple of hours, my son and I leave for California.
The last couple of years, he and my wife had made the habit of going to Las Vegas for spring break. Coincidentally, every time we made one of those trips, one of the flights would fall on my birthday.
My wife had this habit of surreptitiously telling the flight attendants about the event and there would be some kind of public announcement, celebration and some degree of embarrassment.
Especially for my son. You know how adolescents think that their parents are “dorks”. That kind of behavior only confirms their opinions. On this issue, I’ll have to take his side.
So today is his birthday and guess what? We’re flying.
I know that if my wife was aboard, she would do her usual behind the scenes thing to bring embarrassment to the birthday celebrant.
I’m not very psychoanalytically inclined, but I’m sure that there are some who would say that my son’s embarrassment during the various in-flight birthday celebrations was nothing more than a cry out for his own celebration.
So I don’t think we’ll be pulling that kind of thing on today’s flight. We’ll try to figure out other ways to entertain ourselves so that we don’t have to dwell on the fact that we’re going to a funeral and then flying right back home the next morning.
I don’t think that’s the in-flight celebration with unlimited peanut packets is the sort of gift that he’s really looking for. I think that he’s much more hoping to get a plane of his own, and perhaps, some macadamia nuts.
At the rate that the portfolio that I manage for the kids is going, that could be sooner rather than later. I may even spring for the hotel’s jar of macadamia nuts this evening.
The final annual numbers won’t be in for a couple of days, but they’re running at about a 45% gain.
Much of that goes to Apple. After all, what adolescent portfolio would be complete without investing in the things that they know and understand. Kids know and understand Apple Computer.
Apple reports earnings in a few weeks, maybe a week after options expirations and right about the time of MacWorld.
Everyone is expecting blow-out numbers, with whisper talks of great iPhone numbers on top of growing computer sales. Even though a recent report showed that Zune sales on Amazon exceeded the iPod, everyone wants something from Apple.
Yesterday, Apple’s stock price crossed $200 for a short time.
All of this puts me in the contrarian’s quandary. It has me considering a number of moves, particularly since I have sold some January Apple $210 calls.
Among the considerations is that the last of my Apple shares goes long term in about 10 days. That’s a big deal on top of the fact that by holding on until then any taxes will be deferred until 2009.
Apple tends to move fairly explosively at earning’s time. Which way, is always anyone’s guess., although the past couple of quarters have seen upward moves, although with some corrections following profit taking.
Despite the steep price climb over the past year, you can certainly make the case that Apple has made a home for itself at these high levels.
So is this going to be history repeating itself or are we due for a run-up in price prior to the earnings report and then a sell-off after the earning’s announcement.
At the moment, I’m considering a strategy similar to one that I used with SunTech Power. I bought in the money call options a few days before earnings and sold those the day before the earnings announcement, in order to buy in the money puts.
Both of those trades were profitable.
In Apple’s case, it really depends on the precise timing of the earnings announcement relative to the options expiration date. January’s expiration date is early, and I believe that it will be before the earnings release. February in the money options may be cost prohibitive, as regards the risk – reward ratio.
Over the past few days, with the events taking place in California, we were reminded just how quickly things change.
This morning, after a lower futures opening, the market was making a comeback. However, then came the news that Pakistani opposition leader Bhutto was killed in a terrorist attack. Just as confirmation of the news was released, the futures started their downward move, while gold and oil started their moves up.
With the skeleton trading personnel this week, because of the holidays, and the big boys likely off at their ski villas, today has the makings of an extraordinary volatile day. That’s said to be true for any day when volume is expected to be light, but especially when there may be extraordinary news to boot.
I’m glad we’ll be up in the air today. I think it’s safer up there. It’s almost like having your own Air Force One.
Although our planned birthday celebration tomorrow evening is now cancelled, at least our family will all be together tonight and tomorrow.
That doesn’t happen that frequently, anymore. The circumstances, however, aren’t very good. But as often is the case, tragedy can bring out the best in people.
There have to be better ways to elicit performance.
But for a few hours, at least, I won’t be thinking of the markets.
I’ll be thinking about my older son’s business proposal, which was jointly composed on a PC and a Macintosh. I only tell you that, because the portion done on the Macintosh has undecipherable portions due to an incompatibility between the 2 platforms in how they handle image compression.
I searched for a fix on-line and found that this problem vexes the universe, with no fix available, other than to go back to the source documents from the Apple machine and save them in a different fashion.
So while I curse the Microsoft and Apple rivalry, I’ll praise the business plan, while I’m thinking about my other son’s 17th birthday.
As he told me yesterday, now he is eligible for a pilot’s license, can go see R rated movies on his own and even see NC-17 movies. On top of that, he can enlist in the service.
I hope that his wink was just a nervous twitch.
A Zero Sum Game December 26, 2007 (posted 10:30 PM)
They say that many things, in the final analysis, are “zero sum games”. Someone wins, and someone loses. So much for the concept of “win – win”.
If you’re analytical, the extent of the win should be no different from the extent of the loss. It all goes back to one of those invariable laws. Matter can neither be created, nor destroyed. You can alter it, sometimes in ways that are unrecognizable, but deep down, we know what it really is.
That’s what all of these trading derivatives really are. Just altered forms of matter, because we always want something new, better and different. The more unrecognizable the derivatives the more money there is to be made and ultimately, the steeper the crash. You just can’t disregard those basic laws of nature.
Certainly, the stock market, in the long term, is a zero sum gain. There are real gains and real losses, as well as gains that could have been and losses that were averted. Those “could have beens” end up enriching someone else, and the “averted losses” end up handicapping someone else.
The perfect summation of zero sum.
In the short term, the stock market can be anything but zero sum, particularly if the stock is spiraling vertically and you choose to ignore lost opportunities. But eventually, it all catches up with you.
But you can’t be very analytical about the zero sum game that is “life”. In the end, whenever that comes, it also “all catches up to you”. In the final analysis, where you stand at the end of the game is all related to the timing. Were you in the game short term, long term, or did you overstay you allotted time? Sometimes, it does make sense to quit while you’re ahead.
I think Jack Kevorkian taught me that. But as my memories start to fade, I can’t even remember where the little canisters are, anymore.
Fortunately, as far as anyone knows, there is no great master plan that requires that each good life be balanced by one that is shameful.
On Friday, I traveled to New York to revel in the birth of another member of our very small family. Tomorrow, my younger son and I travel to Los Angeles to join my wife and older son to mourn the passing of her sister.
We will spend his 17th birthday in the air. Maybe that’s fitting, as he is learning to fly and, hopefully, will soon have his single engine pilot’s license.
So we’re on our way to yet another ritual of life. Two rituals. One comes into this earth, as another leaves. But will this be a zero sum game?
To some degree, even as we celebrate new life, we really celebrate new, better and different.
On Friday, we were all marveling about the wonderful future that awaits a newborn who comes into a family of great achievement on all sides. The potential is unlimited.
This coming week, we will marvel about the tragedy of a life lost too soon, with so much still left undone. No more potential, only a final summary to assess how that unlimited potential turned out.
Life is lot like an investment. What you and others put into it help to give a better chance of achieving the potential that we all see in a newborn, as our optimistic eyes are at work, sometimes blinding us as to reality.
As a great philosopher once intoned: “Reality sucks”.
Hopefully, as the new reality begins for 2 young children left behind, who will have to re-introduce themselves to their father, it will be better than the old reality.
Those optimistic eyes never give up.
Today there were signs of optimism in the markets. New investment in a troubled sector, infused MBIA and Bear Stearns with cash. Warren Buffett puts another $4.5 billion to work. These are all signs of hope and faith.
Cynics would say “greed”.
But it doesn’t always work out as planned. Even greedy people can be wrong.
Just look at the first 2 months of the investment in Countrywide by Bank of America.
Hope and faith have been replaced by real loss.
As the day wore to an end, the market was almost a zero sum game, as the Dow closed up barely 2 points, having recovered from its earlier losses, as everyone was trying to make sense of the moves by Buffett and others that may have been sending optimistic signals to those waiting for a sign.
For me, the only sign that I see now, is a big fat zero.
Admittedly, I did make two trades. I sold some January $770 Google and some January $40 Halliburton.
But my heart wasn’t really in it.
I was still fixated on that “zero”
Just as the process of making a zero has you ending up right where you started, so goes the saying “ashes to ashes and dust to dust”. It is all right back where we started.
And as for the year in the market, we’re just about to end one and begin it all over, again.
Just like that zero.
Sweating the Small Stuff Part 2 December 25, 2007 (posted 5:00 PM)
Today put it all into perspective. There really is “small stuff”.
Christmas Day. I actually thought about taking the day off and giving the blog a rest. After all, who works on Christmas Day?
As we found out earlier this afternoon, many people do.
From nearly 3,000 miles away my wife received the kind of phone call that we thought we were done with for a while. Having gone through the deaths of 3 parents in the last few years, there wasn’t much left to dread.
The call for the Los Angeles Fire Department informed us that my wife’s sister had unexpectedly passed away. Her young children made the 911 call.
The house was quickly filled with all of the good souls who work on Christmas Day. Firefighters, EMS, Child Protective Services, Chaplains and others, who sought to bring comfort in a horrific moment.
Don’t worry, Jayne. The kids will be well taken care of. Everyone will see to that. Everyone will rise to the occasion.
Everything else is small stuff.
Sweating the Small Stuff December 24, 2007 (posted 1:00 PM)
All weekend long I was wondering and worrying about one thing.
I had outstanding $20 call options written on Ameritrade for December. By the time I had gotten home on Friday, as you may recall, the markets were already closed.
In all likelihood, had I been home, I would have bought back those options as Ameritrade approached $20. Through hard learned mistakes, I now know not to buy back those options too soon before expiration, because lots of things can happen in a volatile market.
So now, the last minute is the strategy.
As it turned out, the closing price was $20.04. By exchange rules, closes $0.05 or more above the strike price are automatically exercised. But I wouldn’t know until Monday what happened to my shares.
If only I had been home to take care of my precious portfolio.
Those family obligations can really get in the way, can’t they? Just when I thought that it was so worthwhile making that 500 mile day trip, the doubts were beginning to creep in.
Of course, then it hit me. We were talking about $0.04!
Honestly, it only hit me after I discovered that the shares had not been exercised. How bad is that? One of these days, if I have the time, I’m going to look up the meaning of the word “perspective”.
In the big picture, a loss of $0.04 of profit per share would probably not amount to too big of a deal. Let’s see. If I owned a hypothetical 1 million shares, that would be $40,000 of potentially lost profit.
That’s a lot of money to leave on the table, but amortized over the next 10 years of active investing, that would only be about $4,000 per year. Still a lot, but then, I didn’t really have a million shares.
If I had a million shares, I wouldn’t be doing my own typing and there would end up being far fewer “commas”, as my editor would see to that, unless of course the editor was inept.
Of course, the further realization came to me as I, with great insight, came to understand that if the shares were exercised, I could just as easily have repurchased them. All I would have to do is add another $9.99, to cover the cost of the trade, to the $0.04 per share.
That’s what I sweated over?
Time to re-think this game. Because, after all, it still is a game.
As it would turn out, my Blackstone shares were exercised, giving me some end of the year tax losses. But my Ameritrade shares were not.
