In the Drop of a Hat October 31, 2007
Things can change quickly. Today was a perfect example of that. I don’t wear a hat, but I couldn’t come up with a better metaphor today. I’m numbed by the turn arounds today, as well as the novocaine.
I forget which came first.
With early indications showing an opening gain, the market did just that. Although the market was up, the volume wasn’t all that impressive, since everyone was waiting on word from the Federal Reserve. Let’s just say that trading itself, was reserved.
Remember. Puns are the lowest form of humor and will rarely be used here, unless absolutely necessary. It’s a lot like what your mother used to say about people who cursed and their native intelligence. Smart people didn’t need to curse because they could find the appropriate words to express themselves. And as a corollary, Edgar Allen Poe would have been much more imaginative if he had stayed away from the intoxicants of the times.
It made you feel so stupid, until you became smart enough to realize the obvious.
Sometimes, the appropriate word, coincidentally enough, turns out to be a curse. That’s convenient for us newly minted smart people. And think where the Teenage Ninja Mutant Turtles would be if no one expanded their imaginations with intoxicants.
In the mid-morning, the Dow was up about 50 points. It was a respectable showing with little movement in either direction. Forget that oil gained back $4 after having lost $3 yesterday. The market was shrugging off all of that energy related news. It’s a lot like not caring if there’s white powder on the money. To the bank it’s still money.
In this case, all of the economists are saying that the skyrocketing costs of crude oil are related to geopolitical issues and not to supply and demand. So that makes it alright. Since it’s due to geopolitical issues those extra dollars that you spend at the pump and will be spending this heating season aren’t really a problem.
So your fears are unwarranted. And besides, oil is denominated in dollars anyway and the dollar is being decimated, which by the way, is supposed to be what the Federal Reserve is supposed to be preventing.
Got all of that?
While you’re thinking about that mainstream line of logic along came the first pop of the day. Long before the Fed’s announcement and far away enough from the ADP Jobs Report.
That number, by the way, was a larger than expected increase in payroll figures. The last couple of months the ADP numbers had set the stage for poorer than expected numbers, which ultimately led to big down days. Those down days, however, were then superceded by revised payroll numbers that showed that the original numbers were much better than first reported.
Are you getting all of this? Are you getting any of this?
But today’s ADP number was pretty much ignored. It seems as if a lot of angst could have been saved by consistently ignoring all of the numbers until the revisions are in.
But then suddenly, MasterCard announces its earnings. There’s nothing like a 63% increase to get your stock price to launch into the stratosphere.
What economic slowdown? Everyone seems to be spending what they don’t have by using their MasterCard. The leading economists say that defaults on credit cards should happen before defaults on mortgages, so I’m guessing that these MasterCard numbers may have some real legs.
So I would guess that the great MasterCard earnings would turn out to be a good thing, right?
Not this time, since I sold options contracts at $165. That seemed like a safe bet after it was down to $153. I had made money each of the past 3 months by selling MasterCard options, with a cost basis at about $136. Yesterday, it looked like I would be home free for another round of options sales for December.
But that was before the hat dropped.
As the day went on, and there’s still an hour left to trading, that gain had gone from $21 to $34, with MasterCard now at about $192, well above my strike price.
That’s why you should never wear hats.
And you guessed it, Goldman Sachs was not going to be left in the dust, nor was Google.
People who say “Oy” a lot usually do wear a variant of a hat. It’s called a yarmulke. I thought that my Viet Nam readers might want to know that.
Before the litany of “Oys” hit in I noticed what I had been expecting. Some last minute buying action in Electronic Arts by people trying to capitalize on what is expected to be a great earnings report tomorrow. So I did do what I anticipated and bought $60 put options. Those were slightly out of the money at the time, but were more costly than I would have lked, since there are still 12 trading days left until options expiration.
In a short while I began to feel like a genius as some profit taking hit Electronic Arts. I was expecting the big drop to come in the early trading tomorrow after earnings are announced and then expect to get rid of those bad babies.
We’ll see how that works out. I’m sure you’ll be among the first to know about it.
During the late morning, ahead of when expected, I did get my filling done. The dentist was superb, although he seemed to be uncertain as to how to use the new materials he had chosen. But it must have been done well, because he used lots of different layers and materials. He told me that the numbness should go away in a couple of weeks.
I left work, as expected, at 2:00 P.M. My rental car was equipped with Sirius Satellite, so I was tuned into my usual station for easy listening.
It’s nice to close early in deference to Halloween. If Szelhamos was around, he would use the occasion to wish his favorite grand-daughter, Rosie, a happy 16th birthday. I think that she would have been his favorite even if she was not the only grand-daughter.
And that’s when they broke into regular CNBC programming to announce the Fed’s decision. And it was right on schedule, right at 2:17.
The word was a 25 basis point cut in the discount rate and another 25 basis point cut in the fed funds rate.
But the market seemed to focus more on the accompanying text that really did put a little bit of inflation scare out for broadcast. As I listened to the text being read, my first thoughts were that it was bad news and would be received as such, meaning that the markets would go down. Not only because the drops weren’t larger than widely anticipated, but mostly because of the tone to the accompanying statement.
Happily, the market reversed its 100 point gain and was down about 15 points. As I was driving along I was hoping that MasterCard, Google and Goldman would join the Dow and take a ride down.
That was, however, the point at which I rolled the rental car into the garage for its return. Feeling bolstered by the news, I got my bag and made it through security, even though I was still drooling a bit. But I think that the cotton roll is supposed to stay in there for a while longer.
By the time I got to sit in the terminal and booted the laptop, the market had reversed course again and was up by 150 points.
And MasterCard? That’s right, it went up as well.
How about Electronic Arts? You guessed it. It reversed course, as well and now my put options were losing money, although the key day is tomorrow.
In the last 3 minutes, however, as I rechecked the numbers, we’ve just given up about 50 points out of the 150.
So hang on tight, because with a minute left to go, we’re back up near the highs of the session. At this point I’m thinking of taking up prayer, but I don’t have one of those yarmulkes handy.
The last time I looked, it had dropped. If I had the energy, all I would have to do is stoop down and pick it up off from the floor.
But it’s only likely to drop again, so why bother?
Enough Already October 30, 2007
You know me too well. At least the regular readers do. Or they think they do.
You probably think that I’m going to rant about the unchecked and meteoric rises of Google and Goldman Sachs, as they approach or exceed my options strike prices. It’s just like October options all over again.
But you might just be wrong.
To mark the first anniversary of the Szelhamos Rules blog, I plan to rent out a ballroom in a prestigious hotel. I’m not certain of the location yet, as I still need to work out the logistics of accommodating my only regular readers. You know the ones. The ones from Ho Chi Minh City and the ones from Woburn, Massachusetts.
The introductions would go something like this. Ho meet Wo. Wo meet Ho.
I’m not certain which of those places should be among the least likely to be reading this blog, but we’ll put that issue on the annual meeting agenda. Please send your agenda recommendations to . Please remember to include any information about dietary restrictions or dietary requirements. Regardless of the site that is ultimately chosen, all conventioneers will have to supply their own sanitation.
But back to the topic at hand.
This time, I’m not talking about how Goldman Sachs and Google seem to be conspiring to torpedo my covered call option strategy. I’m not even talking about how ridiculously high oil and gold still are, despite today’s $3 drop in crude. And the value of the dollar? Don’t even think about that, since it’s supposed to be the singular job of our federal reserve.
What I am talking about is the Boston Red Sox.
They waited 86 years to win a World Series. Maybe it was 84 years, but whatever it was, it was a long time in coming.
Those 2 years can’t make much of a difference, but the past 3 years have.
They had a glorious parade 3 years ago to honor the team that broke the Curse of the Babe and everyone around the country was genuinely happy for The Red Sox.
On that day, the entire city and all of the surrounding suburbs came to a standstill. Schools chartered buses into the city, with education being thrown to the wayside. Businesses were bereft of employees, as everyone called in sick.
As opposed to the running joke from a dozen years ago in the aftermath of the Million Man March, more happened than just 3 people not showing up for work. I remember that in my workplace, which is only as good as the number of people that step through our portals on any given day, we were twiddling our thumbs. We were swamped with cancelled appointments.
On that single day everything ceased to matter. Everything other than The Red Sox, that is.
But enough, already?
A little change in intonation and there you have it. Today was the parade for the 2007 World Series Champion Boston Red Sox.
On television it looked pretty busy at the parade, but the real story was in our office. Today was no different from any other day. This time around, the victorious Red Sox didn’t wreak havoc on our days’ receipts.
As Pete Townshend would say, “Just another tricky day for you”.
Thank goodness for tricky days. They pay the mounting blog bills.
I am grateful to the boredom that has set in now that there’s an expectation that the Red Sox will win the Series, year in and year out. Oh, and then there’s also the matter of the New England Patriots.
Ah, but then there’s still the little matter of Google and Goldman. Not a prestigious law firm, just a couple of high flyers.
Let’s dispense with Goldman, first, although I think that we haven’t heard the last from the darling of Wall Street. It’s the darling among a gaggle of sub-prime losers, with a gaggle being one ten thousandth of a google. One ten thousandth of a google is now worth about 7 cents, a new all time high.
Goldman gave back about $3.50 today to bring it just a few pennies above the strike price. What’s so enticing is that a December in the money options contract now has a $16 premium. That almost makes me want to trade out my November options at a loss and roll them over. But there’s still plenty of time to go until the next expiration. Thirteen trading days, to be exact. That’s a lifetime.
Google, on the other hand, just went wild today, approaching $700.
The rise from $400 to $500 in Google took more than a year, but the rise from $500 to $700 has happened in the blink of an eye. My contract is for $700, but I do so want to continue riding Google, as I feel really confident that it will keep going up.
Today’s Google news only helped to fuel the fire, as after the close it announced that, together with Verizon, they were exploring a Google Phone venture.
The specter of a Google Phone did nothing to spook Apple. It too just keeps going up. Today, though, it only went up $2, still keeping it about 3% below my strike price.
The Apple – AT&T alliance, although also a software and hardware alliance, is still very different from Google and Verizon.
In Apple’s case, it provided the hardware and software to the party. It just needed spectrum, which as rumor has it, it is on the prowl for.
On the other hand, Google brings software to the plate, but has to bow to Verizon for the hardware and spectrum. To me, there seems to be very little upside potential for Google. Maybe that’s why Apple didn’t blink, but I do hope that Apple slows down their ascent over the next 13 trading days.
What I spent a bit of time perusing this afternoon was the action in Electronic Arts and Exxon – Mobil. Yesterday I wrote about the put purchase strategy for these 2 companies, as they both prepare to release earnings on Thursday.
True to the script, EA went up about 5% today, setting themselves up for a big fall on Thursday, unless they really, really knock the cover off the ball.
On the other hand, Exxon – Mobil dropped nearly $3 today, in all likelihood, due to the same kind of loss in crude. So you have to wonder that if on Thursday crude happens to spike up, will Exxon Mobil spike with it, despite negative sentiment associated with its upcoming earnings report?
Don’t know. But I do like to ask questions.
But to further complicate things, at about 2:17 P.M. tomorrow the Fed releases its decision on interest rates. Everyone is looking for a 25 point basis drop. If there’s no drop announced, you can bet that the market will show its disappointment. If the drop is 50 basis points, the initial reaction will be upward, but once the reality of the situation that necessitated a 50 basis point drop sets in, the market will plummet.
As always, it’s on the fence that we have no idea of which way we will tip. The Fed announcement has the potential to move the market, and consequently the direction of ERTS and XOM in a direction that would ordinarily not have gone.
At the moment of the release I should be having a filling done and then must rush to the airport to catch my flight home. If everything works put smoothly, I’ll have a few moments at the airport to log in and check prices and maybe execute those put trades. By Thursday morning it will be too late. The play, if any, has to come on Wednesday afternoon.
My inclination is to wait for the release and to focus on ERTS for the quick trade.
“You’re going down, babe” is my sentiment.
I do plan to put my money where my mouth is, but my mouth will likely be numb until after the close of trading on Wednesday, thereby potentially clouding my actions.
Not to mention my thoughts.
In the meantime, there’s always December options and then the 2008 World Series.
Never Even Missed a Beat October 29, 2007
This can’t possibly be referring to this past Friday’s dance lesson.
Not only did I miss a beat or two, but I also threw in an extra couple of Cha Chas every cycle. I’ve spent hours on the internet trying to find out the difference between a full basic and a half basic, but the bottom line is that you can’t just thrown in extra Cha Chas arbitrarily. To do so, invites lower limb injury, laughter, eyebrow raising and embarrassment. I think that my amply endowed dance partner has some upper body bruises, as well, but the Walgreens won’t return my photos.
I tried leaving the classroom with my head draped in a hood, much like the drug runner on his way to arraignment, but no one was willing to accompany me and push me, head first, into the backseat of the car.