So I dutifully did what I am programmed to do. I went and sold more Ameritrade call options. This time, however, I sold some in the money January $20 options. The ability to resist the premium just was non-existent. The premium amounted to almost 4.5% of the stock’s underlying price.
That’s not bad for an option set to expire in less than 4 weeks.
Given Ameritrade’s low volatility, I’ve been able to do this sort of thing over and over again over the past 2 years. As a stock investment, Ameritrade has been less than mediocre. However, as a vehicle to sell call options, it’s been pretty good. Not that I expect to get 4.5% each and every month, but I can dream.
If Ameritrade, were to close above $20 at the end of the January contract, that would be just fine with me, as I only optioned one third of my shares, leaving opportunity for other trades.
Not wanting to jinx myself, that annualized rate of return is just a bit higher than the actual year to date rate of return has been on the portfolio that I invest for my children’s benefit. Not including today’s action, that portfolio is up nearly 46%, despite also holding some notable losers, such as Level 3, Blackstone and NYSE. I suppose that Apple, MasterCard and lots of covered options trading can take credit.
Last night, I watched along with my oldest son, based on his exuberant recommendation, Season 1 of “Flight of the Conchords”. For those who have seen this HBO series, you’ll understand when I put most of the credit to the options, very much akin to placing most of the blame for a spoiled romantic interlude on turning off the lights.
Yes, the gains were mainly from Apple and MasterCard, but also mainly from the options writing.
Watch the series. Very funny in an absurdist kind of way.
This morning begins a week’s worth of vacation, with all of us at home. My soon to be college graduate has a business plan that we will review. In addition, he will be taking a class of Investment Derivatives in his last semester, so we will sit and watch the ticker and maybe make a trade or two on some derivative contracts.
I’m certain that in his class he will spend quite a bit of time on the mathematics behind figuring out fair value for options pricing and then spending lots of time on “the greeks”, the measures of whatever it is that they measure.
Even though in past years I probably would have mastered the calculations and probably would have made my own spreadsheets, these days I eschew the overly analytic approach.
I use very simple rules. They are my own and have, so far, worked well. In general, for a 1 month contract whose strike price is 10% above the current stock price, I expect a premium that is at least 1% of the current stock price.
If the strike price is only 5% above the current stock price, I look for a premium that is 2% above the current price.
Simple, untested, valid only for me. I’m sure that his professor will laugh him out the door if he puts it forward, but in my small universe of stock holdings, it works. At least for call options.
I have only rarely ventured into puts and each time they have been based only on a gut feeling regarding a stock’s pricing in response to upcoming earnings. With a very small denominator, I’m batting 1000 on those transactions, but for some reason, they have been the most sweat producing investments, despite the fact that there is relatively little on the line when I make those trades.
It doesn’t really make to much sense that the sweat produced is out of proportion to the potential loss.
I don’t like sweat production and I don’t like losses, unless I can convince myself that there’s a tax benefit involved.
The mind is an incredible thing. You can convince yourself of anything.
Over the course of the next week, I’ll be trying to use my mind to send a message to the rest of me to turn off the anxiety related sweating, at least for the small stuff.
I suppose that could be a New Year’s resolution, although I don’t really think that I’ve made a habit of making those in previous years.
So far, this morning has been a sweat free experience. With the market closing at 1 PM, it quietly is continuing with Friday’s rally, although there are no real standouts today, at least none that I care about. Other than the quick Ameritrade trade, I don’t really see anything else out there, even though I have the proceeds from the Blackstone exercise burning a hole in my pocket.
Maybe it’s that burning that’s responsible for the sweating.
Merry Christmas and don’t sweat the small stuff. Hopefully, during the holidays the Big Picture is all around you, as it is for me.
That’s much more enjoyable than even a stock ticker or being a stock picker.
The big stuff is worth sweating.
Missed it all, but well Worth It. December 21, 2007 (posted 7:00 PM)
I may be going out on a limb here, but I’m ready to change my entire approach to investing and market watching.
Based on today’s single data point, I can unequivocally say that my portfolios perform beautifully when I don’t know anything about what’s going on during the day.
Sometimes you can spot a trend before it knows that it is about to become one.
This morning, I left home at 3 AM for a very happy trip to New York, marking the ritual entry of a newborn male member of the family into the fold of the chosen people.
Prayers were scheduled for 7:30 AM and the ceremony at 8, so an extra early start was necessary for the nearly 250 mile car ride. You just had to be there on time. As it was, I was likely to stand out like a sore thumb because of my less than ritualistic approach to the process, as well as the wildly inappropriate tie that I was wearing, courtesy of the Secret Santa at work.
Jennifer, you know what I’m talking about.
Although it was wildly inappropriate in a social context, it was extraordinarily appropriate for the occasion.
So promptness was critical. There are no second performances of this age old ritual for the late comers. And I don’t know about you, but video doesn’t really cut it for me. At the very least, it does an injustice to the entire cut and after all, isn’t that the whole point of the ritual?
Although I got to attend this ritual, I did miss out on one of my regular rituals. I love watching the pre-open futures numbers to get an idea of what direction the markets will totally ignore all cues towards.
As little valuable information as can be obtained from the futures action, I still need my morning fix. It even comes before the ritual cup of coffee and the ritual browsing of the New York Times obituary pages.
This morning, however, all three of those life sustaining rituals were skipped.
About 200 miles into the drive, I had the kind of salt craving that only lox could resolve.
But after arriving safely at the designated designation all I could think about was the event at hand, seeing familiar, but aging faces and wondering whether there would be ample lox to go with the obligatory bagels during the post-ritual celebration.
I didn’t once think about the markets and whether there would be any last minute options related activities. I did think about lox, though and whether there were any pure stock lox plays.
There were lots of people, lots of conversation and sharing of memories.
And there was lox.
Meanwhile, unknown to me, the market was having its own celebration. And they were doing it without me. At the time, it seemed inconceivable that the market would be better off without my meddling.
After much talk and visiting with loved ones from the past and some loved ones from the present and future, it was time to head back home and put in the second and last of the 250 miles.
Amazingly, the first thing I did when I arrived home was not to check the markets, but rather to check a YouTube short film that was posted by my cousin.
I’m biased, but I really enjoyed this short, “Tough Lunch”. Watch it, even though it has nothing to do with anything except the way we’ve all felt about someone, someplace and sometime.
Ultimately, I did get back to job #1. The markets.
Happy as I was to see a 200 point gain to mark the end of the trading week and the end of options expiration, I was chagrined that it all happened without my watchful eye.
Tonight, since I am very sleep deprived, there won’t be much more philosophical waxing and so I’ll be uncharacteristically short winded. One hour of sleep will do that.
Based on this one point of data, short winded may be the way to go. Less analysis, less pontificating and more profit making. The Heisenberg Principle is true.
So I did miss all of the action today, but it was definitely well worth it. Personally and financially. A vacation from my avocation really paid off in lots of ways.
Welcome to the world, Matthew.
Glad I was there.
Time Travel December 20, 2007 (posted 9:00 PM)
As I get older I realize that everything seems to repeat itself. Maybe I’ve made that observation before. That’s the price you pay for actually paying attention. For some strange reason, I seem to pay attention to the kind of details that don’t really warrant attention and often overlook the things that do need attention.
At least I think that’s what my wife may have told me.
But recognition of the problem, I’m further told, is the first step. Or so I believe. I’m not certain how many steps there actually are, but I believe that it also ends with “recognition”.
Take today, for instance. A perfect example of time travel.
Seems like only yesterday, but in actuality it was a full week ago when it was snowing and I was wondering if I would be able to make it back home. There’s just something about snow and air travel that don’t seem to mix. Although last week, despite my delayed flight, I traveled the 500 miles in much faster time than most people traveled 2 miles in the Boston area. The lucky ones made it home in 2 hours.
So the process has begun and I’m checking out earlier flights, although I don’t think that I’ll be able to take advantage of any possible opportunities. There’s just not the same sense of panic this morning. After all, what’s a mere 6 inches?
When I awoke this morning, the first bit of news on the business wires was a blast from the recent past, as well.
Bad numbers at Bear Stearns, an additional $7 billion in write-offs at Merrill Lynch, lawsuits over failed hedge funds. Deja vous.
So far, though, just barely 30 minutes into the trading day, the market is shrugging it off. Same thing. Not much of a sense of panic. What’s a mere $7 billion?
So maybe not everything repeats itself.
Not so for the financials, but what else is new? When you travel in time, there’s nothing new. Its all happened before. Bear Stearns and Merrill are predictably lower and so is Citigroup, on more dividend cut fears. But that can change with time, too.
I’m not sure why anyone is really worried about Citigroup’s dividend. Even if they cut it in half it would still be almost 4%. The conventional wisdom says that long term investors would leave Citigroup because they feel that a drop in the dividend will end up rewarding the shorts. Who would want to reward those parasitic bottom dwellers?
But everyone knows that no true investor is going to make a move based on principle. Any moves are based on the probability of profits. Besides, if they did sell, then they would truly be rewarding the shorts by helping to drive the stock price down even further.
And as far as the relatively benign movement in the Dow goes, doubly not so for E*Trade, which is down about 10%. We’ll see how much good will that creates among its investors and brokerage customers. Apparently, a day of commission free trading wasn’t sufficient to soothe the beast that is waiting to pounce on what’s left of E*Trade.
I don’t think that there will be any Saudi Princes coming to E*Trade’s rescue. I doubt that they’ll even show up for the funeral.
It’s too bad that the time travel concept hasn’t rally been perfected, yet.
I don’t know if anyone has ever really given it much thought, but there’s a lot you could do if you did.
I love having original thoughts.
In all, by the end of the day, the market was pretty respectable. A small gain is better than none, but those are the kind of insights that I am privy to.
After a day of just hanging around the flat line, in the last 30 minutes or so, the Dow decided to move up. That’s encouraging the day before options expiration.
Speaking of which, a happy family obligation requires me to be in New York tomorrow, so I will be hopping into the car at about 3 AM and probably will start the trip home around noontime.
If I’m really lucky, I may arrive home before the end of the trading day. I still am undecided about what to do with my losing Blackstone position that has in the money options written on them. I could still stand to take a short term capital loss, but I’m just not certain what direction the impulses will take me.
What I’m thinking of doing is investigating the past and analyzing the thought processes that have led me down the wrong paths in recent months.
That calls for another time travel adventure.
Maybe, though, what I should just do is to wait until Monday, or maybe even next month and see what happens and then do the time travel thing.
But since nothing really changes, the likelihood is that I would end up repeating the faulty decision making process.
So the answer is obvious. Just do the opposite of what I’ve been doing, even though the aggregate bottom line has been very good, it all could have been much better if I would have ignored some of my well thought out strategies.
So I will probably go with the original plan and let the Blackstone shares get called from me.
When I look back, I’m sure it will be the right decision.
Although, now that I’m sure that it will be the right decision, that can only mean one thing. I’ll need to do the opposite again.
It ends up a lot like dealing with double negatives. It can get confusing.
So instead, I may just find myself seeking out as many traffic jams as I can so that I won’t be able to act on any flawed thoughts.
Or is it?
Time will tell.
It’s Hard to Say “No”? December 19, 2007 (posted 9:00 PM)
I didn’t think that I could be swayed. I’m pretty immune to marketing and am not known for following fashion, nor trends of the day.