Earlier in the day, when I still had a positive attitude. I was attempting to practice the basic steps and wondered what my neighbors thought, as they peered in through our family room window and saw me dancing with a laptop cradled in my hands. Had they known that I was merely trying to follow an online video demonstration of the basic Cha Cha steps, there would have been less derision, and at least one less neighborhood petition.
There was probably no need to wonder what they would have said. It would have been along the lines of this: “Nothing unusual there. Carry on.”.
And that’s true. I often dance with the laptop in my hands, watching that ticker move along, when it looks as if the market is going to close up big. It’s a dance of joy.
I did that on Friday, as well. But mostly it was Cha Cha.
I’d like to blame the poor non-market related dance performance a couple of days ago on the fact that we missed the first lesson in the Cha Cha cycle. But on a positive note, so far we’ve attended 3 out of the six classes, having attended 50% of the Rumba classes and are on the path to do the same for Cha Cha. Those are Hall of Fame kind of numbers. From my perspective, we could miss the last 2 classes and still end up with a 0.375 average. What am I, Rod Carew?
But the reality is that I may know how to spell “rhythm”, but that’s about as far as it goes. But that’s no small feat, since “rhythm” doesn’t really follow any known spelling patterns. So it only makes sense that my form of dancing doesn’t follow any known patterns of movement. If I’m known for anything, it’s for abiding by the rules of society. In this case, there may not be any. Who decided that “y” was a vowel of convenience, anyway?
So I suppose we’ve missed a beat or two in the attendance regard, as well. But at least we appear to have a better attendance record than “Bernie, don’t call me Bernard”. He hasn’t been sighted since the first lesson. Whether he was there for lessons 2, 4 and 5, we’ll never know.
As I sit this morning before the opening bell, I’m thinking about how disruptive it is for the markets to be closed on the weekends. Whatever momentum you have by Friday gets dissipated, and once Monday rolls along, you really do feel like you’ve missed a beat, or two.
Sometimes, it seems that the music starts without you, especially if big news breaks over the weekend. And based on my lack of familiarity with counting the beat, I often have a difficult time recognizing when trading has re-started.
All of this seems to happen on a weekly basis.
What doesn’t happen very often, however, did happen this weekend.
We got together with some old friends that we hadn’t seen in 4 or 5 years. We weren’t even really certain how long it had been, but it was a long time. We were trying to pinpoint our last meeting in relation to something of an historical nature, but the best we could come up with was the day after the time Humana reported sharply lower than expected earnings. That was sometime in 2003.
It’s hard to keep track. Luckily, there are those easily remembered historical footnotes.
But we didn’t even miss a beat. We sat down to dinner and it seemed as if it was just yesterday that we had done the same thing. Although, if memory serves me correctly, last time a glass of water was flung onto my face after I slapped our friend, challenging him to a duel. I’m sure that within the context everything was probably normal and well deserved, at the time.
Further combing the recesses of my memory, I wondered if there was a long held silent grudge for having seated them next to my mother-in-law at our son’s Bar Mitzvah. I think they realized that it wasn’t quite the “honor” that we made it out to be.
I’m sure that will be among the things that I’ll be judged upon when the time comes. Hopefully, my mother-in-law is not reading this, because she would be waiting for me. Yet another reason to pray for health and longevity, and the friends to enjoy them with.
And Saturday evening was one of those times.
What really seemed amazing, though, was that during that time there had been some really challenging medical issues, that are still ongoing. But you wouldn’t know it. The mood, the humor, and the attitude. None of those skipped a beat, either. There may even have been a few extra Cha Chas thrown in during the evening, but in this case, they fit in perfectly.
If I played my cards right, I should be able to parlay those extra Cha Chas into some cherry cobbler.
This morning, while munching on some Girl Scout cookies, which are no substitute for homemade cherry cobbler, I realized that despite my fears of missing the beat, the market just picked up where it left off. It maintained a 50 point lead despite numerous attempts to knock it down. Gold and oil did their best, as well, each hitting new highs.
Other than Goldman, which just went up way too much, since it is now above my strike price, everything else just went up in a nice moderate fashion, still staying below their strike prices. But as often is the case, as goes Goldman, so goes the rest of the market.
I woke up this morning intent on selling options on the few remaining unoptioned stocks that I had. But as I kept staring at the screen, no good prices materialized. I was especially anxious to sell some options on the Coach stock that I picked up on Friday. By mid-afternoon, Coach was up $1.30, but there was very little action in the near term $40 option. I did put in an order for $0.50, but it went unexecuted, as Coach’s price drop to about a $1 gain for the day, despite the overall market’s continued upward climb.
I am considering a couple of speculative trades near the end of the close on Wednesday. Both Electronic Arts and Exxon Mobil are reporting earnings on Thursday.
Electronic Arts recently announced that it was going to have a good quarter and its stock moved up accordingly. Of course, I got rid of my Electronic Arts stock before they came public with their cheery news. I took a loss on EA.
Exxon Mobil, on the other hand, like all of the oils, is seeing record crude prices, but we’re seeing a lag in retail gas prices. Exxon was up big today. If it keeps going up tomorrow and Wednesday, then I definitely get into gear.
My potential speculative trades on Wednesday are to buy in the money or near the money puts for both Electronic Arts and Exxon, since I expect selling on the earnings news.
But those are for the future. As for today, I just couldn’t get into the beat of the market.
Somedays you just have to be satisfied with making money on paper and not actually bringing it to reality.
Cha Cha. Cherry Cobbler
Never Accuse me of Fashion Sense October 26, 2007
Anyone who knows me will confirm that I have no fashion sense. In fact, I still use the word “dungarees” on a regular basis.
We all get excited each year when Mirriam-Webster announces which new words they are officially adding to the dictionary. Receiving much less fanfare are those words that they decide to delete from the approved list of words. Think “dungarees”, think me.
But just as I see no inherent conflict in owning shares of Altria, I saw no inherent conflict in purchasing shares of Coach, this morning. I don’t approve of or condone smoking and I’m fairly ambivalent about the role of fashion in society. It’s not evil and it helps to support the anorexia telethons. So on the whole, it’s neutral.
Just as I occasionally will take a puff in order to remind myself how bad the habit is, I occasionally find myself adorned in black, just to get a feel for what it must be like to be in vogue. Someday, if the spirits are all aligned, I may find myself puffing away while dressed in black.
Those are the sort of events that may signal Armageddon. Let’s hope it never happens.
But 2 things intrigued me in the past 24 hours. Intrigued me enough to make the purchase, particularly since I haven’t bought many new stocks in the past couple of months. I’ve almost exclusively traded in covered call options, while riding out market volatility. I certainly won’t be turning my back on that strategy even with a few misfires, since, all in all, it has worked really well.
But yesterday Coach announced poorer than expected earnings and they took a really big hit, falling about 13% on the news. Not like AIG, which took it on the chin because of a rumor. Coach’s plunge was on real news. The social class that drapes themselves in Coach products would never be involved in rumor mongering.
Lately, the lesson to be learned about stocks that have taken big hits is that you shouldn’t go bottom fishing immediately. On that note, yesterday I wrote about the financials and bottom fishing. Today, Countrywide jumped more than 20% after it announced better than expected earnings and the other major banks and money centers are moving up, as well.
But some other news came out this morning that made me think that now was the time to pick up shares of Coach.
As happens every month, The University of Michigan’s Consumer Sentiment Report was released. The number was worse than expected, confirming what everyone has been predicting. Those predictions have been regarding the upcoming holiday sales season. Pretty much everyone expects this season to be a bad one for the retailers. After the numbers came out, the Dow went from its early 100 point gain to about only 35 points at noontime.
But I’ve noticed the past couple of months that whatever the reaction to these numbers is, it tends to be very short lived, with a half-life measured in less than an hour.
Put it all together, though, and to me it sounds that whatever those holiday season numbers are going to be, they will end up being better than is predicted. I think that all of the bad news expected for the next 2 months is already built into the price of shares.
So go contrarian. And I did.
When I buy a new stock I try to look for one that is a solid company with growth potential, has a good options premium and a decent dividend.
It’s hard to get all 3 of those in any company. Altria comes close, but because it hasn’t been very volatile, it doesn’t offer a great options premium, but it does have a great dividend.
In general, I look for an options premium that follows certain guidelines. For a 1 month holding period I want a 2% return on the current stock price for a strike price that is 5% above the current price. If I think that there is some good upside potential, I’ll go for a 1% options premium for a strike price that is 10% above the current price.
At this point, almost every stock I own has a call option written on it. That typically only happens when the underlying stocks are at good levels. “Good” means profitable. “Profitable” means at least 10%.
Interestingly, for me at least, one of the few stocks that I don’t currently have a covered call option on is Altria. Right now it’s doing something unusual. Altria usually does better on down days and tends to lag on market up days. Today, though, it is a market leader on an up day. Looking at its chart it is up against and beyond its upper 2 S.D. Bollinger Band.
The last time Altria did that it retreated from its highs, but I think that this time is different. Ordinarily at this point I would have a $75 call option written, but I think Altria may be ready for a breakout prior to making its announcement about Philip Morris International.
But later in the day as Altria continued its climb, suddenly the premiums warranted action and so I sold call options on about half of my Altria shares. The best analogy that I can draw to not selling options on all of the shares is that I only exhaled.
But back to Coach.
My choices today were actually between Amazon and Coach. Amazon also got hit hard yesterday, but it came after reporting great numbers. I think that Amazon’s holiday numbers may be more susceptible to the kind of bad news that everyone is expecting. But beyond that, it doesn’t currently offer a very good options premium. Oh, and as far as a dividend goes, forget about it. The internet stocks don’t know the meaning of the word “dividend”. Alphabetically, when it was still listed in Mirriam-Webster, it came right before “dungarees”
Coach fit two out of three of my criteria, and as we all know, “2 out of 3 ain’t bad”. Coach just falls short on the dividend part of the equation. It has none, whereas the typical retailer has a 2.1% dividend.
I can live with that, as I expect to unload Coach in about 3 months, probably right after its next earnings report, which will be better than expected.
As we now pull into the final hour, we’re up by 120 points. For the Szelhamos Portfolios, however, it is one of the best days that it has ever had. Hard not to, given the upside moves in Google, Goldman Sachs, MasterCard, Ameritrade and Altria. Apple, which was only up $2 was my laggard for the day, representing only a 1% price increase, which, however was still higher than the Dow’s increase.
So quite a day.
With all of the new paper wealth that I’ve created today, I may just go out and purchase a new fashionably black wardrobe for myself, just in time for today’s Cha Cha lesson. European cut, I think, in order to accentuate my Cuban style hip gyrations.
I’m even thinking of getting a diamond encrusted cigarette holder.
Armageddon? Is that you?
Maybe Rumors are Sinful October 25, 2007
Coincidentally enough, I think that by my count, I’ve committed four of the deadly sins so far today. Although I’m still not certain that “sloth” should be considered so deadly. There have to be things that are worse than “sloth”. Murder for example, doesn’t even make the list, although it does enter into that list of ten. Strange what they whittled out just to get to seven.
It makes you wonder what exactly was sacrificed when they came up with the “7 Minutes Abs Workout”. Wouldn’t a 10 minute workout be so much more meaningful? And to think that there are even people researching possibilities for a 6 Minute Abs Workout. I believe that great abs begin from the moment of workout, but that’s very controversial.
But have no fear. It’s only about 5 P.M. and I still have miles to go before I sleep, so there’s a good chance that I’ll hit all seven before the day’s over.
As I sit aboard yet another air flight, I wonder if cheating on Sudoku is in the top seven. If so, I’m sitting next to someone slated to go straight into the fiery pits.
But it’s all about the rumor mongering again.
Yesterday, I wasn’t so certain that rumors were sinful, but today, there is clear evidence that rumors are wicked. Just look at what happened to AIG.
I own a small stake in AIG. It’s shares were hit pretty hard a couple of years ago when Elliot Spitzer, no Governor of the great state of New York went on his take no prisoners assault on Wall Street.
Among the casualties was the founder and Chairman of AIG, Hank Greenberg.
In the meantime, Greenberg was forced out, criminal charges were dropped and Spitzer left the attorney general’s office to go on to the governor’s mansion in Albany.
Have you ever been to Albany? I’m flying overhead it right now. That’s close enough.
Anyway, the rumor hit today that AIG was going to announce some big write downs. Maybe not Merrill Lynch big, but big. Just more of the fallout from bad loans and bad investment in sub-primes.
There was even some discussion today that Merrill’s losses may end up being even worse than $8 billion. And that’s because there’s really no good market around for the paper they’re still carrying, so it’s anyone’s guess what that stuff is really worth. And if you want to see some brutality, just look at the continued slide at Countrywide. Just when it looked as if it had stabilized a couple of weeks ago at $19, it’s now down to about $12.
I almost went in as a bottom fisher for some shares of Countrywide, but had second thoughts. Too bad those second thoughts didn’t extend to Citicorp, whose November $45 options I bought about a week ago. They have lost more than half of their value in that time.