I’m the kind of guy who doesn’t take freebies. As opposed to those who make a full 12 course meal out of patrolling the Food Court for free samples on a toothpick, I just say “No, thanks” and walk on. Free pens, calculators and the like from pharmaceutical reps? No thanks.
But today, I found it hard to say “no”.
Today was “E*Trade Customer Appreciation Day”. To their credit, they didn’t call it “E*Trade Remaining Customer Appreciation Day.
Good decision. That would have sent a bad message. Maybe an accurate message, but bad, nonetheless.
Today was a day of commission free trades and I found opportunities to take advantage of their offer, as a remaining customer. From what I hear, there are fewer of us each and every day.
So it was a good opportunity to buy back my ready to expire December Apple $200 options at a nice profit and then sell some January Apple $210 contracts.
As far as Apple goes, it’s really a mixed picture. I’d love to be able to hold on to my remaining shares another 3 weeks so that I can pass the last of my shares into long term capital gains. The options will expire about a week after that point, right about the time that Apple will probably be releasing its next earnings report.
There may be risk attached to holding onto Apple into the earnings report. Although the latest numbers seem to indicate that holiday spending on electronics is strong, Apple would have to have some real blow out numbers to lift it decisively past $200. On the other hand, there’s a steep drop on the other side of $200 on any mis-step.
At this point, the game plan is to buy back the Apple options before the earnings report and take my profits in the underlying stock.
We all know, however, that there is rarely a plan that goes off as planned. In fact, my original plan called for untold wealth, incredible athletic prowess and disarmingly good looks.
2 out of 3 isn’t bad, but the plan called for all three.
But as long as E*Trade was giving freebies, I also sold some January $240 MasterCard contracts.
The good thing about selling these contracts month after month is that the strike price keeps creeping up. I’ve been riding MasterCard options up from $165, with an original cost basis at $137 having been worked down to about $125, thanks to options premiums.
To really take advantage of the E*Trade offer I kept looking for opportunities to buy back these options as Apple went from a gain of a couple of dollars to a loss, but it wasn’t meant to be. Sometimes you really want to be a bit piggish and have no sense of pride. I wanted more freebies.
As I thought about E*Trade’s idea of customer appreciation it occurred to me that they should consider a different means of demonstrating their appreciation for some others.
Those others are stock holders. Ultimately, nothing would send a better message to E*Trade customers about the continuing health of the enterprise than a healthy stock price.
Unfortunately, E*Trade has started losing customers who fear a collapse of the company and are worried about the security of their assets.
You can’t really blame those people. I worried, even though I know all about the SIPC and FDIC protection. But it wasn’t because I feared losing the assets, it was all about losing control.
As far as I know, they don’t make Depends for that kind of control loss.
The real worry is not that you will lose your money, that won’t happen, as long as you’re within the account limits. But the real worry would be whether your stock positions would go into limbo in the event of an E*Trade meltdown.
Limbo is acceptable if you buy and hold, but not if you’re an active investor. Could you imagine not being able to execute an order on a volatile position because your stock is in the ether?
It’s actually not unlike what happens if you try to transfer your account and its holdings from one brokerage to another. Cash is easy to transfer, but you can have a 2 week period, or longer, when your stocks aren’t available to you for trading.
Agony under the best of circumstances, but especially risky business, especially when volatility rules the day.
So E*Trade did their customers no favor when it sold a piece of itself to Citadel at a really distressed price. Why would an E*Trade customer have continued faith in the future of the company when they see its stock price dwindle into nothingness?
It didn’t inspire my confidence. If E*Trade had any concern for its customers or shareholders, it would have looked at selling the entire enterprise, rather than setting a depressed price on the remaining piece, after selling a portion at a fire-sale.
I still sit on shares of E*Trade that I bought at $3.55. That’s where we are now.
Only Citadel got a good deal on that one, although, eventually, someone else will get a good deal on the remaining portion of E*Trade.
It won’t be the stockholders.
Since Ameritrade announced good numbers after yesterday’s close, they don’t need to be in any rush to go after E*Trade’s assets. Those assets, namely E*Trade customers will find the path leading to Ameritrade on their own.
Right now, I still plan to say “No thanks”.
I plan to stay with E*Trade because they have great software and great execution.
At one time they had a great business plan, but we all know how that worked out. Just ask Morgan Stanley, as they are now in the same boat, having now sold a portion of itself to a Chinese investment fund.
As big as Blackstone and KKR and the others are, they’re no match for the emerging sovereign funds. How can you match the pocket depth of the Chinese government?
An American sovereign fund? Maybe the Chinese will show us how it’s done.
It’s hard to say no.
Just Who Can You Count On? December 18, 2007 (posted 7:30 PM)
Amazing. It can’t be coincidental, but the UPS insurance check arrived today.
I need to complain on a more regular basis. Luckily, there’s no shortage of consumer related topics to complain about, although you really can’t top the story that some Chinese manufactured toys had rohypnol, the date rape drug, in them.
Really? Can you top that?
I’d like to think that the power of “Szelhamos Rules” is what finally greased the wheel, but I’m not completely delusional. I know better.
What I didn’t count on was that my good friend, a one time UPS employee, would pull his weight and “get ‘er done”. He’s pretty successful in life, these days, and he can make things happen.
You can count on your friends.
In hindsight, I should have asked for peace in the Middle East, but now I’m reluctant to go back to the well. But listen, you know who you are, while you’re sunning and funning in Maui see what you can do.
I used to have other friends and most have been pretty good to me. But there’s nothing worse than being disappointed by your friends.
Goldman Sachs used to be that kind of friend, but I noticed a few weeks ago that its life as a leading indicator for the Dow was in the past. It just wasn’t the market mover anymore and in fact, was often moving in directions opposite to the market.
Friends don’t do that to friends. Friends go in the same direction.
Today was the day that Goldman should have re-asserted its leadership. After all, that’s what the intervention was all about. We all cared about Goldman, and Sachs, too and just wanted them to lead again. Outrageously high end of the year bonuses are a small price to pay for market leadership and performance.
In quarters past, you could always count on a Goldman earnings report to just turn things right, no matter how bleak. And with the futures pointing nicely higher this morning, Goldman should have been poised to give it the market a really nice extra boost and make back the last 300 points.
Since Goldman had already gone down nearly 30 points in he past couple of weeks, common sense would tell you that any potential bad news was already worked into the stock’s price.
But when was the last time you heard the phrase “bed news” and Goldman uttered in the same sentence? Sure, plenty of times when it would refer to the other guys’ bad news, but when did we last hear of bad news coming out of Goldman?
I spoke to my blog historian, who is not an employee, but rather is on retainer for just such matters, to find the answer to that question.
I’m still waiting. You get what you pay for.
So the only plausible direction today would be up, because there could be no possibility of disappointing news, especially since we’ve learned that while others flailed in sub-prime, Goldman thrived.
Then like a stab in the back, that only Julius Caesar could appreciate, Goldman comes out with earnings that are only 2% better than estimates.
With friends like that….?
But before I could even finish that obvious thought comes the pointed reminder that at best, I was a fair weather friend. I was willing to part with my Goldman shares, at the right price. I dangled call options out there for anyone to buy, always willing to sacrifice my future with Goldman for just a few dollars of premium.
And I was a serial dangler.
What possibility was there of a trusting relationship if you could count on my selling and then buying back option, sometimes more than once each month?
It’s a 2 way street and I had definitely crossed over the line.
I’ll take my share of the blame, but it’s time to get that behind us.
I was ready to go on, but Goldman wasn’t. As the day wore on, Goldman couldn’t do anything to get itself back on track. Back in the old days of a couple of weeks ago, that would have meant that the market would have stayed down in the dumps along with Goldman. But in a really great fashion, the market erased its losses, left Goldman in the dust and had a respectable finish to the day.
It wasn’t easy. The easy thing today would have been to have strung a third day of 100+ losses together and challenge that 13,000 level again.
Today’s turnaround was as plausible as Lieberman announcing his support for McCain or Ken Lay being appointed the new CEO at Goldman.
The reality, though, is that Goldman had great numbers and it’s price suffered as a result of a rumor from “a highly placed” individual that the lat 2 weeks of November were the worst ever in Goldman’s history.
Unsubstantiated, but put that together with a report that a recent internal conference cast gloom over prospective bonuses at Goldman and you have the makings of a run on the stock.
But tomorrow, it’s back to business as usual.
I look forward to working with my friend Goldman and his shadow, Sachs for a long time to come.
We can get over this little hump.
The options meant nothing. It was just a casual flirtation.
Oh yeah. Happy Birthday, Veruci.
What Can Brown Do for You? December 17, 2007 (posted 2:00 PM)
Today should have been a good day, given the early indications.
The proposed mergers or buyouts by National Oilwell Varco and Ingersoll- Rand should have given the market a little boost.
In the case of National Oilwell Varco, great name, by the way, the news was moot for me, since its takeover target company, Grant Prideco, was sold by one of the professional managers whose services we are likely to soon dispense with.
Another great name.
It’s actually not the first time that he has sold a takeover target, literally 2 or so days before the announcement, and always on a downtick. I suppose that’s a certain kind of talent.
But as far as today being a good day, the futures markets were saying otherwise.
That should have been the clear signal, that another troubled company, UPS, would not be the place to be, today.
Now I don’t mean that in terms of an investment, I mean it in a physical sense, although neither UPS nor FedEx have been setting the world on fire, lately. Today is reportedly FedEx’s busiest day of the year, whereas for UPS it’s supposed to be on Thursday.
Thought you might like those factoids.
For my son, UPS was definitely not the place to be today.
He submitted an on-line application for a holiday job with UPS and today was his interview date. Given that the job is to essentially lift and move packages during the busiest part of the year, you would assume that the interview would be nothing more than an assessment of muscle and back strength. He happens to be nearly 6’6” and actually has tissue masses that could be classified as muscles.
He was told that the process might take hours, because there were going to be lots of interviews that day. He was told precisely what documentation to bring with him, such as birth certificate or passport.
At least they seem to superficially abide by the law. I’m sure that Congressman Tancredo would be impressed.
He arrived home this morning, enroute to the interview, to pick up his documents. With books in tow, as he had his last final of the semester, he stayed a short while and crunched some numbers for a school project. No sense sitting for hours waiting for an interview when there was studying to be done.
Working on just a couple of hours of sleep, he had planned to go to the interview and then head back to his fraternity house to do his last minute studying with whatever time he had remaining.
After he left our home, he called me about 20 minutes later.
When he arrived at UPS he was asked to complete the very same application that he had submitted on-line and then he was told that interviews would be tomorrow.
So Brown did nothing for him. Unless of course you consider wasting time to be a valuable action. I suppose that’s a special kind of talent, too.
I wonder if the fine people at UPS can make stock recommendations?
For me, it just confirmed some issues about UPS.
I carry some UPS related baggage in a figurative sense. It’s hard to imagine that my son would consider doing it in a literal sense. But a buck is a buck.
A short while ago we received a UPS delivery whose insured contents were damaged. We called UPS and they made arrangements for an inspector to visit us, assess the damages and file our claim.
The inspector came right on time, evaluated the package and took her notes, telling me what the next steps were.
I asked her if she was going to leave any paperwork with me and she told me that I didn’t need any, because it was going to go right into the computer.
My mistake. Because there ended up being just one problem.
When we tried to follow up with UPS, they had no record of the inspector being requested, assigned, nor completing any reports.
We’re now more than 2 months into the process. I’ve lost track of the number of phone calls and the astonishment by everyone on UPS’s end when the story was told, retold and retold
“Are you certain that it was a UPS employee”
“Are you sure that there was someone actually there?”
I may be stupid, but not stupid enough to invest in UPS. Sometimes going public is not the best thing in the world as far as your product or franchise goes. Look at Blackstone.
With the UPS issue now out of mind, at least temporarily, it was time to get back to some real concerns. The big concern today was that I might be away from wireless access for much of the day on Friday.
Friday is the all important options expiration day. Important for me, at least.
What to do, what to do?
With the market down in the early hours, I knew just what to do. And I wasn’t going to wait until Wednesday, for E*Trade’s special Customer Appreciation Day. The day’s worth of free trading didn’t really entice me to sacrifice the opportunities that existed right now.
I decided to buy back January options in Google and Goldman Sachs, while selling my December puts in Corning, which finally started their expected price drop.
As far as Corning goes, if it stays in the $22 or higher range immediately after Christmas, I plan on buying more puts, in anticipation of disappointing 4th quarter earnings, which are set to be announced in late January.
As is often the case, I jumped in too early, but there were still small profits all around, although on a percentage basis, they were very nice, all in the 25-50% range for just a week or two of holding time. In the meantime, now there’s no need to try to do a scavenger hunt for wireless hotspots in Manhattan. As anyone can testify, I wouldn’t know a hotspot if it bit me on the …..
And finally, as good fortune would have it, our much awaited hot tub is bound for delivery. And guess what, the delivery will not be made by UPS.
My aching muscles, not that they are discernible as such, aches for the hot tub, but hard as it is too believe, the delivery can’t be made on Christmas Day.
But it can be made within a 2 hour window.
Let’s see Brown do that.
In fact, same day, would be nice.
The last time I really ranted about a company on a personal level, it was Comcast. Their stock has gone down about 40%.
Maybe the question should be, “What can I do to Brown?”
The Final Jeopardy Category is “Offs” December 14, 2007 (posted 3:45 PM)
The answer is:
“Lay-offs, spin-offs and write-offs.”
“What are euphemisms for self-pleasure?”
“Oh no, I’m sorry and let’s see your wager.”
“Oh, you went for it all. You blew your load”
The correct question was:”
“What will Vikram Pandit be doing to return Citigroup to pre-eminence?”
Citigroup has been one of my favorite topics. There’s nothing quite like kicking someone when they’re down. So you’ll understand why I take this opportunity to assert that Art Fleming was a better Jeopardy host than Alex Trabek, although I do wish Mr. Trabek a speedy recovery from his recent heart attack.
Knowing that Art Fleming can never return to his heavenly anointed position, I can’t help but think that Alex Trabek would still be better than Rosie O’Donnell as the host of Jeopardy. So get well soon, Alex.
Lately, though, I’ve been an owner of Citigroup shares and have not seen the turnaround that I expected in the time frame that I expected. So my feet are pretty sore. I should have invested in those steel toed boots and retired the open toed numbers.
You live, you learn.
But now comes along the new CEO who is widely denounced as not having any real managerial experience, despite the begrudging acknowledgment that he is brilliant.
Things could only get worse, right? That’s when all of your “friends” show their true colors and soccer skills.
Maybe brilliance at making money is a good thing. It certainly couldn’t work out worse than having had an attorney running the show into the ground. Prince cogitated while Citi slept and ultimately burned to the ground.
I still don’t understand why it took so long to appoint Pandit, unless he held up the decision, by taking a hard stance in his negotiations with the Board. Maybe he wanted their unqualified support for his ability to make decisive actions based on data driven decisions. Although like any good hedge fund manager, Pandit probably throws in a bit of gut and intuition feeling into the mix.
What we do know, after just a couple of days is that Vikram Pandit is decisive and the Board knew that that’s just what was needed to get Citigroup not only back on track, but back to a global leadership position.
His move today to add about $50 billion of SIV assets to the Citigroup asset sheet was a bold move, especially after Morgan Stanley, his one time employer declared Citigroup as “the short of the year 2008”.
This morning’s announcement was met with skepticism and lots more talk that the dividend was the next thing to go. If Pandit does make that decision, you can be assured that he has projected outcomes that are probably 5 steps ahead of the naysayer analysts.
But after a while, the traders changed their tune and started moving Citigroup up. Many started saying that this move, taken together with the Fed’s announcement regarding international banking cooperation in the credit markets, was the beginning of the end of the sub-prime crisis.
This was the bottom. In hindsight history in the making.
One can only guess that Pandit had a very short message to send to his old bosses at Morgan Stanley. Maybe similar to the message that Kruschev sent to the United States.
With perhaps that differences being that there’ll be no shoe banging, at least not in public. Plus, there will be something behind any bluster.
Why am I being nice to Citigroup? It has nothing to do with the fact that my son and I may be going to them for a business loan for a start-up venture.
With the projected impending loss of 45,000 jobs, the spin off of Smith-Barney and $10 billion in write-offs, these are more than just insignificant blips and casual decisions. But look for Pandit to make moves in all of these areas while he gets emboldened, watching the stock price increase.
With the news that Goldman Sachs just upgraded Citigroup’s debt, there is further indication that Citigroup’s parabola is pointing upward. That’s why I’m being nice.
Can you tell that I reviewed Chapter 5.1 with my son yesterday?
Ah, quadratic equations.
Speaking of Goldman, in somewhat of an anomaly, Goldman is strong this morning, while the market is weak.
Lately, there has been a disconnect between Goldman and the overall market, with Goldman no longer functioning as a leading indicator. Maybe, just maybe, it’s Citigroup’s turn. Although, I wouldn’t count Goldman out of its lead role. They report next week and they can wag this baby.
As we’re approaching noon, the market’s attempt to cut it’s losses was nipped in the bud and we are back near the lows of the early morning, but Citigroup is still hanging in there. Even as we entered into the last hour of trading, with the Dow down by 150 points, Citigroup was one of the market leaders, although with a loss of about $0.02.
I’d look at this as a pretty disappointing week. This one should have been a great one, coming off of last week’s positive outcome and this week’s misunderstood Fed actions and under-appreciated initiatives.
The jeopardy in underestimating the strategic initiatives by the Fed and the likes of Citigroup is unquestionable. This is the time to divert unused assets into equities.
Buy stocks in the big boys. Forget speculative plays and go for the quality pieces of paper
If you don’t, just imagine Alex Trabek reading off the final Jeopardy Category:
“Missing the Boat”.
“Missing the Boat”
We Wouldn’t Know Good News if it Bit us in the….. December 13, 2007 (posted 8:00 PM)
The universe of traders, investors and stock speculators must be coincident with the universe of sadomasochists.
How else could you explain yesterday’s Jekyll and Hyde performance?
I know good news when I hear it.
I got some this morning, as a matter of fact. Than you for asking.
My oldest son called me this morning with the news that he conquered his last remaining obstacle to graduation. He passed Calculus. No easy feat, but a required one.
I smiled from ear to ear. It may have been the single best phone call that I had ever received. These days, if you believe USA Today, only mutants can graduate in 4 years or less.
My son, the Mutant.
On days like today, good news is good.
At the moment, I’m sitting in an airport terminal, wondering if my flight will ever depart. Earlier in the day, with warnings of a big winter storm, I was ecstatic when I was able to find a seat on a flight scheduled to leave nearly 3 hours before my original flight and a full 2 hours before the storm was supposed to hit.
It seems, however, that the storm forgot to wait for its cue.
As I sit and type, you can’t see anything but flying and accumulating snow.
In the nearly 6 years that I’ve been making weekly flights, the only snow cancellation that’s occurred, happened to be on the day that I had to get to California for my mother-in-law’s funeral.
500 miles of driving in white out conditions and a red eye flight out, got me there with an hour to spare. I don’t have the same type of urgency tonight, but I want to get home.
So far, I can’t call this bad news, but it’s looking like a strong possibility.
Now the real bad news is that I can’t seem to connect with E*Trade, even though the airport’s internet is functioning.
I hate being in an information vacuum.
All that I know is that at about 1 PM, the Dow was down 90 points. For me, the only good news was that Corning was finally down, as well. With a week to go on the puts that I bought, I still am holding on to hope. In this case, bad news for Corning’s stock price would be good news for me.
It takes a special person to know when bad news is good.
My mother always said that I was special.
So the snow gives me more time to think about what could have and what should have been yesterday. As exhilarating as erasing a 200 point loss is, the wasting of a 200 point gain is excruciatingly painful. It’s not easy to quantify the ratio between exhilaration and excruciation, but it’s not good.
Recently, a Malcolm Gladwell’s book proclaiming the wonderful nature of the gut reaction and first impression has made me think that the overall human thought process is fairly flawed.
Thinking is bad. Processes, in general, must be bad.
Last night, I lay awake from about 3:30 AM until the unnecessary alarm clock sounded. Too much thinking, too many processes.
What didn’t I think about? I probably covered every angst filled topic that was available for my review. A lot of good it did me. I certainly won’t fall to sleep on the flight, if it does eventually get off the ground.
My brother-in-law, on the other hand, returned to California today. At 60, although a seasoned traveler, because his mother was a travel agent, back in the days when that was actually a profession, he has only started flying on his own about 2 years ago, so that he can visit us on the east coast. He probably doesn’t have very many deep thoughts, or at least none that he is able to verbalize, but man can he fall asleep at a moment’s notice. Anywhere, anyplace and anytime.
He probably follows his gut reaction and it seems to work out fairly well for him. Granted, he has a strong support system, but his gut reaction has never let him down.
I think that he should have been calling the trades yesterday. At least he wouldn’t have wavered from his gut reaction and over-analyzed the Federal Reserves plan to increase liquidity by cooperating with the European Central Bank and others. He may not have remembered whether he ate breakfast or not and he may have forgotten to remove his socks before showering, but he would have known good news when he heard it and he would have acted accordingly.
You would think that a few hours of upbeat and exhilarating trading would have been enough to convince even the skeptics that the plan was a good way to introduce liquidity. Witness how well it worked after 9/11.
But then the analytical part of the collective brain kicked in and just went and ruined a good thing. In all likelihood, the wet socks that those smart guys were wearing was probably from the tears resulting from the realization that they just wasted 200 precious points.
As it may turn out, I may end up with lots of time to think about yesterday’s debacle, as they are now beginning to announce flight cancellations.
I dodged the first series of bullets, but the silence now means nothing. Just the kind of false sense of security that makes you easy prey.
In the meantime, as I continue in the stock market vacuum, at least I’m able to check on the breaking news. Today, that means the name dropping and gossip of the Mitchell Report on steroid and human growth hormone use in major league baseball.
I certainly never read the Warren Commission Report or the 9/11 Commission Report, but I plan to read this one, maybe while I sit in the terminal, where people are now in the early grumble stages.
But just as suddenly, 3 completely disparate bits of good news come in.
The E*Trade software initializes and the market is only down a dozen points, with Corning down and MasterCard, whose options I re-purchased yesterday, unfortunately right before its 10 point drop, has now retrieved all $10.
Good news. Right?
And then comes doubly good news.
Our aircraft has landed and they are rushing to get us aboard. While I am on line, my good, great friend calls to find out whether I’ll be getting home or not.