With all of the major money centers being hit so hard, you would think that at some level it would be time to climb aboard. At least Goldman seems to be relatively unscathed, but it did spend some time down near $160 after being caught in the sub-prime vortex. $160 doesn’t sound so bad until you realize that it had been in a much better neighborhood before we knew about sub-prime.
During that period of ignorance, Goldman was at $240.
These days, it’s doing pretty well in the $220’s, but with a bullet. It’s going higher.
My continued faith in NYSE is beginning to pay off, as well, having crossed over the $90 mark. Although $90 is good for NYSE, it’s not so good for oil companies. Despite what you would think, they’re having a tough time of it, because they’ve been voluntarily forced to keep gas prices relatively low, while the price of crude just keeps rising. I guess those Senate hearings may have had some value, after all, but it’s only a matter of time until they get pressured to increase stock prices to match the increases in the overall market.
It’s still hard to understand how the economy still keeps moving along with oil above $90.
I’ve never owned much in the way of oil. Just some ConocoPhillips and Royal Dutch, right now, and they’ve not been stellar.
What has been stellar, though, is the behavior of some stock options.
Today was just another lackluster day with some localized areas of volatility. One particular stock, and one that I own, MasterCard, was among the volatile. I had just bought back some options the other day at a small profit and was looking for another opportunity to sell some more.
Earlier this morning, MasterCard was down by about $2. Within a couple of eye blinks, it was back in profit territory. As I was eyeing options premiums, and getting ready to put my order in, I noticed that the price of the stock just kept ticking up by a couple of cents. I decided to wait to see where it would go.
I got called away and didn’t get back to my computer screen for about an hour. At that point, MasterCard was up by over $3, even though the rest of the market was in the doldrums. AT that point I reset my options price target and got a much better price than I even had a few days earlier.
Right now, with barely 3 weeks to go until expiration date, the premium on the November MasterCard $165 option was more than 2.5%. That’s astonishingly high. Over the past 2 months that I’ve owned MasterCard it has been really volatile. I bought it at $136, but since then my cost basis has gone down by over $10, as I’ve continued to sell and but back options. In the meantime, it also pays a small dividend.
AS I look at the Szelhamos portfolios, there really aren’t any stocks that I truly want to sell. I’m beginning to think that the way to go is to buy shares in good, solid companies when they are coming off their highs and just sell options on those companies. Again, again and again.
It’s a lot of work, but those premiums and dividends do add up and there is some excitement involved, as well.
With good solid companies, there’s really not that much risk, although nothing is for certain. Look at Goldman. It slid by about 30% for a brief time. Luckily, I never followed Bernard Baruch’s teachings. His rule of thumb was to cut losses at 10%, but I don’t think he lived in an era of such great volatility.
Even on the day that Kennedy was assassinated and the few days after, the percentage decline in the markets was trivial when compared to our routine fluctuations.
These days, 10% can come in an instant. Just look at AIG.
Maybe Bernard Baruch started that rumor.
My guess is that he’s probably acquired enough deadly sins and doesn’t really need anymore, but he just couldn’t resist.
There is said to be a special corner of hell, reserved just for short sellers, who often are accused of starting and spreading rumors about stocks whose shares they want to see fall.
The short seller is to the typical investor what the child molester is to the typical felon. Just a lower class of people.
Although covered call writing is in essence a form of short selling, I don’t consider myself fully in bed with the devil, but if that was a sin, I might now have today’s tally up to 5.
And there’s still time.
Aren’t Rumors Great? October 24, 2007
I don’t really remember what the seven deadly sins are. I think that rumor mongering is among them, but I’m really not sure. That ugly looking person over there, the one that I saw sneaking out of the crack house told me that it was one of the seven deadlies. But would you really trust someone who strangles kittens? Maybe you might elect them president. You know who I’m talking about, but you wouldn’t want to trust them.
Maybe rumor mongering doesn’t rank up there with gluttony, lust, avarice, Sleepy, Dopey and Doc, but it should.
Today, though, it was a rumor that turned everything around.
Maybe, in hindsight, rumor mongering should be counted among the seven holy virtues. Because, really, is humility that great of a virtue? Couldn’t we just lose humility? There should be some kind of a rotation of both virtues and sins. There just has to be a way to make room for a good rumor.
But I do like rumor mongering. It can easily go both ways. You have to love that kind of versatility. The last time we had that kind of versatility, football players were still wearing leather helmets.
But today, it was obvious that rumor mongering must be a virtue. How else would you categorize something that turns the market around from a 200 point loss? It has to be a virtue. There’s certainly nothing virtuous about a 200 point loss.
The day really started off badly. Merrill Lynch, which just 2 weeks ago announced that it would take $5 billion in sub-prime and bad loan losses came out with their earnings this morning. Funny thing, that in the past 2 weeks they were able to find another $3 billion in losses.
They just didn’t see it coming, I guess.
I’m beginning to think that companies on the scale of Merrill Lynch and others would be well served to consider hiring an accountant. With a loss of $8 billion, they may be a little strapped for cash, but I’m sure that they could work something out with H&R Block. Maybe they could barter. You would think that they would have somebody that could keep an eye on the numbers.
But as it turns out, that bigger than expected loss was pretty much expected, so the damage to Merrill really wasn’t too bad, although the rest of the market suffered as that was new found fear that there were more rounds of bad news around the corner. Part of the reason that no one was surprised is that it appears to be standard behavior to dump all kinds of bad news together when you’re going to have to take a big write-off, anyway. Just get all of the bad stuff off the books and set yourself up for great comparables for next year.
The strange thing is that despite the fact that this is common practice, everyone seems to be caught by surprise in a year when the comparable earnings are released. Invariably, the stock prices surges.
After the Merrill Lynch news was digested there came more confirmation of bad things on the housing front. Another big decrease in new home starts and in existing home sales.
But again, not totally unexpected. So what then spooked the market and turned it from a couple of dozen points loss to a 200 point loss by late morning?
No one had any real clue, unless it was just a delayed response to the earlier bad news. But that’s unlikely, since most big moves come on emotional waves, rather than on well thought out choruses.
So as the Dow was down about 200 I watched Apple and MasterCard shed $5, Google and Goldman each lost about $10.
I took the opportunity to buy back my MasterCard options, again, at a small profit. But those small profits have really been adding up this week. I tried making some other options related trades but really couldn’t get the right prices. I tried buying back Halliburton and Blackstone options, trying to capitalize on their drop in premiums.
Earlier in the day, before the market decided to fall those 200 points, I put in an order to sell Goldman Sachs November $240 options. But it was just at about that time that Goldman decided to start falling. Eventually, Goldman was down nearly $10, so I gave up on the idea of selling the options.
Fast forward an hour or so and the effects of rumor mongering got my contracts sold.
When I got back to the computer, that 200 point loss was gone. All of the losses were erased and I was now the proud owner of a nice premium from the sale of Goldman Sachs options.
What happened? Nothing more than a rumor being spread that the federal reserve was going to drop interest rates again.
What exactly was the surprise in that? Everyone’s been expecting that after next week’s fed meeting there would be an announcement of a 25 basis point cut.
As they like to say in the federal reserve board room meetings, “Uh, duh”.
The big duh, though, is that the rumor had it that the fed would announce a rate cut before their actual meeting.
That’s a little bit unprecedented, except during dire situations.
Is there something that we need to be worried about? Is there something even more dire than what Merrill Lynch has let on? Obviously Ben Bernanke is in a position to know something that we don’t know, but borrowing from the Fred Sandford book for near quotes, “Is this the big one?”.
So the rumor rescued us by 200 points but what happens if the rumor becomes reality? Does the perverse thinking behind the market psychology cause panic and relentless selling. After all, for the fed to pre-empt its meeting with an interest rate cut announcement, things must be pretty dire.
However, my recent pessimism was not well founded and cost me more than I care to think. So now it’s time to rethink strategies.
Based on today’s activity, I think the best course of action is a virtuous one.
It’s time to spread rumors.
At first I thought someone had already beaten me to it, as I heard that Microsoft had taken a 1.6% stake in Facebook for just $240 million.
If you were inclined to believe that ridiculous story, Facebook would be valued at about $15 billion. What’s even more ridiculous is why Microsoft would want just a 1.6% stake.
Turns out that rumor was ridiculous, but true.
It’s all about beating Google to the punch. Microsoft got what purportedly Google wanted. The bigger question is why Facebook would want to be part of Microsoft, even though it’s only a fingernail’s worth, not its whole soul and being.
Rumor has it that Bill Gates uses a Facebook pseudonym to troll for underage internet entrepreneurs.
Just a rumor, but I’m buying it. There’s no virtue in ignoring the obvious.
Beating a Dead Horse October 23, 2007
I really can’t help it.
I know that I write about Apple and Google incessantly, but they’ve been really hard to ignore. Besides, when someone treats you nicely don’t you just want to pile on the praise?
And they have treated me nicely. But what have I done in return?
I don’t mean to personify Apple and Google, but the world would be a lot better of a place if everyone acted like those two. I know that’s probably not going to happen, but if we can’t dream the impossible we will never move forward.
I prefer to dream, but in my ideal world, I would conserve my energy and stay stationary. Moving forward is far too draining. Especially with my pockets being so heavily loaded by the good actions of Apple and Google.
In hindsight, I’m embarrassed to say that I’ve betrayed the largesse of the dynamic duo by going and selling call options on them at every single opportunity that came along. Their good deeds have often gone unappreciated, even as I watched the numbers grow, thanks to their incredible ability to rise above the crowd. I consistently demonstrated a lack of faith. I may have sugarcoated it by calling it hedging, but let’s call it what it really is.
Most of the time I’ve gotten away with those indiscretions, but sometimes it comes back to bite you in a big way.
And so it was last month. Just as I thought that neither Apple nor Google stock prices could get any higher and they could do nothing more to excite me, there they went. They just kept going higher and higher.
And it served me right for doubting their continued ability to climb.
I begged my way to get back into their good graces, buying back those call options at big losses, just so I could have one more chance. I swore that I would never betray that trust again.
And so, that chance started anew, as I tried to make amends for those past indiscretions. But once you’ve tasted the thrill of the call option it’s hard to resist.
And the inevitable happened. Let’s face it. I’m a serial hedger. So much for promises.
Although I sold more call options on Apple and Google, I swear that I learned my lesson. Have you heard that one before? The difference is that this time I mean it.
Even a moron would know better than to think that the collective phenomenon of Apple and Google will soon wane. That’s not likely to happen anytime in the near future.
And it’s not as if they’re stomping their feet and demanding attention. But they are everywhere you look and effect everything that you do.
Alright, maybe that’s an exaggeration.
There was a time when a bad earnings report from Texas Instruments would just ruin the market for a couple of weeks. But not today. Despite another quarter of bad earnings from Texas Instruments, it meant nothing. Any other day it would have been an incredible downer. But today was all Apple. And for some reason, Google went along for the ride today. Just another $25 point gain. That’s all.
Most of the time when a company reports blockbuster earnings and the price skyrockets, you tend to see a slow settling and retracement of the price as trading progresses. Traders tend to take profits as they take advantage of the emotional phase of buying by johnny-come-latelies, who don’t want to be left out of a good thing.
But that wasn’t the case with Apple. It closed up every bit as strong as it opened. And unlike other stocks whose prices go up in anticipation of good earnings and then drop on the actual news, Apple is having it both ways.
The adage of “buy on the rumor and sell on the news”, just hasn’t fit the recent Apple picture. In fact, after the earnings report in July Apple shot up by $9 on a really bad market day. The day prior to Apple’s report, AT&T reported disappointing iPhone numbers and Apple fell by about $7.
At the time, I thought that the October earnings report would end up being disappointing, because hopes for the iPhone would be so high that only disappointment could come of it.
But that was 3 months ago.
Yesterday’s numbers were even better than the most optimistic of predictions and it certainly showed today as a lackluster day turned into a 100 point gain.
So where do we go from here?
For me, Apple’s next reported earnings comes out a few days after I reach my long term capital gains holding period, and a few days after the January options expiration date. So I plan to shed the rest of my Apple before the earnings report.
But as I’ve learned over and over again, plans change. Sometimes twice daily.
That explains why I sold some November $42.50 Halliburton options and some November $165 MasterCard options. I sold the MasterCard options as the stock was up by a bit over $5. It finally settled at about a $1 gain, so those call options are already in profit mode. Who knows, with the up and down behavior of MasterCard, it may be time to get rid of those options by tomorrow.
It may not be a very good sign of commitment, but profit is profit, even if it’s just a little at a time.
There’s obviously a lot more excitement when you hit a homerun. Not that I would know. Apple and Google are homeruns.
But there’s also something satisfying when you throw a couple of hits, a walk and error together. It’s the same run, but maybe not quite as exciting. For example, even though I’m running more than 50% profits on Apple and Google, I’m actually running the same kind of profit on Halliburton and Ameritrade. Not quite the 100+% as on Apple, but still, not too shabby.
No headlines, though.
How can that be? Especially when Halliburton and Ameritrade’s prices haven’t moved very much. It’s all about the options. The evil hedging that goes on when you try to have it both ways. And you thought Halliburton was evil. It’s the hedging that’s evil.