After he hears my good news, he gives me his good news. His daughter just received a full scholarship to the University of Pittsburgh’s Honors College.
I do know good news when I hear it.
Right now, I’m in the air. My original flight was cancelled, but by some good grace, here I sit, with a cran-apple and vodka delicately balanced on the laptop.
My airplane row neighbors are engaged in thoughtful and well modulated conversation. That’s a nice and welcome change from the norm.
My brother-in-law has arrived home safely and I am prepared for the same.
And finally, we have no known social obligations this week, other than my younger son having been invited to an upscale birthday dinner at Ruths Cris.
I’ll take good news whenever I can.
I just hope that the smart guys controlling the ebb and flow of the markets figure that out as well.
When I finally did get home, I found out that the Dow turned it around. Maybe, just maybe, they do know good news when it bites them on the .....
Was it Something I Said? December 12, 2007 (posted 9:45 AM, updated 8 PM)
The whole world is mad at the Fed early this morning.
Listening to the analysts this morning, following yesterday’s 300 point drop, the Federal Reserve has now been blamed for global warming and the disappearance of Amelia Earhart.
There is, however, no truth to the rumor that Bernanke walked into one of the homes on “To Catch a Predator”. A lot of leading economists just look alike when they’re running away from the camera.
Lately, they have good reason to stay away from the cameras.
Bernanke has not appeared to defend himself, so there may be a kernel of truth to all of the allegations that are pouring in. Although, it’s probably fair to say that if he delivered a written statement it would probably be interpreted as a guilty plea on all counts, regardless of the intent of his words.
Normally, the morning after a 300 point decline, you would hear the analysts observing that the futures are deteriorating. That’s just the way the script is written. No one wants to be left holding stocks when the world is about to end.
This morning is no different, because at 8:30 AM the futures are deteriorating. But what is different is that they are deteriorating from a level that was up by over 100 points.
Up 100 points the morning after? That’s not the way the script is written. Ad libs, though, would be welcome. Because the script is a real downer.
So far, it’s really hard to tell who traders are mad at. Maybe they are mad at themselves for over-reacting to yesterday’s predictable 25 basis point cut. Maybe they are in open revolt, in the realization that the Fed has no clue which way the economy is really going. Not that they have a better track record. But why follow the leader when the leader is lost?
It’s rare to take a contrarian approach in regard to the Fed’s vision. But if there is no vision, only reaction to obstacles that come along the way, their opinion isn’t any more valid than the next guy’s ideas.
There is so much second guessing of the numbers, of the words, of the role of the Fed and everything else that it really makes you realize that anyone has a chance to do well as an investor.
After this month’s Trade Deficit numbers came out, the deterioration in the futures simply reversed itself. Bad trade numbers, bad for the dollar, yet good for the markets.
Who would have guessed?
Now comes the news that the Fed is collaborating with the European Central Bank, the Swiss National Bank and the Banks of England and Canada to auction funds in order to ease liquidity. The last time this was done was immediately after 9/11.
The real difference is that the Fed is now looking at this auction mechanism as a permanent fix.
Who knew that coordination and cooperation would be good things?
As that news came in the futures doubled, literally in 30 seconds. Within 3 minutes, the futures nearly tripled, although the froth did come down a bit.
At least this time, the words of the Fed were taken positively. You do have to wonder about the timing of the announcement. Given the scope of the agreement, it had to be in the works for quite a while. The Bank of England is known to be notoriously laborious in its mechanics.
Who knows what the effect would have been if this announcement was made concurrently with the Fed’s rate news yesterday. It would have only been a few more words.
Who knew that it would take cooperation with the world to soothe the world’s anger that was directed toward the Fed? I guess the words have to be in as many languages as possible. Besides, Switzerland alone gives you 3 languages. That’s a real bargain.
And who could stay mad at a Fed Chairman with dimples and a teddy bear cuteness, anyway?
If the markets open up as they are giving indication, I plan to sell more options on Google and Goldman Sachs, as they are indicating upward, in a big way.
Unfortunately, so is MasterCard.
Maybe luck will be with me when I decide what to do with that position.
I just looked at a capital gains review report for the year and I really do want to take some more short term losses and defer gains until next year. But that’s always risky when you have big gains in a stock. They can evaporate as you’re waiting for the longterm holding period to kick in.
At least there’s only a little time until the end of the year, so there’s a little margin of safety.
With the opening bell, the Dow stormed up by 200 points.
I took the opportunity to sell new Google calls. This time for January 2008 with an $800 strike price. I’m looking for other opportunities, but there’s an entire day ahead of us.
Hold on tight to your dreams.
But it’s still all in the words, because by the closing bell, the Dow recovere enough to squeeze out a 40 point gain, after squandering over 250 points.
Ben, you should speak more often.
It’s All in the Words, Not the Numbers December 11, 2007 (posted 8:30 PM)
For a guy who loves numbers and is of a limited vocabulary, it’s hard for me to accept that fact.
Numbers are so objective. And words? They’re not. They’re something else, but I can’t recall the word.
But when it comes down to the real effect of the Fed’s interest rate action today, it’s really not in the ultimate number of the change in rates, it’s the minutes that will eventually be released of the interest rate meeting.
Those statements give insight into the soul, if any, of the Federal Reserve. Those in the know, realize that the real sentiment is contained in the third paragraph of the ensuing statement.
That’s the problem with words. They come in paragraphs and not columns or spreadsheet cells.
Up until 2:15 PM, when the Fed announcement was made, the market had been hugging the baseline. Most people, prior to the announcement seemed to agree that whether it would turn out to be 25 or 50 basis points, the amount really didn’t matter as long as there was a cut. There were even people thinking that there’s another 100 points of cuts ahead. That would start taking us back to the Greenspan days of really cheap money, which lots of people believe is what got us into this credit and liquidity problem in the first place.
For me, it’s always about the numbers. The words just seem to coalesce into an amorphous blob. The numbers, though, they come to life.
Last night, while sitting on a plane, I decided to crunch numbers. I certainly wasn’t going to engage in conversation.
As an aside, I’ve found that a great way to nip any airplane conversation in the bud, is to always make the first response to your new friend’s initial outreach be the following:
“My wife doesn’t understand me”.
Even though who would find themselves in that kind of a situation in their own domestic lives are not likely to pursue further attempts at casual conversation.
Anyway, number crunching called. And I knew that I had to answer. Specifically, I looked at the change in the Dow and the other major indices from the time of its high on October 9th, to yesterday’s close.
Then I looked at the changes in the various portfolios that I had. The Szelhamos Portfolios, which are self directed; the Professional Portfolios, which as you may have guessed, are professionally directed; and, finally, the workplace 401(k) mutual funds.
Now to give you the slightest bit of a hint as to how they compared, you don’t see me naming this blog “Professional Portfolios Rule”, do you?
And I know that “Workplace 401(k) Mutual Funds Rule” is a catchy title on anyone’s banner, but you’re being led astray if that’s the direction you were headed.
So here it is, in a nutshell.
But before I give you the numbers, you should know that they are appropriately adjusted for additional funds that added to the accounts, as the markets were at their lows. The additional funding, though, accounted for only 0.45% of the portfolios cumulative value and would otherwise inflate the gains or minimize any losses.
Sometimes, I’m very compulsive. You really don’t care about those kind of details.
While the Dow, S&P 500, NASDAQ and Russell 2000 were down 3.1%, 3.2%, 3.0% and 6.3%, respectively, the Szelhamos Portfolios were up 6.5%. During the same time, the Professional Portfolios fell 1.9%, with one manager down 0.9%, while the other was down 3.5%.
As usual, the 401(k) plans were at the bottom of the heap, at a 3.7% loss.
I know that you don’t really care about those kind of details either, but I needed filler to reach my 4 page requirement for today’s blog.
The editor actually counts words. Can you tell? For him, it’s the numbers, as well. He could care less about the quality of the words, luckily for me.
After I had crunched those numbers I wanted to gloat, but the person sitting next to me had changed his seat. Which, in hindsight, was not that simple on a fully booked flight. But he must have been motivated.
I’m a good motivator.
In fact, the strength of the Szelhamos gains was able to pull the total portfolio into positive territory, when compared to the October highs.
No wonder I like these occasional valleys.
Now if I hadn’t been so smart, the figures would even be better, but sometimes I over trade. Witness Apple, Google, MasterCard and Blackstone, just to mention a few recent call options that I had written, just for the thrill of the trade.
So today should have made me happy. I said I like those valleys, and we sure did get another one today. Down nearly 300 points following a 25 basis point drop.
It’s a good thing that I didn’t crunch those numbers today.
Of course, following today’s close, that brief excursion into positive territory can best be described in a single word. Brief.
Even though no one should have been surprised by only a 25 basis point drop, the market acted surprised. In fact, after last Friday’s Jobs Report, anyone with even the slightest brain wave activity was predicting no more than a 25 basis point drop. The wishful thinkers were still going for 50 basis points, but even they knew that there was no way that would happen.
But it was the words that really caused the 300 point drop. The suggestion that the liquidity and credit crisis may be having an adverse impact beyond the housing industry sent a pall into the market place.
In between the pall and the fall, I did do some trading today, both before and after the drop.
For strictly tax purposes I sold one of my speculative stocks at a loss. Today was the one year anniversary of the purchase, so selling today makes the loss much more bearable. Bless the tax code. I won’t miss Level 3.
As the market was beginning to dive, I decided to cash in on some profitable option sales, so I bought back my Google and Goldman Sachs options. Both of those stocks got slammed in the last hour, so it was a good opportunity to buy the options back. Since expiration is next Friday, the premiums were now really low, as those options moved far from their strike prices.
Not so for MasterCard though. For me, the only good news about MasterCard is that it dropped from its $12 gain to just a mere $2 gain, still leaving it $17 above its strike price.
I will, in all likelihood buy the options back at a loss, so that I can push the eventual stock sale into 2008, so that I can delay taxes until April 2009. And who knows, I may even make it into a long term gain.
Otherwise, the market decline was so broad that even Corning fell.
Who would have expected that?
If I would expected that I would have bought puts on Corning.
Oh, that’s right. I did, only too early.
Well, if tomorrow is anything like all of the other “day afters” that we’ve had after these mega losses, the market will open on the downside tomorrow and maybe some cautious buying will enter the market, only to drift lower at the close.
With the writers still on strike, I don’t expect the script to change very much.
But then again, scripts are all about words, so I won’t put too much stock in them.
Mastering the Situation December 10, 2007 (posted 2:00 PM)
I used to be much quicker on the uptake than I currently am. But that’s all part of a unifying theme that’s unfolding before my eyes. I’m slowly coming to grips with the reality that the intellectual portion of my being is waning. Certainly the ability to learn anything new is less of a sure bet with each passing day.
But rarely do I find myself missing a joke or not getting the lowest form of humor, a pun.
But that was the case yesterday.
It happened during a small Hanukkah get together. Some friends and family, and very few kids. That seemed to be consistent with the holiday theme.
My wife had a recently taken black and white picture on her desk. She showed it to people and described the woman in the picture with me, with her head on my shoulders, as her children’s future step-mother.
Well, we all got a good laugh at that, but apparently one person really liked the picture and wouldn’t put it down. In fact, that picture stayed in his hands for more than an hour. During which time there were at least 2 trips to the bathroom.
My sister, who is no slouch in her own right, despite never having known any nuclear physicists, commented when he emerged from the bathroom “Well, it looks as if he’s mastered the situation”.
It took me a while and then I got it.
He can keep that picture.
Besides, I’m not certain that my future daughter-in-law is ready for a step-mother-in-law.
Me? I’m ready for one of the above.
What I was ready for was today’s opening. Sometimes, at least when there’s an upward bias, the weekends seem to last forever.
This weekend, however, marked my mystery DNA son’s first competitive event. The plan was that he would call us to be picked up from the arena, which was about 20 miles away, when it looked as if his race was upcoming.
Given that it promised to be as long as a 10 hour day if you stayed until the end, I could easily understand why he preferred to be picked up rather than returning by bus with the team to the high school.
As it turned out, he was about an hour off in his estimates, so I got the unexpected opportunity to watch a slew of races before his and I actually enjoyed it.
What I really enjoyed, though, was watching his event. He ran the first leg, 200 meters, of the relay medley. I couldn’t believe my eyes, as I was leaning on the rail along the track. He flew by me in a blur with a determination I had never seen on his face before. In fact, I’m not even certain that I’ve ever seen him run before.
But he really looked like a runner.
I may have slowed him down a little, as I tried tackling him to get a blood sample to send to the DNA lab.
His team lost that race on a dropped baton handoff, but I found myself wanting to go to more events. Next time, I’ll use a longer needle.
Saturday’s joy was matched by Sunday’s, when my older son came home to visit for the Hanukkah party. He bought my future daughter-in-law with him.
That’s all wishful thinking, because he gave no indication. But it was the first time that he ever subjected someone of the opposite sex to his family. My sister recently told me that sometimes we scare people away with our conversations and stories.
But she just joined right in, never skipping a beat.
Maybe I need to test her DNA, as well.
But despite the nice weekend, I was still looking forward to Monday morning.
When I wake up Monday mornings, there’s always some trepidation. Besides the statistic relating to heart attacks, there’s the concern about what horrific thing may have happened overnight in some far corner of the world.
Not that I care that much about some of those far corners, but I do care about how it all may effect us. And when I say “us”, I mean “me”.
But there was nothing this morning. Just the beginning of a week following a quiet weekend.
So I approached this morning’s pre-open futures with confidence and sure enough, no news was good news. Sure, there was some bad news, but not for most people.
Blackstone, which I own in a losing position, and recently sold call options on, in order to squeeze a little more out of it before an end of the year tax loss sale, just announced that it will be partnering with Chinese sovereign funds to put in a bid for Rio Tinto.
As a result, Blackstone goes up beyond the strike price and I’m left with the decision as to whether buy it back, forsake the tax loss, and take my chances on a resurgence in Blackstone’s price.
In the meantime, the Blackstone news wa especially good for some of my other holdings, such as Freeport-McMoran and Lundin Mining, so in all, maybe the news was actually good.
Of course, for some inexplicable reason, my perfectly well reasoned decision to buy Corning puts is beginning to look like a bad decision, as Corning is now below its strike price. For some reason, it keeps going up after showing some hope that its price will drop.
And of course, there’s always MasterCard, which just keeps rising beyond the $200 strike price.
As far as my mastering the situation, I still need to get a grip.
Somehow, though, with a recent flurry of poorly timed decisions, the Szelhamos Portfolios are still doing great.
Now that I’ve put the kiss of death on them, we’ll have to see what tomorrow’s Fed announcement will bring. But based on past downward spikes in the index, things have typically worked out very well. So don’t fear the unknown, but try to stay away from the long tunnel with the bright light at the other end, especially on Monday mornings.
Since there’s been an 8% rally in the past 10 trading days, we are probably due for a reality check, but nothing really makes sense. Who knows what the real reality is.
I was looking for at least one other use of the root “real” in the previous sentence, but I couldn’t, in good conscience, pull it off.
Which gets us right back to “Mastering the Situation”.
I Finally Get Goldilocks December 7, 2007 (posted 11:00 AM)
In the past few weeks I’ve admitted to some intellectual lapses. The one time ability to understand new topics, has been noticeably withering. Maybe it’s a lack of patience on my part, or maybe it’s the inability to form new synaptic relations.
Whatever it is, its gotten my attention and I don’t like it.
A few weeks ago I mentioned that I didn’t understand the meaning of “Goldilocks Economy”, a phrase that is often used by Larry Kudlow and others. Even trying to dissect the context hadn’t really helped me. It’s pretty sad when you find yourself relying on DVR playback to try and figure out what you had missed. It’s hard to explain to the person next to you why you keep replaying a 47 second snippet of some analyst using that phrase.
Unlike the conspiracy theorists that review the Zapruder home movie of the Kennedy assassination, I don’t think that any amazing new revelations are going to happen from my wearing out the DVR.
Sometimes it just makes sense to make up a reason for the seemingly odd behavior. Fairytale fetish? Sounds good to me and that usually ends all other conversation. On top of that, it usually helps me reclaim some of my personal space.
But this morning it came to me.
This morning, the Jobs Report was released. As opposed to ADP’s numbers released on Wednesday, which really transcended even the most wild of estimates, the official government numbers were middling. 92,000 new jobs and not the ADP 180,000.
And there it was, as clear as day. The government number was not too high and not too low.
A Goldilocks economy is one that’s not growing too fast, nor growing too slowly. It’s just right, so the story went.
So simple. So much yesterday’s story.
Newly emboldened with that insight, I set my sights back to 11th grade algebra. Chapter 4 and matrices, to be precise. I actually got further along than I did last Thursday evening and am beginning to develop an understanding. Not that it will help me in any way, but at least there’s hope.
What there is no hope for is my attention span, because after about 20 pages, I had to take a break. But I will have to return to it, because there’s a much needed review before the next exam.
For the most part, today will be a light-hearted day. My brother-in-law from California is visiting us. He is 60 years old and developmentally disabled. Thanks to the dedication of his family, during an era when so many others would have been institutionalized, he has had a good life and his abilities have developed to their fullest.
What I especially like about him is the pureness of an ever present child. When he is with us, there are lots of activities, punctuated by lots of naps. Today, he and I will go to the movies to see Mr. Magorium’s Wonder Emporium. We will do so at the height of today’s trading.
That’s a big sacrifice for me, as you may have figured out. I don’t think I’ll be able to get a wireless connection in the theater.
We have to go to an early show, however, since tomorrow, he is scheduled for an 8 hour tour of Washington, DC.
My wife is especially kind to me, as I am not going on that tour. She knows my limitations. Basically, 30 minutes on any one activity or topic pretty much pushes me to the limit. I even had trouble watching the entire South Park Movie.
In fact, I won’t even be going to Sunday’s dinner theater performance of “Sound of Music”.
She’s a saint. Great wife, mother and sister.
And she puts up with my incessant staring at the stock tickers.
Occasionally she’ll read these blog postings to find out what’s going on in my life. Hopefully, she’ll read this one. Or you can just e-mail her at
As the Jobs Report number came out the market reacted with an upward move, but it was fairly tepid. Once the market opened, there really was no follow through. There’s probably confusion out there regarding what signals or data points the Fed might be weighting as they are ready to meet next week.
Personally, I don’t think that they are as data driven as Bernanke led us to believe that he would be. It seems to me that the Fed, just as under Greenspan, was reactive to sentiment, at least as much as it was responsive to data. What we do know about Bernanke, however, is that it does not appear as if anyone packs him an overstuffed sandwich that causes his attache case to bulge. So that analytical tool of the Greenspan era has been laid to rest.
But the more you look at the stream of data that comes in, you realize that ultimately the data may be accurate, but the real time reports are very suspect and prone to mind boggling revisions.
Are those the kind of things that you base monetary policy on?
Will that ever change?
Not likely, but when you really think about it, what data is there out there to suggest that there should be any change in which the nation’s monetary policy is formulated?
After all, despite the lack of rationale thought and action and the over-reliance on rumor, suspect data and fear, everything still seems to be humming along.
Although no one expects China to wither away the way the Japanese economy eventually did, our economy continues to adapt to a changing world.
Unfortunately, back in the old days, we didn’t have to adapt to changes. We were the ones who were responsible for the changes.
If the porridge was too hot or too cold, it would quickly be remedied to suit our preferences. There was no need to settle. If you didn’t want lead in your toothpaste or children’s toys, no problem.
As far as that Goldilocks economy goes, it’s still the bears that are calling the shots.
Is it Personal? December 6, 2007 (posted 9:20 PM)
Every student of history knows that as President, Dwight Eisenhower was ultimately extremely disappointed with his choice of Earl Warren to be the Chief Justice of the United States Supreme Court.
At the time of Eisenhower’s decision, it seemed that Earl Warren was precisely the jurist to lead the nation in the direction that Eisenhower and conservatives wanted.
As it turned out, Warren was not quite the conservative that everyone expected. That would be putting it very mildly. But Eisenhower was hand tied once that realization hit him. Separation of powers, you remember that stuff from your Civics classes. Right. Those constitutional framers. They may have had lots of slaves and mistresses, but they understood democracy.
But it’s a little bit different, this relationship between the President and the Chairman of the Federal Reserve. Although there is supposed to be some level of independence, sometimes it’s hard to know. Additionally, it’s not really clear that there is a clear understanding of democracy, nor real separation of powers.
In the case of Bernanke and Bush, and throw Paulson in there, as well, it’s really hard to know whether they are independent, on the same team or internal competitors. On the football field, I think I would chose Paulson. On macroeconomic issues, the nod has to go to Bernanke. On how to blow through a kilo of coke while on National Guard duty, well that one is still up in the air.
Or maybe this whole Bush – Bernanke thing is just personal. Maybe Bush doesn’t want Bernanke getting the glory. Maybe it’s his way of getting back at Earl Warren. Damn independent liberals.
Whatever it is, you have to marvel at the coincidence related to the timing.
Today, George Bush did precisely what he did barely 3 months ago. Back at the very end of August, he pre-empted the much anticipated results of the Fed meeting regarding interest rates in the early hours of the sub-prime crisis.
But even worse, the President made his announcement on the very same day, just a couple of hours earlier than Ben Bernanke gave a policy speech in Jackson Hole.
Bush had a 2 hour advantage because of time zones on that day and he took advantage of every second.
That day, the market went up immediately after the President spoke and barely budged after Bernanke, even though Bernanke’s message indicated a very friendly future Fed policy regarding liquidity in the markets. In a vacuum, Bernanke’s comments on that day would have sent the Dow spiraling higher.
Today, the President, with his Treasury Secretary in tow announced the executive plan to deal with mortgage defaults. By most everyone’s estimate, there will be runarounds the Bush plan, that the unsavory and unethical can take advantage of, in order to get rate reductions or freezes.
But, just as the last time, the market reacted positively to the President’s message.
The real benefit of today’s announcement is that America gets a chance to be re-introduced to the head of HUD, Alphonso Jackson.
For those who are uninformed, as I did a few months ago, I will remind you that HUD is an acronym for Housing and Urban Development, and is pronounced “hood”.
Secretary Jackson is only allowed to leave the HUD on rare occasions and it is never unattended. This time, Paulson had custody. You certainly wouldn’t want a loose cannon when it came to housing issues. Remember New Orleans?
In the meantime, the much expected reduction in the Fed rate would, by the very design of the mortgage markets, lead to lower mortgage, equity and adjustable interest rates. That’s how the system is supposed to work.