All the way to the bank.
Those singles and walks keep adding up. Not quite as exciting, but it’s all the same. My banker doesn’t even care if there’s white powder on the deposits, I don’t think he’s going to care if there was a little bit of hedging going on.
Apparently there is a world beyond Apple and Google, but who really cares? As Amazon just reported earnings after today’s close that featured a quadrupling of profits, the analysts weren’t impressed. They’re worried about decreasing profit margins in the year ahead.
But I don’t have to worry about Amazon.
There’s still some life left in my dead horses.
Don’t You Just Love Days Like Today? October 22, 2007
From the perspective of a Red Sox fan, that question is really easy to answer.
Red Sox versus Rockies, or as I like to think about it, which venue will get snowed out first? Most years, that honor would go to Denver and I think that this is a good occasion to stick with the conventional wisdom.
The way I see it, the upcoming the World Series is a referendum on faith and piety. Will the major leagues first denominational team beat the Boston’s perennial bad boys?
Either way, there’ll be an early November parade, with a chance of flurries.
But today is truly a beautiful late October day, even if you’re a native New Yorker, wondering what could have been. My guess, based on filtering through numerous conspiracy theories, is that George Steinbrenner planted Willie Randolph in Queens.
There’s always next year.
As for now, it’s about 75 degrees as I sit and countdown the final 2 hours of trading. Dandelions are sprouting, confused flies and some of our flowering vines are living up to their names.
But let me be completely honest. It could be hailing golfballs and the roof could be on fire, it’s the turnaround the market made this morning makes it into just another beautiful day.
With the futures pointing down by over 100 points it had the makings of a follow through to Friday’s horrible day. That especially seemed as if it would be the case given the Asian and European market sell-offs.
Oh, they of little faith. Not a Colorado Rockie among them.
Although Merck came out with good earnings, all eyes have been on Apple. It’s going to announce earnings at the close and everyone is talking about “whisper numbers”. Those are supposed to be numbers better than anything expected. Given that a new $205 price target has been set on Apple, that may be a hard one to satisfy. It would take great numbers, much better than expectations to rise another 20% from these levels.
The talk is that they are actually selling lots of computers. Maybe they needed to change their name from Apple Computer to Apple, Inc. for that to happen. In a bizarre explanation, it seems that the trickle down is from iPods and iPhones to Macs. That’s like me buying a dog because I really liked the studded collar that I bought to liven things up a bit. I don’t know if there is a direct correlation to puppy sales and the discovery of an S&M lifestyle, but the Apple tie is clear.
As the market opened lower, I took the opportunity to buy back the Halliburton options that I had sold on Friday. Those were sold after buying back the October options at what turned out to be a small loss.
As it happened, I made back almost that entire loss today and am now looking for another opportunity to sell Halliburton November options, as Halliburton has now turned positive. Except that this time, I have my eyes set on a $42.50 strike price, rather than $40.
Isn’t it a beautiful day?
And just like I would have wanted all of those stocks that were hit hard on Friday, but whose options I bought back, are now heading back up. That is, with the exception of MasterCard, which usually follows the banking stocks, but is going its own way today. That way is down, by the way.
I’ve already sold November options on some of those other stocks, albeit at higher levels than before, but still have some where I’m looking for the right price point.
In the meantime, while Google was going up $6, its November $680 options was going down in price, for some unexplainable reason. But I wasn’t about to ask why that was happening. Sometimes you just take advantage of inconsistent pricing. So I took another small profit from the trade that I made on Friday and rolled over to a November $700 option.
No sooner had I made that trade that I noticed the same kind of inverted movement in Apple’s November $190 option, so I sold those, as well, at another small profit. And guess what? That’s right, I rolled it into a November $195 option.
If I had more days like today, this could become a full time job. This volatility is great, as long as you’re at the right place and at the right time. Otherwise, there’s a lot of luck involved.
For today, at least, it was as rewarding as a day at work. Of course, today still doesn’t begin to make up for Friday. Maybe 5 more todays might. But ten, you’re beginning to get into the realm of 9 day work week, and that’s a bit much.
The bottom line is that it really helps having a laptop built into the shower enclosure.
But it’s not all about stocks.
On Saturday I did the unthinkable.
I went to the Mall to buy some tires. I had not set foot into a Sears in about 20 years. About a half year ago, I was on the fence whether to buy some Sears Holding or Goldman Sachs. At the time, they were both at about $180.
But I was actually surprised at high nice the store was and how wide a range of merchandise they had. Especially since all of the analysts are always talking about how dismal the experience shopping at Sears is.
Not only did I buy something but the sales associate asked me if I had a Sears credit card. Within minutes I did, and I got a $15 discount on my purchase.
So I left Sears wondering whether I should pick up some shares. Too late, it was up about $5 today, but still a far car from $180. In fact, it’s $45 below, while Goldman is about $45 above.
I spent 2 hours trolling the mall and saw the empty stores, such as Hot Topic, Limited Too and Fire and Ice.
The Apple Store was jammed. It didn’t take a Genius to know that something was up.
Maybe the walk around the mall was all about stocks, afterall.
Meanwhile, the Apple numbers just came out and everyone’s comment was, “Wow!”. In the afterhours, immediately after the announcement, the stock is up another $13, after already having gone up by $4 during the session. Not only did Apple exceed The Street’s expectation, but it also increased guidance. Given that its past history is typically to underpromise, things must be looking pretty rosy offer in Cupertino.
I know that you’re not supposed to let tax implications dictate your trading, but I really hope Apple can hold on another 3 months. That would be like an extra 20% profit.
And Microsoft? Just like Atlas, all they must be doing is shrugging right about now. Specially in light of the fact that Microsoft finally threw in the towel in the European Anti-Trust case against them.
Sometimes it’s better to be a lover than a fighter.
Despite that horrible day on Friday, there is always opportunity.
Thanks to my hedging positions, I didn’t lose anywhere near as much as I should have, although it was still not a very nice day.
So far, and it’s only been a single trading day, the decision to buy back the options, even at such rarified prices as Apple and Google are seeing right now, was a good decision.
I’ve been trading options on Apple from about $80 and Google from about $450. Not all have been winners, but so far, the confidence in the stocks has paid off.
In Apple’s case, I have sold shares along the way, so that we’re playing with the house’s money at this point.
Do I need a better reason than that to love a day like today?
Taking One for the Team October 19, 2007
What do Craig Biggio, Jason Kendall, Carlos Delgado, Jason Giambi and Derek Jeter, Garry Sheffield and Alex Rodriguez have in common?
Red Sox fans would quickly answer that none of the above even have the slightest chance of going to this years’ World Series, unless they get their StubHub accounts into high gear. Although if it ends up being a Colorado versus Cleveland series they may just end up putting World Series tickets in specially marked boxes of Cocoa Pebbles.
At this point, as Rupert Murdoch looks at how much he spent to have Fox televise the series, he’s probably thinking that it would have been a better investment to have hired David Beckham.
To me, these current players evoke memories of Minnie Minoso, Run Hunt and Don Baylor. At least those three are not as obscure as the all time leader in this category. Because it is Hughie Jennings that has an advantage over Craig Biggio, having been hit by pitches twice more.
Hughie Jennings. Remember that for your next trivia fest.
These guys, some of them great players, others not so much, all were willing to take one for the team.
Today was the kind of day that someone had to step up and take one for the team.
As bad as today was, for me, it wasn’t that bad.
On this the 20th anniversary of “Black Monday”, how appropriate is it that we should lose 300 points on the Dow? But what’s 2.7% versus 23%? The colonic spasms are not quite as bad when it’s only a 2.7% loss.
It didn’t help that the supposed dean of the hedge fund world, by all appearances, an old geezer, called for a “doozy of a recession”.
I called my friend this morning and he confirmed for me that taking some losses on the options was the thing to do. He is the modern day Al Lopez. Minnie Minoso probably never spoke or understood English when Lopez was sending him out there to get plunked by Sam McDowell. I’m sure Lopez made believe that he didn’t speak Spanish.
But I understood.
He was telling me that sometimes you just have to take one between the eyes. And not like the way Dick Dietz tried to break up Don Drysdale’s consecutive scoreless inning streak. You need to take it right between the eyes. Had I not done that, I would have been faced with replacing a large part of my portfolio, which is never a great thing to do, but especially not at these levels. You hate to go all in. It tends to be much safer to go in little by little.
As it turned out, I just wasn’t ready to give up on some of my favorites.
The question was, when to buy them back. When to take the hit.
Fortunately, my timing turned out to be very good today. I bought back options on Google, Apple and Halliburton, but did so when they were at or near their lows for the day. You don’t want to get hit on the elbow or the wrist. Just turn into it, if you can.
At first, it was tricky, because in the early going Google was up by nearly $20 as trading started, thanks to their blowout numbers reported yesterday after trading.
At that price, I actually didn’t have the available funds to buy back my options, since they were now about $60 in the money. So I waited and finally saw Google give up some of those gains. As it seemed to plateau at about a $9 gain I pounced on the opportunity to buy back the options.
I then had an opportunity just a few minutes later to sell some Nov $680 options at a point that Google was up $12. Although I took a loss on the October options, Google has now had its price target raised to $800. At $680, together with the additional premium things will work out well.
Sometimes you’ve just got to get that runner on, no matter what it takes. It was a fairly big trading loss on the options contract, but I have confidence that it will be worth it.
I ended up doing the same with Apple. The big risk here is that Apple reports earnings on Monday. If it disappoints, or if the market continues in its sour mood then it will plunge. In the meantime, I ended up writing new Apple November call options for $190, with Apple about to close at $173 for the day. I was able to get a $5 premium.
Once again, if it works out, great. If not, it will be October, Part 2.
The real surprise of the day was Halliburton. I’ve loved that stock, having sold options on it repeatedly, as the price always seemed to stay just below the strike price. This past series, however, as oil and natural gas have had their recent spikes, so too, has Halliburton.
I was not prepared for the opportunity that came along today. With Halliburton down about $2.75 at one point, I bought back my $37.50 options at a small loss, but later sold some November $40 options at a $1.20 premium
The others, Goldman-Sachs, Honeywell, Kraft and MasterCard are all now comfortably below their October strike prices, so I’ll just let those options expire and will end up pocketing the premiums.
Hopefully, there’ll be a little bit of a rebound soon and I’ll look to put those options back into play.
As the market was heading down in the final hour, I also decided to take losses in my ProShares UltraShort Dow shares, which were up nearly 5% today. And they moved exactly as they were designed to move. Exactly in the opposite direction of the Dow and in twice the amount. Perfect for today, and actually perfect for the past 5 days, as every trading day this week was a downer.
In the last 5 minutes of trading, Altria, which I was prepared to lose, finally turned negative. It, like Google, had been up all day and was too far above the strike price to make it worthwhile to buy back.
But with the sudden turn, it was still above the strike price, but at that happy level where I could buy it back and still make a profit. It’s having your cake and eating it, too. It wasn’t much cake, but it was satisfying.
As it turned out, much of the losses my portfolio had today, weren’t losses at all, since they were on those stocks that were well above their strike prices. Had those stocks not fallen, I never would have seen the margin above the strike prices, anyway. So a we ended the day down 2.7%, overall, my portfolios were only down a little more than 1%, due to the much smaller than average losses in the Szelhamos Portfolios.
So that’s what hedging is all about.
As the day ended, we were down 370 points, with a deluge of sell orders in the last 15 minutes as the options were expiring.
I dusted myself off, took at look at some of the bruises and then looked at today’s bottom line.
I came to the obvious conclusion. It was definitely worth taking one for the team.
It’s a Love – Hate Kind of Thing October 18, 2007
These days I hate both Google and Apple.
The reality is that by tomorrow I may be in love with Google again, as long as it falls $30 after this afternoon’s earnings announcement. As of 2 PM, it’s reversed its small early morning loss and is now up another $4, as people seem to be a little tentative about this afternoon’s earnings announcement.
I’m not tentative. I have no clue as to what to do, or what I would replace Google with in my portfolio. At this moment, I’m holding it with about a 40% profit. But pig that I am, I long for more.
As far as Apple goes, it just goes. Wouldn’t it be appropriate for that pig to be dressed with a nice Apple in its mouth?
I hate that Apple is going without me along for the ride. That may change, too, tomorrow, but not because I expect Apple to fall $20 in the next day. It, too, has just reversed its minor loss and is now up another $2.
So I guess that it’s not really Apple that I hate, it’s just its current price levels. But nonetheless, I hate Apple’s behavior. Once again, another example of hate the sin and not the sinner. However, after allowing for a suitable passage of time, the most recent reason to pardon the sinner, the infamous Sirloin incident, has led me to reconsider the situation and my initial feelings.
As it tuns out, the sin that Sirloin committed, has made our home somewhat of a cause celebre. The popular opinion has been to preserve the artwork, at least as the homeowners’ association can’t get a clear and free glimpse of it.
But this morning, I think I became completely enamored of Apple once again, similar to our unexpected artwork.
This time, my changing attitude toward Apple had nothing to do with the stock or its price, it had to do with its product.
I got a great demo of an iPhone, including seeing its web functions.
In general, I’m not a “I want one” of those kind of people. I can wait. But I want an iPhone and I think that everyone in the world will want one, as well.
I’m not actually sure why I want one, since I really don’t like talking on the phone very much. I certainly won’t use it for its address book and contacts management capabilities, but like Dennis Kucinich, I just need things to keep in my pocket.
With holiday season coming up you have to wonder whether the current stock price already reflects expectations of great sales. What’s particularly striking is that there has been nearly 4 months of opportunity to blast the iPhone for some shortcoming or over promise and under deliver phenomenon.
But nothing has come to light. And you just know that people love to poke holes through anything they can, but so far, the iPhone has been impervious. Even that little scandal about the big price drop is ancient history. And really, is AT&T so onerous of a carrier that people would stay away from the iPhone?
Too bad that there have never been reports of shortages. Could you imagine what the stock price would be if it was hard to get?
The bottom line is that it is such a sleek and intuitive kind of device that you just have to have one. When someone like me says that it’s “cool”, you just know that it isn’t. But it is a cool device, with a competitively priced service plan.
How do you compete with that?
The answer is that once people’s service contracts expire, they will give the iPhone a real serious consideration. They’ll have to have one in their pockets, too.
For me it may be time to dump Verizon Wireless, although I think that I will wait until the next generation of iPhone, the one that’s supposed to have a faster internet network connection. I have nothing against Verizon. I love the FIOS, but as far as the wireless goes, it will be a long time before anyone can match the iPhone. If you use Apple’s operating system as a model, Microsoft hasn’t been able to match it, but its only had 30 years or so. So give it some more time.
In 30 years, I doubt that I’ll be very interested in operating systems or communication devices. I’ll probably limit my interests to which manufacturer makes the best adult bibs and disposable adult undergarments.
In the meantime, unless Apple shoots up today or early tomorrow, I think that I’ve convinced myself to buy my options back, especially since I get into long term capital gains in 3 months. Not only would that cut the taxable portion by 20%, but it would also delay payment of capital gains from 2008 to 2009.
Not to beat a dead horse, but for the next 26 hours, it will all be about Google. Yesterday Google announced that it was going to get involved in the health record debacle. They won’t be alone. I used to own shares in Allscripts. That was a good stock and continues to be the leader, having just announced a deal with Microsoft a couple of days ago to have personal medical records available online, in an easy to load and update engine.
Google has lots of products in beta. In fact, most of them are perpetually in beta development. My guess is that as they figure out how to monetize all of their initiatives, they’ll keep them in beta, develop a strong user base and then harvest the cash.
For now, the only rap on Google, besides the fact that its price has gone up too much and too fast, is that it still receives over 99% of its revenues from advertising, because it hasn’t yet figured out a way to monetize any of its other ventures. YouTube being a notable example.
But with a billion or so in profits each quarter, so what?
The key signal that Google may be ready to announce a killer quarter this afternoon is that the Google twins and CEO Eric Schmidt actually had a Q&A session last week and they were, reportedly, very at ease, happy and even giggly.
The feeling is that they wouldn’t be so upbeat at that session if they didn’t have some good news to come, especially since it’s unusual to have that kind of a session a week before earnings are announced.
But it doesn’t really matter how good the numbers are or how the future is forecast or spun. All that maters is how the news and numbers are perceived. With all of the recent talk about how much Google has climbed over the past 3 weeks, now you have to believe that if they’re on target with their earnings report, they may yet get to that $700 price target that everyone is now agreeing on.
One caveat. In the past, just as everyone has raised the price targets for Google in the past, it has been a serial disappointer. It has always taken a while for Google to reach the higher targets, once it broke through the $400 barrier for the first time.
To prepare myself for tomorrow, I have the spreadsheets all set up and ready to go. Part of the decision to possibly buy back options at losses is that I really don’t have any good ideas about what stocks I would buy in an effort to replace Apple, Google, Halliburton, Altria and maybe even MasterCard and Goldman Sachs.
Those few stocks are a big part of the Szelhamos Portfolios and I’ve held them with conviction. I don’t have that much conviction about many other stocks, especially at these high levels.
But no problem. There’s still 22 hours to figure out what to do, even though that decision may alter the personality and the performance of the portfolios for all eternity, or 8 ½ years, whichever comes first.
As much as I hate having put myself in this position, I love the position.
My wife would probably call this passive aggressive behavior.
But you’ve got to love it.
And hate it.
Taking it Down to the Wire – Part 2 October 17, 2007
As I was thinking of a title this morning, “Taking it Down to the Wire” sounded good. But it also sounded familiar. And sure enough, I’ve been there before. On October 9th, to be precise.
I think it’s time to get off this ride.
I’ll have to find my inspiration somewhere else. I’m thinking of taking up power napping, but it might interfere with my sleep, where I get my best ideas. Now if only I could find a way to incorporate a toilet into a car that has a shower and a bed, then I would really get some deep thinking accomplished. And maybe some new and original titles.
As I watched this morning’s pre-open futures point toward a 100 point gain, I also noticed that my beloved shares in Google, Apple and the like were gladly participating in the pre-open rally. But those stocks really don’t seem to need a rally to find an excuse to keep going up.
With last night’s earnings reports by Intel and Yahoo, you just knew that there would be upward momentum at the open, just like Genentech’s bad numbers the day before set the next days’ tone.
As the first numbers started coming in at the opening bell, I was furiously crunching numbers and looking at “what-if” kind of scenarios, also trying to incorporate tax consequences into the equation.
To fuel the early rally, Altria and JP Morgan came in with better than expected earnings and upwardly revised projections. Good for them.
Right now, not so good for me.
On an emotional level, I was ready to make some moves, but the rational side got the better of me and convinced me to do the number crunching. During that time consuming process the early gains started to erode, so I decided that it will probably be best to take it to the wire. What’s a few extra dollars? That wire will be set off by Google’s announcement after the close tomorrow. I expect Friday to be a busy day for me.
Here’s the problem, though.
My wife is out of town this week, on her annual trip to “the Spa” with a friend. I promised to clear out the garage, so that at least 1 car can make it in for the winter. My argument that the cars belong out on the driveway so that I’ll have less shoveling to do, doesn’t seem to sway her very much. But it’s definitely a reasonable strategy for dealing with snow.
Because for those of you who do shovel your own driveways, you know what I’m talking about.
That garage cleaning promise is not very compatible with keeping a constant eye on the stock ticker, especially since the garage cleaning process requires a few trips to the county dump.
Ordinarily, I love going to the dump. There’s something, though, about the real beauty of a landfill that seems to clash with some of those recent Waste Management commercials that I’ve seen, that portray their landfills like something north of Eden. I’m not sure why Waste Management seems to feel that it has to run those ads on CNBC. Is there really anybody who watches CNBC that’s more interested in the environment than they are in stock prices? Do you think that there’s even a single regular viewer of CNBC that saw Al Gore’s “An Inconvenient Truth”?
It’s pretty unlikely that they will have internet wireless access at the dump. Although we are a fairly progressive and prosperous county, I think it’s still pretty unlikely. But that’s probably a good thing, considering that if you put those two together, I’d be hard pressed to find a compelling reason not to spend all of my discretionary time at the dump.
However, based on how wrong I’ve been lately on the direction of the market, my guess is that I should probably bring my laptop with me to the dump, because as it will probably turn out, they will be connected.
Watching the recent run up in the stocks that I’ve not wanted to run up, I may, however, be tempted to throw my laptop into one of those huge dumpsters, and let them irretrievably take away my portable gateway to the stock market.
Poor Jimmy Hoffa. He never even knew what the internet was. But for all I know, he may end up with my laptop.
From what I understand, he may also end up with a crockpot dinner prepared by my friend’s wife, that didn’t seem to meet everyone’s culinary standards.
By the time I got into work today, the market was up by only 30 points. But as expected, Google was up about $13 and Apple $2. At least the others were being well behaved.
As has happened a few times over the past week, just as it looked as if my wish was ready to come true, the rug got pulled out from under me.
While I started feeling good about resisting the early temptation to buy back options and then roll them over to the next month, I felt even better as the Dow sank to a 125 point loss. Even Google was down to only a $6 gain. Imagine that. Only $6 while the rest of the Dow was down 125!
But, very predictably, the Dow gained back 100 points. And Google decided to go up about $17.50, while Apple added on a mere $4.
But still, even with the Dow finishing off by 20 points and adjusting for my growing options losses, I still ended up nicely for the day. Oh, but what could have been.
With Google’s announcement due tomorrow, I just can’t imagine how it would go any higher after the earnings are released. I suppose that if it comes out with totally unexpected earnings that just blew everyone away, they could still go up. But in the past, they’ve always gone down after earnings reports.
So far, it’s performing according to script. Google always seems to go up the 2 weeks or so before earnings report. And the last 2 weeks have been pretty spectacular for Google, having gone from about $590 to $640.
If only I could remember that little bit of information for the January earnings report.
But whether I remember it or not, I’ll be like the rest of the fools, doomed to repeat history.
No matter what, I’ll be taking it down to the wire, month after month.
I’ll probably keep doing it until gold reaches $2000.
But that’s not so bad. That should only be a month or two at the most.
What did he Say? October 16, 2007
When Ben Bernanke became the Fed chairman it marked the end of an era in many ways. While some sang Auld Lang Syne, others just said “good riddance”.
During the Greenspan era there was unprecedented economic growth, but also lots of economic upheaval. Anyone who was caught in a leveraged buyout or had their job outsourced to India is witness to the upheaval. They were in the “good riddance” camp.
But with Greenspan, there was a sense of security, because everybody believed that the old man knew how to nurse the economy along. Besides, anyone with grandfatherly ears had to be a sweet and gentle kind of guy. Who better to entrust the economy to? A small eared guy?
The only problem with Greenspan is that no one understood a word he was saying. It’s not that he had a lisp or covered his mouth while he was speaking, or only spoke while chewing on a tuna sandwich. He just spoke in a language that no one seemed to understand. The words were ostensibly English, but Greenspan strung them together in a way that were incomprehensible. But somehow it all worked. Mostly, he was telling us that we were all idiots, but we just didn’t really understand.
After he left office, Greenspan, in an interview said that anyone who believed that they understood what he was saying was wrong, because it was always his plan to “obfuscate”.
Now that we understood.
He only was able to get away with 19 years of obfuscation because of his ability to guide the economy through some rough periods and the fact that he ingratiated himself with the elective part of government by routinely dropping interest rates.
Funny thing, incumbents are more likely to keep their jobs when the economy is good. Greenspan kept the economy good and so, suddenly, the very ones who rode into town pushing the idea of term limits just let the idea quietly wilt on the vine. As long as the economy was humming along, everybody loved Greenspan, regardless of party affiliation.
Greenspan never really wilted. He just left, but stayed on center stage. He does, however, seem to speak much more clearly these days. And he sure dos speak a lot.
It reminds me a little of Steve Carleton, the Hall of Fame pitcher for the St. Louis Cardinals and Philadelphia Phillies. Carleton was notorious for never giving interviews during his long career.
He never strung more than one word together when answering a reporter’s query.
After he retired though, his mouth knew no bounds and we all found out what a virulent and sick guy he was. As it turned out, the gold old days were when he just pitched and shut his mouth.
That part of the Greenspan era won’t be missed. With the announcement of Bernanke’s appointment, even his greatest detractors had to admit that at least we would understand what he was saying. Everyone believed that would be a welcome change, despite the fact that he was an academic.
So it should come as a surprise that today’s USA Today, which by the way, is America’s newspaper, headlined that “Bernanke’s speech doesn’t hint at next rate move”, following a speech last night.
This purveyor of crystal clear information must have been true to form, after all, the headline summarized what he plainly said.
If this had been Greenspan making the speech during his heyday, there would never have been an attempt to synopsize his speech in a headline. No reported, or editor, would be so smug as to pretend that they understood what Greenspan said, much less summarize it in 8 words or less.
So why is the USA Today headline a surprise?
Mostly, because the fine analysts appearing on CNBC all interpreted Bernanke’s speech as hinting of additional rate cuts before the end of the year. One analyst even thought that there were still 3 cuts to come before the end of the year.
Maybe it wasn’t Greenspan, at all. Maybe he spoke very plainly and clearly. Maybe the problem is with us. We hear what we want to hear. It doesn’t really matter who the words are coming from.
With such different interpretation of Bernanke’s words it’s anybody’s guess where the Halloween fed meeting will take us. But considering all of the official doom and gloom surrounding the housing market, with both Paulson and Greenspan joining the chorus, you can probably make a case for another cut, albeit a small one. That would be especially true if the market takes a little breather over the next 2 weeks.
In the meantime, I got what I wished for, but didn’t get what I wished for.