With the exception of the 1930’s, it has done pretty well on its own.
That seems much more straightforward of an approach than the one laid out by Bush and Paulson and certainly not one that could be manipulated by anyone with opportunistic scruples. Not that there’s anyone that you might know that would fit that description. But an opportunity is a shame to waste.
One has to wonder whether the Fed will go ahead and decide to reduce rates now that there is an executive plan in place and on top of that, there are indications that the Jobs Report numbers will be good.
Despite the fact that the Banks of England and Canada just reduced their rates, in and of itself should have no impact on our Fed. But what does seem to have increasing impact is the expectation of investors. Increasingly, we are being led to believe that if we wish hard enough, it will come true. And it’s only appropriate that the Fed Chairman be our economic version of Santa Claus.
That’s a dangerous state of mind to have. Even Peter Pan eventually learned that not everything comes as a result of wishing hard enough.
If it did, I wouldn’t be typing this blog tonight, having to stare at the worst toupee I’d ever seen, in the seat in front of me.
And so after the dog and pony show was over, the market did respond positively. But the real surprises were yet to come.
In an unexpected event, Ben Bernanke, who is rarely heard from, other than in well orchestrated spasms, gave his blessing to the Bush proposal. Once that hit the fans the market nearly doubled its gains.
This time, it was more the Bernanke Bounce. That’s what happens when you put Bernanke and Bush into the same time zone.
You now have to really wonder whether Uncle Ben believes that the pressure is off of him. Maybe he can actually lead the Fed into doing what it believes is the right thing to do under the circumstances that the data and surrounding events dictate.
Maybe just maybe, an independent Fed, with an eye on strengthening jobs, increasing 10 year T-Bill rates and an improving dollar will decide that the time isn’t right for another rate decrease.
Maybe the Fed will take baby steps and instead of fully asserting its independence will just announce a 25 basis point cut in the interest rate.
One wonders what the effect will be.
Last time, the immediate effect was a rally, but the short term result was a drop in the markets.
This time, maybe no increase or just a 25 basis point increase will end up sending a strong signal that the markets and everything else in our economy is in good shape. Maybe that’s just what is needed to get us to the Dow 14,500 mark that the most ardent of bulls are still shooting for over the next 3 weeks.
Can you say “No recession”?
Of course, what makes markets is disagreement. So many think that the current rally is based on the anticipation of a 50 basis point cut, that anything less would be disastrous.
I’m of the mind that it’s time for full independence. As much as I like those big pops, I’d much rather see the nice slow sustained upward movement of the markets. There's nothing like a strong economy and good earnings to drive the market. Those are much better than artificial boosts from the Fed in its efforts to be all things to all people.
Besides, who wants the Fed involved in politics anyway?
For me, there are no personal issues. I just want things to move in the direction that I think they should move.
With the exceptions of Corning, Goldman Sachs and MasterCard, for me, anyway, things are moving nicely. Corning and MasterCard are stocks that I would like to see moving downward, within reason over the next 2 weeks.
Options will make you think that way. I still have those Corning $25 puts and my MasterCard December options are for a $200 strike price. Wouldn’t you know that MasterCard would just buzz right through $200 today?
Goldman, on the other hand, continues to lose its market leader status. On this, a nearly 200 point rise day, Goldman was the laggard. Very uncharacteristic, especially on a day when it seemed as if there was lots of short covering in the financials. Even E*Trade was up nicely today.
I haven’t seen my final figures yet, since there’s not much Wi_Fi going on at 34,000 feet, but with the Dow now only about 3% off of its recent highs, the Szelhamos Portfolios are in uncharted territory. This drastic dips have continued to be great opportunities.
As much as everyone is still looking for that elusive 14,500 on the Dow, I’d love to see another dive after December’s expiration.
Nothing personal. It’s business.
What Took So Long? December 5, 2007 (posted 9:20 AM)
State Attorney Generals are, by and large, an aggressive bunch of people. After all, they have to be, especially since they need to pump up their resumes before their gubernatorial runs.
In the case of New York’s Attorney General, who is as well politically connected as anyone in the room, you have to wonder what took so long to announce today’s subpoenas. Maybe his brunch with the Kennedy’s ran long. It’s hard to walk away from a good time.
Based on his predecessor’s history, you certainly don’t need a mountain of evidence to bring institutions, or the people that symbolize those institutions, down to the ground.
As it is beginning to turn out, you don’t even have to be right to ride the wave into the governor’s mansion.
I saw the photo of President Bush alongside Al Gore at the White House last week in an event honoring American Nobel Prize winners. My guess is that anytime soon we will see a photo opportunity with Dick Grasso and Elliot Spitzer in the governor’s mansion.
Maybe it’s just the season for reconciliation. If Michael DeBakey and Denton Cooley could do it, why not Greenberg and Spitzer?
What is key to going forward with these highly charged investigations is the timing of your attack. You have to time your attack so that the truth isn’t revealed until after you’ve been elected governor. In that case, the timing of these subpoenas is curious, particularly since the New York State Attorney General and the Governor are of the same political party.
The interpretation of that is that either this will play out for 7 years or he plans to run against the incumbent.
Obviously, neither of those is going to happen.
But deep down, or maybe not so deep, you just know that Andrew Cuomo believes that Eliott Spitzer is just sub-letting that mansion from his family.
But could it be that these subpoenas are not based on opportunism, at all? Is it possible that there’s merit to questioning the role of some investment banks in creating and fueling the sub-prime mess by passing off paper that they knew to be troubled, but portrayed those assets in a very different manner?
That would be another first. Imagine that. A just investigation based on ethics and perhaps, even the law. Mario would be proud. I think that he was truly a principled politician. But his time has long passed.
So far, the conspicuous name left off the subpoena list is Goldman Sachs.
At times like this I look at my wrist band.
What Would Stein Say?
He would say, “You just wait. Goldman Sachs is the big fish in the pond. The heat is on and It’s only a matter of time before the AG puts Goldman into the frying pan”.
Of course Stein would be more articulate and wonderfully deadpan.
Without a doubt, there will be lots more to come.
In the meantime, the pre-open futures are up and received a further continuing bump up as the ADP Employment numbers came out in advance of Friday’s Jobs Numbers.
Here’s the problem. ADP’s numbers were much better than expected and they revised October’s numbers upward. Good for jobs, good for the economy, but all of a sudden this casts a pall on the expected 50 basis point drop in the Fed rate.
And as far as anyone is concerned, it’s that 50 basis point drop that is helping to keep the market from plunging below 13,000 again.
It never ends and then it starts all over again.
I know that’s contradictory, but there’s lots of truth to that observation.
As far as most other observations go, only time will tell.
For example, today comes the revelation from the Pimco’s scion of bonds, Bill Gross, that the market is much worse than anyone believes.
Presumably, he excludes himself from that statement, otherwise we’d have to put that into the contradictory category, as well. And that category is really crowded.
This morning, as oil is going up, as OPEC announced no change in output levels and gold remains above $800, the futures are still focusing on the ADP numbers and have nearly doubled their gains. On a very positive note, its now been a week since we’ve seen one of those patented last hour trade-offs and even the pat couple of days have been fairly orderly, even though the broader markets performed more poorly than the Dow.
But you look for good news wherever you can.
On the negative side, some analysts that are typically bearish, seem to be hedging their bets. Sometimes you’d rather not win over people to your side. And please, no Time or Newsweek cover stories.
In my worst recurring nightmare, Time Magazines “Man of the Year” turns out to be “Wall Street”, which of course results in a plunge as no one has ever witnessed. More people ultimately perish from the falling shards of glass from the high rises than the people who broke the windows in order to leap to their demises.
It’s a tragic sequence of events. Let’s hope that it never happens. At least that’s one thing that will never make me wonder “what took so long?”.
This Looks Familiar December 4, 2007 (posted 8:30 PM)
Seems like it was just a couple of months ago that we were in the same position that we see ourselves in right now.
The market is biding its time, with little new news to digest, other than Friday’s Jobs Report. Everyone now has their sights set on the Fed’s December 11th meeting. As last time, all of the discussion is centered around the merits of a 25 point versus 50 point reduction in the fed rate.
The faces were the same, as were the words. I could have even sworn that the various analysts were all wearing the same clothes.
But then I realized that this is just another side effect of the TV writers’ strike. They must be re-running the shows from a couple of months ago. Apparently, it’s not just the likes of Jay Leno and David Letterman that need to have their words written for them. Who knew that the guys from JP Morgan couldn’t come up with an original thought.
That might explain JP Morgan’s blast of the financials. Their downgrade must have originally been made a couple of months ago, not today. Anyone could have made a downgrade today. Those backward looking crystal balls are a dime a dozen. Just asked the analysts that just downgraded Freddie Mac and Fannie Mae. Aren’t you glad when you use a full service broker.
As they would say at MasterCard.
No wonder that the stock prices seemed to look familiar as well. I just new that I had seen Google at 680 before. I wonder what its price really is. It must be much higher by now. That will be a nice surprise.
But I guess that we can blame JP Morgan for today’s 5% drop in its competitor, Goldman Sachs. As if yesterday’s piece in the New York Times, by Ben Stein wasn’t enough, JP Morgan piles it on.
I like Ben Stein. He is truly my idea of a Renaissance Man. What hasn’t he done? His role in “Ferris Bueller’s Day Off” is still the quintessential portrayal of a burned out high school teacher, even better than the images in “Up the Down Staircase”.
Probably no one remembers “Up the Down Staircase”, but everyone remembers Ferris’ economics teacher. Poor Sandy Dennis. At least Jean Stapleton went on to make a name for herself.
But just a couple of months ago Stein said that the sub-prime issue was really insignificant. He wrote in another New York Times piece that it was all being blown out of proportion. Much ado about nothing, was his opinion.
Those are pretty heady words for an economist.
Well, here we are, $100 billion or so in write-downs, with maybe more to come. Now Stein blames Goldman for creating the hysteria regarding sub-prime paper, so that Goldman could profit on its short positions.
I hope he’s right about that. Those are the kind of guys that I want on my side. If Goldman dips below $205, I will buy more shares.
The real trickle down to all of this is that Ben Stein is questioning whether the head of Goldman during the period when all of this “unethical” behavior was going on is really fit to be our Secretary of the Treasury.
As if there’s really any place for ethical behavior in the area where government intersects with business.
By most accounts, Paulson, whose appointment was met with universal approval, has been a major disappointment. His supposed insights into the Chinese economy and markets have not served him in any tangible way. Increasingly, it seems that he has no well defined role. That would be more easy to understand if he was in the shadow of Allen Greenspan, vying for the big bosses ear.
And instead of suffering the difficulty of succeeding Robert Rubin, he took John Snow’s place.
So that can’t be it, either.
So Stein may be getting something big underway. In fact, Chris Dodd, Senator from Connecticut and presidential wannabe, who has now re-embraced Don Imus, has raised his own concerns about Paulson’s role.
Now that Imus is back on the airwaves and has a new cable TV sponsor, RFD-TV, that happens to have a large base in Iowa, well it just seems to be the right time to forgive and forget. There’s no longer any benefit to distancing himself from the presumed racist rantings of a radio host. Besides, there’s always the ratings.
Of course you have to wonder about Dodd’s own situational ethics. At best he is a fair weather friend to constituent Imus. He abandoned Imus pretty quickly and with high profile when it was expedient. I guess you can’t fault him for practicing what he believes. Opportunism.