That sounds a little Greenspanish, but it is what it is. The market went down again, today, with the tone being set by yesterday’s earnings announcement by Genentech. The only problem is that while the market went down, Apple went up and then, so too, did Google in the afterhours.
Now I know that the afterhours don’t really count, at least not yet for Google. But the tone for tomorrow has already been set, as both Intel and Yahoo announced good numbers after the close of trading. And everyone knows, as goes Yahoo, Google goes better. And that’s why Google went from down a few daollars to an $8 gain in the afterhours.
The real test for Google comes as trading opens on Friday, since Google announces at 4 P.M. on Thursday.
Meanwhile, Apple went up another $4. I won’t be buying that one back. I doubt that I’ll be buying the Google options back either, so I need to find some replacements for Google, Apple, Halliburton and maybe others. Those stocks make up a big portion of the Szelhamos portfolios, so we may be getting a complete makeover soon.
But at least Goldman and now MasterCard are below their strike prices.
I did make one trade today, a very speculative one.
I decided to buy some November in the money Citicorp options. If the market goes up in the next month, with Citicorp’s bad news behind it, it stands to get a pop in price, especially if Prince abdicates.
At the moment I plan to be in a state of suspended animation tomorrow and perhaps for a big piece of Thursday. With tomorrow’s likely upside move, there is getting to be very little time left for specific stocks to drop as much as I would like, so it’s time to plan for next month.
In the meantime, however, I’m sure that something else will pop up to confuse the issues, once again.
Maybe, in the final analysis, my friend is right. It’s best to be invested in gold.
Sure gold jumps all over the place and is an emotional kind of investment, but at least it trading isn’t hinged on the nuances of obscure reports and dangling participles.
It’s based on very simple stuff. Will there be war? Will there be a worldwide collapse in the economy. Willthe price of oil strangle future economic growth?
Simple yes or no answers. The kind that we would love to hear.
Are you listening Ben?
I’m in Love October 15, 2007
I really didn’t think that I could do so, and so easily. Not at this age.
But even more shocking is that I’ve fallen in love twice in the past 2 days. And on one of those occasions, it was quite embarrassing, because my wife was with me.
But I just couldn’t contain myself.
On Saturday my wife and I went to visit the brand new Costco. I’d never been to a Costco’s before, but we already had a BJ’s Warehouse near us. Admittedly, I did enjoy the BJ experience, but that was before I knew about Costco.
I remember the first time Szelhamos set foot into a BJ’s. Having had done all of his grocery shopping in The Bronx, where mega-markets just didn’t exist, BJ’s was an eye opener. For those unfamiliar with the typical neighborhood supermarket in The Bronx, there were no shopping carts. The aisles were just too narrow for carts and people, much less 2 way traffic. People would come with their own shopping carriages. Occasionally, a supermarket might have a parking lot, but you really didn’t need one if you never had a drivers’ license.
They did, however, provide you with bags for your groceries.
Anyway, Szelhamos’ eyes almost flew out of his head that very first time. I suppose that it’s true that you’ll always remember your first BJ’s.
But the new Costco just blew the BJ’s out of the water. I suppose I really could have used any kind of action verb to describe the comparison, but this one seemed most appropriate.
It was, without a doubt, the most spectacular store that I had ever seen. It almost made me want to give up my www.UpAgainstTheMall.com web site. This was a place worth going to for shopping. My personal favorite department was produce. Walking into that big vegetable crisper was surreal. I thought that if I stayed in there that I would never rot. Unlike the online shopping experience, however, it would not be conducive to the minimally attired customer.
But whether I wanted it or not, our Costco sojourn finally had to come to an end, but at least we now have enough salsa to last until my grand-daughter’s wedding. In fact, I think if I had the energy, there was an aisle where they did stock grandchildren.
But I’ll be back, armed with my Costco American Express card. Oh, I’ll be back. That additional 3% savings is like a magnet.
So as I was still thinking about Costco this morning and pining about what could have been, if only they would have built it years ago, came some good news.
The market was heading down and it looked as if it might just stay there, at least until options expiration, this Friday.
And you know, that’s what I’ve wanted. But having learned from my lesson a few days ago, I want to see it drop in medium sized doses over the next few days. Especially since today was the 20th anniversary of the market crash. I could take those 1%, 2% or even 3% down days, but I don’t think I’ve got enough investing years left to recover from another 23% drop.
And with a 150 point loss with about 2 hours to go, it was looking pretty good. But just when it looked as if it was going to be exactly what I had been hoping for, along comes Alan Greenspan, for a live interview.
Oh no, I thought. You just never know what he’s going to say, or at least you never are quite sure that you understood what he said.
But the man can move markets, and he usually moves them in the wrong way, for me at least.
And he didn’t say very positive things, but then again, he didn’t say very negative things, either. When it was all said and done, the great Greenspan didn’t move the markets back up. I guess he’s done with trying to spite me.
So I suppose that I have room in my heart to be in love with Alan Greenspan, as well. At least he didn’t harm me. That’s good enough reason for me, but there’s always tomorrow.
Thank you, Alan. Now all we need to do is wait for the next fed meeting, appropriately enough, on Halloween.
The day finally ended down about 110 points, but more importantly, all of my recent big gainers, with the exceptions of Apple and Halliburton, came a little closer to safe ground. Google fell about $17, MasterCard another $5, and Goldman actually fell below its strike price. Life is looking good again. It’s nice to come out of orbit. Hopefully, there’ll be a touch down soon, but a gentle one. No crash.
As much as everything fell, I was insulated, because the call options that I was losing money on these last 2 weeks, all gained in lockstep with today’s losses in the underlying stocks. That’s the hedging, baby. In the meantime, those PowerShares Ultra Short Dow, which I had bought in a case of bad timing, finally made some money today. On paper, at least. But still nowhere close to erasing the paper losses on their purchase.
All in all, the Szelhamos Portfolios were actually ahead today, thanks to the options positions cutting their losses. The other portfolios didn’t fare quite as well.
But I need the losses only for a little time longer. If I can get those options back at decent prices, there should be some nice premiums ready to be had for the November options. And then I can start complaining all anew about how I'’ missing out on the market'’ gains in November. Such problems. How do I find the strength to go on?
But just as today, a lot can happen in a single day, much less in the 4 single days to come, especially since we’re back in earnings season. At the close of trading Gannett announced earnings and they were not as good as expected, so maybe we’ll have some more downward bias tomorrow morning.
The downward bias this morning was courtesy of Citibank, which has been on quite a bad news run ever since the Szelhamos Rules blog got started. Despite re-organization after re-organization, massive layoffs and firings, the Citi never keeps its promise.
Citibank, which announced another big shake up on Friday, is now amid lots of speculation that its CEO, Chuck Prince, would be leaving by the end of this week. Today they announced a 57% decrease in quarterly earnings. Ordinarily, since this was pretty well telegraphed, you would have expected the stock to move up on the bad news. But not today. Citibank was down big, maybe because there’s no definitive word on the ouster of Prince. How ironic, that the largest Citibank shareholder, or as it is now known, Citicorp , is a Saudi Prince, and he has been a staunch supporter of the American Prince.
With oil hitting another record high today, the Saudi Prince can probably still afford to be patient. Which is why, conspiracy theorists believe, that Chuck Prince is instigating tensions between Turkey and Iraqi Kurdistan.
That’s a far fetch, but how else do you explain his villa?
Prior to leaving for the airport this evening, my wife and I had a little conference call, with one of our portfolio managers, who coincidentally enough is with Smith-Barney.
Where’s the coincidence? Smith-Barney, a wholly owned subsidiary of Citicorp.
The purpose of the call was to review his first years’ performance.
A year isn’t a very long time to judge, but he does know that we do follow the performance and do grade it according to the index that it is being compared to. In this case, it’s a balance between the Russell 3000 Growth and Russell 1000 Value indices.
Can you get any more obscure? But since there are now ETF’s for everything, it’s actually easy to figure out how he is doing, on a minute by minute basis.
The answer is that he’s not doing anywhere near as well as the other portfolios, but also nowhere near as well as the appointed standard.
But there’ll be no firings. We’ll give it another year.
Because when your in love, you tend to overlook the little flaws in life.
Thank you Costco. Thank you Alan.
Atlas Shrugged October 12, 2007
Anyone who knows me will immediately understand that I never bothered to read Ayn Rand’s book. It would be absurd to think that I had read it. My general rule of thumb is to never read a book that weighs more than I do.
Since I first promulgated that rule, I’ve simplified it somewhat. The distilled version of the general rule is quite simple. Now, my basic tenet is to never read.
I include the Szelhamos Blogs into that rule. If it involves reading, don’t do it. A fairly simple rule. Anyone who has ever done any editing will quickly be able to tell you that I, have obviously, never read what I wrote.
Luckily, roadside signs are generally defined by their geometric shapes. Reading is quite unnecessary.
Today, I promulgated a corollary to the general rule. As always, the corollary is very specific. Never read a book by Ann Coulter. Her latest gaffe was plastered all over the place. It’s amazing that it took her so long to defame the chosen people. We should probably be upset that we weren’t higher on her list. Well, at least we had David Duke, and I don’t think that he was trying to push his books. He certainly wasn’t trying to nuance his words.
Ann Coulter? Where would she be without the miniskirt and the low cut blouses? Probably warming up audiences for David Duke or working the In and Out Drive Thru, hoping for an opening at McDonalds. She certainly wouldn’t be on television.
For me, right now, the market is the equivalent of Atlas. It just seems to have supernatural strength and staying power. It must be the Enzyte.
But even the mighty can buckle under pressure. Since I don’t read, I’m also in the dark regarding the mythology behind Atlas. I assume that he was invincible, but my guess is that he had some kind of an Achille’s heel. Or perhaps that was Achilles that I was thinking of. Maybe Atlas had no weaknesses, in which case, the extension of this metaphor would mean that the Dow will never go down again.
But the bottom line is that I don’t know if the mythological Atlas ever did shrug. He held the world on his shoulders. Surely we would have known had he shrugged. We probably would have felt it, although that may have accounted for the turbulence during last night’s flight.
But the modern day Atlas certainly didn’t shrug today. He just kept lifting higher and higher.
The monthly University of Michigan Consumer Sentiment numbers were released this morning. The market typically reacts immediately to the news. This morning’s numbers were not good. Consumers were less optimistic this month, which in return, made me optimistic for some further Dow declines. At least that’s what should be expected based on past performance.
But it didn’t happen that way. Atlas wouldn’t let it happen. Not this time. Maybe never again.
What a surprise. Instead, the Dow just went up 60 points after the announcement, just ignoring the Michigan report. More irrational behavior. Even the University of Michigan Consumer Sentiment Report wasn’t the Achille’s heel. If that vaunted report couldn’t make Atlas shrug, truly he is invincible.
And so we just returned to where we had been most of the day yesterday, with all of my holdings regaining its late afternoon losses. Actually, to be more precise, the holdings that regained the losses were precisely the ones that I was hoping would go down even further, but you probably already knew that was coming.
Somewhere deep down, even I knew that was coming and it’s certainly not because I read ahead.
As the day wore on I just watched as Google, Goldman and Apple just kept getting lifted higher and higher. What had looked so promising near the end of trading yesterday was now right back to what I had been dreading. More yearly highs. At this point Atlas was just showing off.
Although I knew better, I kept thinking that there would be some small, symbolic sell-off before entering the weekend. And there were a few attempts to take profits, but they were all beaten back and the Dow ended right at its highs.
Now, I still can’t complain.
Even when I consider the fact that I may not benefit from the entirety of the run-ups in some of my favorite stocks, the past 2 weeks have still been very good. It’s just that they could have been great. But remember, year in and year out, I would be happy with a 7% return. Both last year and so far this year, the return has been in excess of 15%, outperforming both the Dow and S&P 500.
Ah, but if I hadn’t sold those options, they would have been inviting me to be one of those talking heads. After all, it’s not as if they could have Ann Coulter back on. There probably needs to be a little bit of a cooling off period. That would have been the perfect opportunity for someone like me to break into the business. But it wasn’t meant to be.
Speaking of returns, this Monday I will speak to one of the advisors that manages an account for us. He’s only been at it with us for a year, but his results have been far less than the comparative index. So it’s time for the “what are we going to do differently” kind of talk.
I’m not really looking forward to that, but the plan is to give it another year.
Actually, that’s the same strategy I used for the “birds and the bees” talk, as well, and that seems to have worked out just fine.
So instead of mapping out what to discuss on Monday, I’ll probably sit around this weekend wondering what to do on Monday in preparation for the 5 trading days before options expiration.
Come the close of trading next Friday, I’ll probably just shrug my shoulders. It’ll feel good to get the weight of these options off my shoulders.
Too bad Atlas could never let go. Sometimes it’s just time to move on.
Careful What You Wish For October 11, 2007
As I was watching the market continue its move upward early this afternoon, I had just two thoughts in mind.
First, I thought that I just couldn’t catch a break. It was just more of the same. You guessed it. Google was up another $10, now above $640. Apple was breaking $170 and it went on and on. When I should have been delighting in the Dow’s march forward, I was holding back the urge to kick myself. However, try as I might, and I have, I don’t have quite the flexibility that my dog has. So it would end up being more of a symbolic gesture.
But that’s what dreams are all about.
My second thought was how happy I was that I could stay true to my desire to be non-social. That is, while I was restfully sipping hot chocolate in my hotel room at lunchtime, my friend covered for me and did the obligatory lunch and coffee with a business associate.
Someone had to do it and he spared me. Sometimes life is good.
At that point in the afternoon I got back to my calculator and realized that at those increasingly high levels on the options premiums I just wouldn’t be able to buy all of them back. I would have to make choices, based on analyses of which buybacks would most likely be able to offer the greatest returns or at least stem the options losses. I realized that I would have to chose, akin to the difficult who shall live and who shall die decision. That’s why I’m glad that I’m no longer King.
I’d already grown tired of making decisions. As opposed to our Commander-in-Chief, I choose not to be “the decider”.
Based on recent past analyses, I will probably be best off if I did the opposite of my extensively well thought out analyses.
And then just when you think that life really is good, all of the hot chocolate in the world can’t cover up the fact that sometimes life isn’t quite so good. My wish for the Dow to give up some of its gains just wasn’t happening.
But then, as if the sky just opened up and a bright white light was there to lead me up to paradise, it just started. Was it Jesus calling me home? That white and bright light was just so inviting. I wanted to follow, but then something else caught my attention.
As I was looking at the computer screen, all of a sudden Google was only up $3. And then, just as suddenly it was down $1. And I watched with glee as Apple and Goldman and all of the others followed.
The appearance of blinking red numbers on the screen, replacing all of those green numbers was suddenly more appealing than the white light. Ironic that the colors of Christmas would call me away from the pure bright white.
As I continued to watch in religious like awe, the Dow was going from a 100 point gain to an intra-day 100 point loss. Hallelujah, Brother. Hallelujah.
At it’s very worst, or very best, depending on your perspective, Google was down $15, Apple nearly $7. And Goldman, MasterCard and all of the others were equally plunging.
As Don McLean would have said, “I saw Satan laughing with delight”, because I do feel somewhat evil as I wish for the market to go down.
Everything except for Halliburton. But I had no clue as to why the sudden turnaround. Was there something going on in the oil and natural gas markets? Because EnCana, which I no longer own, after trading in and out of it profitably for a year, also made a big move up. But Conoco Phillips and other oils and drillers seemed to be going down. So much for that theory.
The earlier gains were credited to some better than expected news from Wal-Mart. The reason for the turnaround? If anyone really knew, they certainly weren’t agreeing with all of those other people who knew the reason.
Maybe it was bad retail numbers. Maybe it was computer sell programs. Maybe it was a sell-off of technology stocks., or those nasty Central European banks.
Based on recent behaviors the past couple of days, it may just as well have been a full moon. I’ll check on that later. At least that’s fairly definitive. It either was or wasn’t a full moon phenomenon. My interactions with a number of individuals these past couple of days would, however, support the full moon theory. So I’ll go with it.
As I watched the plunge, I realized that all of the previous toying with me was just to get me to really appreciate things when they really happened.
But then, I started thinking about a cartoon I saw a couple of weeks ago. It had to do with the old genie in the lamp and granting wishes kind of thing.
Only that this genie was very literal and unless you asked for your dreams in very precise terms, you would likely be very unhappy with the results.
I was fairly non-specific in my wish. I just wanted the Dow to go down, but I never really told my genie exactly where I wanted Google, Apple and the rest to end up.
Even though I knew where those points were, I never clearly requested it in my wish. And now, I was afraid it might be too late.
Screwed by the genie.
A familiar story.
Maybe that genie could read minds, because just as suddenly, the Dow started somewhat of a recovery.
Too bad. Google made up another $10, Apple made some back. But at least Goldman is now slightly below my strike price. That’s good, I suppose.
So over the next few days I’ll be thinking in very specific terms when I hit the genie up again.
Right now, however, as we hit the worst turbulence I’ve seen in almost 6 years of flying, I think I’ll ask the genie for something non financially related. Although, I suppose that my continued existence could be indirectly tied to some financial issues.
As the turbulence started, I was the last one to be served a drink. I very quickly drank from mine, as I suspected it might get messy.
And it did, right next to me. Apple juice all over his laptop. But in a twist of irony, it was a MacBook, from Apple. I couldn’t have scripted that any better. An offer of my tiny cocktail napkin didn’t help much, so seeing the distress, I made my third and final wish to the genie. Because that’s just the kind of guy I am.
Hopefully, we’ll know next Friday whether the genie is as all powerful as advertised. If Apple settles right at $150 at some point in the day, all bow to the genie. Third wish granted.
Oh, and the guy with the sticky laptop next to me?
Let him get his own damn genie.
Oh, and by the way, welcome back, Jenn.
Now They’re Just Toying with Me October 10, 2007
You know that I’d been hoping for some down days. Strange request, but one that Alan Greenspan would clearly understand. That froth and exuberance have just been too much and too fast. That straight line ascent can’t possibly end up well. Ask any EMS guy and they’ll tell you that falling from the 4th story or higher is almost always fatal. We are definitely approaching that 4th floor.
It’s not so different from sitting at the roulette wheel and seeing 7 straight reds come up. You just know that a black is due, but you also know that it’s not. So you struggle with the knowledge that either decision will be the wrong one half of the time. In a flawed analysis, you can make the case that whatever decision you make will be wrong 100% of the time, using the additive property of the probabilities of independent events.
I’m not certain that there is such a property, but you get the idea. You either win big, or you will continue losing until you finally do win or get tapped out trying.
Or you can over analyze the situation until paralysis sets in and then regret the missed opportunities.
Or you could just do whatever you feel like doing and not moan about the outcome.
At least in the stock market you’re not likely to lose everything with one spin of the wheel. That is unless you buy the wrong Google options next Thursday. But like everything else, you’ll have that 50% chance of being right. Where else can you get such great odds?
As I watched the pre-open numbers this morning, it looked as if I might just get my perverted wish. No, not that one, the one about the Dow. Funny, but one wish has to do with something going down and the other doesn’t. If you need further explanation, you’ll have to go to our mirror web site, www.SzelhamosAfterDark.com
As it all ended up the Dow finished down nearly 90 points.
I was ecstatic. I got what I had wished for. I was already starting to map out a new and expanded wish list, until I looked at the details.
And that’s when I realized that they really are toying with me.
While the Dow seemed to get with the program, it was pretty deceiving, since mostly everything else was up today. The Dow and S&P 500 usually have about an 8 to 1 ratio in their moves. Today, the ratio was about 40 to 1. All that was really wrong with the Dow today was Boeing.
A month ago Boeing announced that it had to delay its initial test flight of the 787, but that it wouldn’t be delaying the date of its first delivery.
But everyone believed them and Boeing just kept soaring. I’m obviously referring to the stock price and not the actual 787.
So today, Boeing announced a delay in deliveries. And for some reason everyone was shocked and sold their shares.
But who can blame Boeing? By hiding the real timetable they were able to trump EADS, the company that owns Airbus, that was having its own production issues that ending up scaring potential buyers away. Boeing just jumped all over EADS and helped the Dow in its rally over the past 18 months.
Today though, Boeing is giving it back and took the Dow with it. Not much else, though, went along for the ride, although, as we now know, the ride is being delayed.
So you want tangent examples of how the rest of the market did not cooperate with that perverted Dow wish?
Google? Up another $10.
MasterCard? Up another $2
Halliburton? Up another $0.60
Now, it wasn’t all terrible. There were some cooperating stocks. Apple fell by $1, Goldman by $3, and NYSE by $1 but that was about it. But even those had been lower, only to take my hopes away as they rebounded, even as the Dow fell lower.
But before you start shedding any tears, overall, it was another up day for the Szelhamos Portfolios. Although my retirement mutual funds did lose a little of their value today, the key word here is “little”. Since they are usually underperformers, you would have expected a big hit in their price, with the Dow down so much, but their decent performance today shows you just how non-representative today’s Dow drop really was.
Now, I’ve changed my wish. I hope that the up momentum continues. If it does, I’ll be ready to buy back my options and then sell some new ones, knowing that the premiums will be even higher than usual, due to the upward momentum.
And that’s because the options market premiums have a momentum component built into them. Volatility is great and momentum is great for those options premiums.
It’s a case of lemons and lemonade.
Since my recent predictions on the direction of the market have been so good, I decided to just keep going with it. Again, just like watching 7 straight reds come up, except that this time you bet on another red. And why not? It’s the same 50% rule.
And that’s why I sold some October $70 Altria options. I did so while Altria was at $70, but the premium was $0.85 per share.
The only way that this bet could lose is if Altria goes up more than $0.85 by next Friday. But that’s exactly what it is. A bet.
Since Altria has had a really hard time breaking $70, I figured that this one may just work. But then again, that’s what I thought about Google at $50 below the strike price and Goldman at $15 below the strike price.
My guess is that this would be the perfect time for Altria to break $100.
Because I just know that they’re not finished toying with me.
The good thing, though, is that it can start all over again in less than 10 days. Isn’t it wonderful that you can get so many opportunities to predictably be ridiculed by your own intellect?
Taking it Down to the Wire October 9, 2007
By now you’ve heard me bemoan the fact that I’ve sold call options at exactly the wrong time, as the prices of the overlying stocks have just gone through the roof. Today just continued that theme.
As my wife said to me the other day following a particularly difficult encounter with her sister, “do you want to shoot me now or shoot me later?”
Sometimes, being shot twice is warranted.
I guess that this being the 5th anniversary of the bull market should have alerted me to the predictable new records in the Dow and S&P 500 that were set today. We were due.
If I really had any interest, I’d go back and check to see what exactly happened 5 years ago that supposedly marked the start of the bull market, but as you may have guessed, I don’t really care.
I did a little number crunching today and so far, due to options pricing inefficiencies on in the money options, the losses that I might take on buying back the options would be less than the extra profit from the underlying shares. That’s good news, right? Sounds like good news.
So here I am, putting a spin on the situation. My spin is no different from talking head spin. I’d much rather not be in this position. No matter how hard I try to spin it, I’m not convincing myself that there’s a silver lining to be had. I need to spin it more.
Usually, I wait until the expiration day or the day before, to decide whether it’s worth buying back the call options. There’s not much sense doing it now, as there’s still plenty of time until next Friday for prices to pull back. Although I’ve been saying that for the last couple of weeks already.
But by waiting until the bitter end, as expirations are ready to expire, you end up not paying for any time premium, that part actually still stays as your profit for giving someone else the option to buy your stocks.
If I close my ears, eyes and cut off oxygen to my brain that spin makes me feel a little bit better. But then when I look at the bottom line that could have been that feeling disappears.
Oh, that bottom line that could have been.
Since I really am not ready to part with any of these stocks, I keep hoping that they will go down in price before next Friday’s expiration. But wouldn’t you know it, Google, which at noontime is up another $6 will be reporting its earnings at the close of trading next Thursday, just one day before options expiration. At the moment, it’s $15 above the $600 strike price.
No matter what Google reports, you just know that the movement after the announcement will be explosive. You just know that action in the Google at or near the money call and put options is going to be heavy. You have a 50% chance of hitting it big.
So here’s the problem.
Can there be any clue in what direction that explosive movement is going to go? Since my recent ability to predict broad movements has been less than exemplary, I need some help. So allow me to provide it to myself.
Let’s start with what we know. Typically, Google’s stock price gets punished even after reporting obscenely great quarters. Last quarter was a perfect example. By everything that is right and just, Google should have gone from $550 to $600 on the strength of those earnings. Instead, it fell to about $500. I thought that it would take about 2 weeks for Google to regain that loss, but by that time the sub-prime story came into its own and put a damper on everything.
Typically, Google runs up in the 2 week period before the earnings report. And this upcoming earnings period has been no different. Have you seen Google’s numbers in the last 2 weeks? The $47 rise is almost 9%. Last quarter it rallied 6% prior to earnings release and then proceeded to lose 8% in the following 2 weeks.
Maybe I didn’t think hard enough yesterday. Maybe Google is a metaphor for life, after all.
It has good times, it has bad times and it’s not very predictable. And it’s not even a teenager.
As a public company it’s in the “terrible twos” right now, but it is remarkably well behaved, but it just doesn’t know how to say “no” to a dangerously steep rise in its stock price.
So what will Google do after its earnings report? Past history says that it will go down and go down big.
So clearly, the thing to do is to ignore past history and buy Google, or better yet, Google options.
Since Google does have that tendency to go down, It’s a little risky to buy back the options before the earnings announcement. You would be left taking a loss in the options and then taking a loss in the stock. On the other hand, if Google does go up after the announcement, you’ll just have to take a bigger loss on the options in order to make a bigger gain on the stock or sell new options at a higher price.
Huh? Stop me when that makes sense.