And opportunity is what Dodd believes he has. For he believes that he has the opportunity to finish in the top 4 in the upcoming Iowa caucuses. When pushed, okay, maybe the top five. Imus, Paulson. It’s all the same.
Not only is he an opportunist, but he knows how to set his goals sufficiently low.
But this still wasn’t today’s big news. The big news was even better.
In fact, the big news today was more salacious, than it was economic.
On everyone’s radar was news regarding the recent, untimely death of hedge fund manager, Seth Tobias. Needless to say, the allegations that are flying back and forth pretty much cover all of the issues that you are supposed to warn your kids about.
Murder, drugs, deviant sexual behavior, adultery, internecine fighting. It’s all good.
More to come. I’m sure.
You can be sure that this case will be profiled on Dateline or CSI: Hoboken.
In the meantime, nothing much happened today by the time the final bell was rung. The overall market fared less well than the Dow with concerns about corporate profits.
Official IRS data shows that corporate profits are up 8.3% compared to last year. But that data is based on 300,000+ businesses, not just the S&P 500 variety.
So someone is wrong.
Too bad there’s no really good way to invest in your neighbor’s bowling alley. Liquidity is important, but so is high gloss on the alley.
Tomorrow should be no different.
Wednesday’s are usually the day that Oil Reserve numbers are released. With oil down nearly 15% from its highs just barely a week ago and with the expectation that the Saudis will be calling for increased production, maybe a sustained drop might be the impetus the economy needs.
No matter what, any trickle down from decreased fuel costs will come too late for the holiday shopping season. I still remain committed to my Corning puts, although they expire in just 2 weeks. Corning was initially up this morning but finished lower. Best of all, for my Corning hypothesis, Best Buy is showing some stock price weakness.
I do feel very unclean and unholy when pursuing any kind of put or shorting strategy, but sometimes it just needs to be done.
Someone recently asked me to come up with some stock pick winners.
I haven’t been very good at that recently.
My most recent purchases, 2 are pretty speculative. One, E*Trade, despite a body blow of a downgrade, putting its price target at $2, manages still to be in profitable territory. But not by much.
The other speculative stock is Lundin Mining. It is now 5% below my very recent purchase price. But I suppose that if you’re going to speculate, you may as well do so with a product that is in high demand. And Lundin’s got that. Hopefully, some of the overhang from the uncertainty surrounding Rio Tinto will soon be gone and Lundin and Freeport McMoran, will begin to trade more in line with their assets and future prospects.
Meanwhile, I do own Rio Tinto and am still holding out for clarification that will lead to an even higher price. Lundin and Freeport will follow.
My third recent purchase had been Coach, and Coach has just been treading water.
But like with so many other stocks that I own, I’ve been selling call options to lower my cost basis. I’ve only had Coach for a month or so, but have already sold and bought back call options twice, each time taking profits as Coach was trading up and down in a channel.
I haven’t yet had the opportunity to do so in Lundin Mining and have only sold options on a small portion of my E*Trade shares. Unfortunate in both situations.
But the bottom line is that it is very difficult to find good opportunities.
Of the 2 brokers that I use to manage accounts, they have very different philosophies.
One of those is holding small positions in over 80 stocks and has traded them with great frequency. As with all managed accounts, his incentive, if any, is to grow the value of the account.
His performance has not been terribly good, especially during down markets.
At this moment, unless there is a drastic improvement in the next 3 weeks, I plan to move those assets over to Bob Shapiro, from UBS. I have mentioned Bob on a number of occasions, as well as the rationale for diversifying the my portfolios among various managers.
Bob is really a buy and hold kind of guy and has done very well for me.
My own investing strategy is to purchase shares in sound companies and not to sweat the moves, but to try and capitalize on them by selling call options.
This has been successful, because there’s been no shortage of volatility and opportunity to trade in and out of options. I don’t have to make a killing on a single stock.
I didn’t realize it, but I suppose that I am a day trader, since I make a trade, on average, each day. But I do so within a very small universe of equities and I often find myself returning to old favorites.
But the reality is that you can’t really expect to find the killer stock that is going to explode your portfolio upward. You just have to do it a little at a time. That’s why the options writing strategy is so valuable. Imagine getting a 1% return each month just in options income. Add to that any dividend income and any actual stock price appreciation and you’re soon talking about real money.
Hey, even the 1% per month is enough to reach my goals.
In fact, on some of my longer term holdings, like Halliburton and Ameritrade, I’ve made enough on options premiums over the past 2 years that I could sell my shares at no profit and still end up being very satisfied.
Early readers may remember my writing about LSI Logic.
I no longer own LSI Logic, but while I did, it was just a great stock to keep collecting premiums on, even if the underlying stock never really appreciated.
I actually am looking for Lundin Mining to be such as stock, but am hoping that it re-approaches or slightly exceeds $10, before selling options.
So, as far as any ideas, I got nothing.
But when I get something, you’ll be among the first to know.
Another First December 3, 2007 (posted 2:15 PM)
I won’t be there for this first. It will happen sometime before 6 PM tonight.
My youngest son decided to try out for his high school track team. Go figure, he made varsity. Today is the first meet and he is scheduled to compete. Considering that he is also planning to choose a college based on their ROTC program and currently takes flying lessons, I will probably spring for the few bucks and have his DNA analyzed.
Further confirming his wandering gene pool is his prowess with a chain saw and the discovery of shredded beef jerky in a chewing tobacco like container in his car.
To top it off, this is what I found in the woods behind our house this weekend. My people don’t do physical labor. Not since that pyramid scheme.
As far as today’s competition goes, any kind of a finish would be a first for his family. Both sides. As it is, even the beef jerky is a first.
Although, as I think about it, we did run in that 5K charitable race a couple of months ago, and we did both finish. But strictly speaking, that wasn’t really competitive. As we were told, “you’re all winners”.
I didn’t really buy that, but it was that sentiment that kept me from kicking the cane from out under the woman who finished right ahead of me.
My oldest son did outdoor track and field for a little while. His specialty was throwing the discus backwards. Our yard, nearly 6 years later, is still filled with discus sized pock marks, since he always chose to practice after heavy rainfalls. We never did figure out where those deep indents came from, but they’ve led to many a wretched ankle.
But I will be headed out of town for this first event. Based on what I expect to find when we do the DNA analysis, I’ll probably come to the realization that I missed the conception, as well.
Not wanting to force the segue too much, at its conception, Google was a search engine. And a really great search engine. Eventually, and non-sarcastically speaking, some genius figured out a way to monetize the Google search engine.
In the meantime, Google has rolled out lots and lots of products, most of which stay in beta form. Their products are great, although other than advertising, they make no profits elsewhere.
In their egalitarian approach to software access, they are somewhat unique, for a company of their size. What they are not unique about, is the preferential, very non-egalitarian distinction between different classes of stock.
As Mel Brooks once said, “it’s good to be king”.
In one area that Google has been criticized in the past, other than their corporate owned private jets, Google has sometimes gone wild in its hiring practices. In the short term, that would be taken negatively and would impact stock prices. But just as predictably, the ad revenue would keep pouring in and the share earnings growth would just continue.
Analysts would usually eventually come over to Google’s way of thinking and look at these new hires as the nidus of new earnings streams.
The same has been said about Google’s purchases of other companies. They seem to pay more than a fair amount, because sometimes it may be more important to be the victor in the sales process, than to actually make money with it.
Just ask eBay how that strategy worked out for them.
In the last couple of days, though, Google has been exceptionally volatile, although within a relatively tight range. Any early day price increases would be lost as trading came to a close, even on those great days of last week. Instead of leading the market forward, as it had done recently, as one of the “Four Horsemen of the NASDAQ”, at best, Google kept pace.
What is happening is now another first. People and the markets are questioning Google’s sanity. Do you remember the scene from Woody Allen’s “Bananas”? The idealistic coup leader becomes crazed once he gains power.
With Verizon announcing last week that it was opening up its network to all comers, the door was completely taken off the hinges for Google to advance its mobile web search and advertising. For the past 90 days or so, in a gesture of largesse, Google has allowed free mobile advertising through its search engine.
Take it from me, once you get hooked on the Google advertising juggernaut, it’s hard to get weaned off, even when it seems as if the bid prices on keywords are irrational. So these guys who were on the free advertising platform will certainly convert over to paid programs.
With really only Apple committed to a single carrier, Verizon’s move seems like it may be the model of the future. At some point, most believe that Apple will make the inevitable transition to multiple carriers, as well.
So then why is Google getting into the bidding for mobile spectrum. Why get into another line of business in competition with those that could offer you millions and millions of mobile on-line web advertising clickers?
Instead of paying billions in a successful bid for mobile spectrum, they could get that access at essentially no cost and still make nice with Verizon and others.
Wow. A first. I criticized Google.
But there’s more.
Last week they announced that they would invest hundreds of millions for alternative energy to help offset the environmental impact of their numerous and huge servers.
Some interpreted this as Google instituting proven alternative energy technologies that would requite up front capital, but down the line would result in energy savings.
Google is not a follower. They are innovators, or if they can’t innovate, they buy companies and are either very big tippers, or just overpay.
They are now ready to pour hundreds of millions into alternative energy research. Ordinarily, I would applaud private initiative to benefit humanity, but Google may be overstepping its responsibility to its shareholders. They have yet to show that they can monetize anything other than search. But now, airwaves, mobile phone networks, alternative energy.
And let’s not forget the space exploration initiative.
Granted, $30 million in prize money is nothing to Google, nor to its earnings per share, but is it within the purvey of an advertising company? Unless that can put some really large LCD billboard screens on the lunar surface, it’s hard to see how this fits into their core business.
Look at the Microsoft model. Microsoft has branched out from software and has started monetizing other ventures. Sure, some things have failed, but at least they regularly get out of beta. Not always with the best of results, but they don’t stay in perennial beta stage. And even when they should have stayed in beta for a while longer, they would just go and release the retail versions, rake in the profits and publish patches.
Staying in beta, by the way, is a good way to rationalize the lack of profit.
More importantly, Bill Gates put his money where his interests were, and not Microsoft’s corporate money. Gates’ philanthropic efforts and foundation have no real relationship to Microsoft, nor Microsoft’s mission.
The Google twins have set up a foundation as well, but it has, so far, been a fairly silent player.
Let Sergey and Larry fund that foundation to address all of the great issues that they’ve identified. The risk and the glory should be theirs and not the shareholders.
Pretty misanthropic stuff, huh?
Szelhamos did strongly believe that it was a free country, so why criticize Google’s good intentions? Nobody forced Larry and Sergey to adopt their ideals for a better world.
In the case of Google. Larry and Sergey don’t really need shareholder approval. It may be a free country, but it’s not a democracy at Google. It’s not even a Republic. Google shareholders have had no freedom of choice.
Of course, who needs freedom when the money keeps pouring in. Just like Chavez, in Venezuela, as long as the money keeps coming in you can have your way. Just keep the citizen shareholders happy.
Up to a point.
In Google’s case there won’t be a referendum, because as long as Sergey and Larry hold their special shares, they are installed for life.
In hindsight, Chavez really should have embraced the Wall Street version of democracy and issued the more important voting shares to himself.
That would not have been a first, but there’s plenty of time for him to remedy that situation.
November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007Z