But Google isn’t my only badly behaving stock these days. Just when I thought my October Goldman $230 call options were safe, in the last hour Goldman decided to rise about $13 to $239. Not bad, considering that just 3 weeks ago it was below $170.
I still can’t believe that I start each morning hoping for a downturn, but even when the market does go down, my optioned stocks just keep going up. Unfortunately, none of the rise in price above the strike prices does me any good.
And after all, it is about me.
Taking it down to the wire like this is actually fun, if not necessarily profitable. At the moment I’ve sold options on 11 stocks, the most that I’ve ever done at one time. Most of them expire next Friday, but there are even some November and December ones thrown into the mix.
But the nice thing about that wire, it just keep coming back for another round of anxiety provoking moments that require decisions that can easily be second guessed.
Isn’t that what makes it all worthwhile?
Google as a Metaphor for Life October 8, 2007
As hard as I tried thinking about it, I really couldn’t come up with a way in which Google could be interpreted as a metaphor for life. But I really liked the title. Now I know how it feels to covet a pair of Jimmy Choo’s and what lengths people will go to just to achieve their dream.
And my dream was somehow making this title work. I was even willing to go under the knife, if that’s what it was going to take.
But then it hit me in the early minutes of trading this morning, as Google passed through the $600 mark for the first time. Everyone referred to this event as a milestone.
In the future corporate life of Google, there may well be many milestones ahead, and this particular one may fade into distant memory. But in real life, milestones are meant to be memorable and not to fade away. Does anyone really remember the $300 Google milestone?
Yesterday we celebrated my son’s 21st birthday. That milestone in itself is supposed to be memorable, but there were watershed marks in the evening, that may have been momentary flashes, but for me will be the truly memorable milestones.
A few years ago, my son went to Ruths Cris Steakhouse to celebrate the 21st birthday of a friend of his. As part of the celebration, a mind bogglingly priced after dinner cognac was poured for the celebrant. Not being one well versed in the etiquette of alcohol, I do, however, believe that “after dinner” is redundant, as far as cognac is concerned.
That was pointed out to me years ago when I went out to dinner with my then, properly British boss, who seemed shocked when I order an amaretto as my pre-dinner drink. She advised me that it was an after dinner drink.
I confided in her that it was really my second choice, but that I didn’t see any Manischewitz on the wine list. Szelhamos would have been proud of that moment. He wasn’t one to stand on ceremony or rites.
That moment helped to secure our relationship. As much as she tried to make me corporately presentable, there was an alternate path to be taken that worked out just as well. My boss gave in, although I don’t think she ever tried the house Manischewitz.
That evening I was introduced to Newt Gingrich. Who knew that short, inebriated, loud and obnoxious would be the pathway to power?
Anyway, my son was impressed by his friend’s birthday moment. When he told me about it, I told him that we would do the same for his 21st birthday celebration.
I didn’t forget and no one needed to remind me.
And now here we were.
Before we were seated at our table, coincidentally enough, also at Ruths Cris, we stopped at the bar for our first officially sanctioned toast. I told my son that he should choose for our round of shots. After all, what do I know about alcohol. I’m not a college student. Who knew, maybe this was the right time for a pre-dinner cognac.
The first surprise of the evening was that he asked the bartender for the worst whiskey he had. You could tell that the barkeep thought he had mis-heard the request and so it was repeated.
After much searching, since Ruths Cris doesn’t specialize in the bottom of the line, or at least doesn’t advertise that ability to cater to the curbside vomiting crowd, he finally came up with some Wild Turkey, that I think was reserved for the staff. The cash register, however, couldn’t distinguish between haute and de-classe brands.
We toasted and downed that Wild Turkey. I was the only one who coughed after it went down, but it may have been the best drink that I’ve ever had. Aspiration notwithstanding.
Among the gifts that my son received was one conceived by his younger brother. It was a gift of a 30 or maybe 40 year old Hungarian pear brandy, with an equally ancient pear encaptured in the bottle, that had been buried deeply into a cabinet.
I was moved that my younger son would want his brother to have this item from Szelhamos’ collection. I hope that someday, whatever remains, will also be passed down or shared, at just the right moment. Maybe Szelhmaos’ 100th birthday in 2022.
In a way, an old mummified pear is a metaphor for life, as well.
As the now legal adult opened his gifts, he came upon one from my wife and I. It was for an expense paid roundtrip for two, to Las Vegas, with cash included for traveling/wagering/drinking/strip club/bail.
After all, what better way to enter adulthood. And besides, you can do it with both impunity and immunity in Las Vegas. Just ask O.J.
To my surprise, he said that he wanted to go with me.
There’s still time to change his mind, but I think he knows that one of the best times that I ever had was on an 80th birthday trip to Las Vegas with Szelhamos. It was his first trip and he loved it. Even the near fatal choking incident that necessitated a Heimlich didn’t dim his enthusiasm for that trip.
I suppose that’s what you get when you eat pork chops without your Rabbi’s blessing. I wonder if one of those much talked about deathbed conversions would be accepted if there was still a pork chop lodged and blocking your airway.
That’s a question for the sages.
Anyway, that trip offered more memories of life and maybe some future memories, as well.
But as the evening drew to a close, I went to my son and said that it was time for that special drink.
He looked up at me, which he only needs to do if he is sitting, and said that he didn’t think that he would really appreciate the drink. It was the Wild Turkey that made the night.
Maturity. I will definitely remember that moment.
And we eventually parted yesterday evening. Twenty one is certainly a milestone, but it can be meaningless in the hands of the unaware. He is increasingly aware.
When I awoke this morning I still savored last night, but was ready for another crack at the markets. We really should consider 7 days a week trading.
And there it was, Google. At this point, with about 30 minutes left in trading, Google is up $15 and is now beyond my $600 strike price. But there are still 9 trading days. Given the premiums for in the money Google strikes, it may even make sense to repurchase the October options and just turn around and sell a November in the money option.
Meanwhile, Apple, despite potentially bad news about unlocking its code in the European markets just keep marching along, up another $5 and now $16 above my strike price. Even the story in today’s news that an iPod caught a man’s pants on fire didn’t quench the fire in the stock’s price. This is turning out to be a bad trade. Hopefully, MasterCard will continue its price slide, but it is still $5 ahead of my strike price.
The one time in the past 2 years that I turned bearish is haunting me. Poor timing, poor decision. Don’t fight the trend is one of those sayings that may have some merit.
As the day wore on, I did sell some October Honeywell $62.50 options and some December NYSE $95 options. Of course, in keeping with recent decisions, those strike prices just kept going up, as well.
But in the big picture, these trades, Google’s $600 price level and everything else in the markets, will be blurs.
The real metaphor for life is life itself.
I had enough this weekend to last me a lifetime. A good lifetime.
Career Day October 5, 2007
I used to think that the best possible job in the world was to be a weatherman. How could you go wrong with that choice of a career? You get nice clothes, you get to joke with the anchorman, you get invited to the opening of new shopping centers and you get to be wrong all of the time and there’s no consequence. Oh, and before I forget, you also get an unlimited wardrobe of designer clothes.
What I wouldn’t do to use those mega-sized scissors to cut the opening day ribbon in my Armani. We all need our fantasies. Goodbye Land’s End.
But I’ve changed my mind. I don’t want to be a weatherman when I grow up. Now I want to be an economic forecaster. Hello Sears perma-press no-iron suit.
Actually, that would have been in the old days, when economists were kept in the sub-basements of Area 51. These days, economists are like rock stars and I do a mean air spreadsheet.
With the notable exception of Arthur Burns can you name any truly bad economist? Alright, let me simplify the question. Can you name any economist other than the one that may have written your college economics textbook?
In an era of truly bad presidential appointments during the Carter administration, Burns was in a league by himself. Paul Volcker was to Arthur Burns what Ronald Reagan was to Jimmy Carter. You didn’t necessarily have to agree with the positions of the Reagan and Volcker, but at least they exuded confidence. And that everpresent Volcker cigar was quite a contrast to the Burns circa 1920’s Ivy League hairstyle. The part down the middle was presidential circa Warren Harding.
Talk about obscure.
Anyway, I don’t know how much economists get paid. It’s not about the money. It’s really all about the power and the ability to revise reality. And look at how much power they have as they are able to move the markets at will as they just ignore everything in the past and revise history, also at will.
Last month the Jobs Creations report was just terrible and the revisions to the previous months ended up making the jobs data for those months horrible, as well. The market reacted in a nasty way and the Fed’s hand was finally forced into action. The silver lining to the poor forecasting job was that the Fed’s move directly was related to the rapid rise in stocks.
So today, everyone was holding their breath as the latest numbers were released.
So let’s start with the revisions.
Instead of an unheard of loss of 4,000 jobs last month, oops, there was actually a gain of 81,000 jobs. My bad. This was more than an “I forget to carry the one” kind of revision.
And this month? You got it. 110,000 new jobs. Of course, we may as well wait for next month’s revisions, before we get too excited. But it’s too late, because the excitement is already underway.
You really have to wonder why they don’t just delay the release of statistics for another month. Wouldn’t accuracy be nice? In fact, I would be willing to have the weatherman give us last week’s weather if it meant greater accuracy. But somehow I doubt that even then they would get it right. And I suppose the same would go for the economic forecasters. It probably doesn’t matter how many months in arrears they go, they will just continue to be wrong.
Maybe that’s why there doesn’t appear to be a great correlation between the ADP numbers and the official government numbers. But no matter, in the market pre-open the stock futures soared on the news. After all, it’s the news that counts, not the accuracy of the news.
You really have to wonder what Bernanke and the guys at the Fed are thinking now. Were the rate cuts last month even necessary? Probably not. So what does that say for the much anticipated 2 further rate cuts before the end of the year? So if you try to get into the head of the market, then since the next 2 rate cuts were already built into current market levels, you would have to think that the overall market trend until the end of the year will be down.
In fact, the talking heads are now questioning whether Bernanke’s cuts were too much and too soon. My how quickly these guys will turn on you. Unbelievable. A month ago they were calling for Bernanke’s head unless he did something to save the U.S. economy, as measured by its proxy, the stock markets. Luckily for them, these talking heads are never subject to hindsight evaluation themselves.
Bob Pisani, of CNBC, who is typically a reasoned and insightful individual believes that today’s Jobs Creation numbers are not so strong that they will definitely postpone rate cuts. Bob Pisani always offers unbiased and rational observations as the events are unfolding. My guess is that he was dropped off from another galaxy. But its always been my contention that The Bronx is the universe’s best breeding ground for sanity.
Today may likely be a party day and the reality will hit after the hangover. That is, assuming that these numbers have any accuracy. We’ll revisit this issue in a month.
One of the great lines this morning compared the reliability of the Job Creations number to a promise made after 5 martinis on a Saturday night. So you really have to wonder just how these numbers can move the markets so much and so fast. It’s no secret that they’re notoriously unreliable, yet the world stops and starts on these numbers.
Sometimes you wish that the movers and shakers on Wall Street, the ones who determine the movement of stocks on a given day were more like the people that live in the paths of hurricanes. Trade in the McMansion for a double wide.
Most of those people, despite all of the early warnings to vacate, just stand their ground. They don’t react to things like data, news and predictions. When it actually hits the fan is when they get up and go. Typically, their idea of “get up and go” is to visit a Home Depot and stock up on plywood, but still, they can’t be accused of over-reacting. Neither to news, nor to events.
I’d like to see more of the “whites of their eyes” kind of approach to buying and selling stocks, but then, just about everyone would likely be on the same page. Where’s the excitement in that? The real excitement comes when you know that your gain is some unknown, faceless person’s loss. What could be a greater rush than beating an anonymous foe?
As excited as I am about the gains so far this morning, I’m not sharing in them as much as I should. And that’s because I have some of the qualities of a great economist, in that my prediction for the direction of market movement has been wrong. My MasterCard, Apple, Halliburton and soon Google and Goldman Sachs are, or will be above their strike prices, and by a lot. What I thought were smart decisions to sell call options are appearing to be anything but. At least there are 2 more weeks until expiration, so there’s still a chance that the market will pull back to more reasonable levels.
Now that I think about it, maybe I’ll just stick with my day job. At least I know what I’m getting cleaning out the zoo’s septic system.
Sometimes It’s Easy October 4, 2007
On these slow news kind of days when there is no direction to the market, sometimes it’s hard to find a topic. And despite those days when it’s obvious that I have nothing good to opine about, nor any good opinions, I feel compelled to write.
More on that later.
Everyone knows that today is just a day to twiddle thumbs while we wait for tomorrow’s news. At 8:30 A.M. on Friday we’ll know whether last month’s abysmal Jobs Creation report was an aberration or a forebearer of doom. Every month there’s talk about how vitally important the numbers will be, but tomorrow that may very well be true. For just once, maybe the numbers will have some meaning, if only to show the beginning of a trend.
More bad numbers should pave the way for another rate cut and depending on your personal bias, that would either be good news or bad news. Pretty much like everything that occurs. You can spin it any way you choose.
But in the meantime, it just promises to be another slow day, unless some exciting news emerges, like North Korea announcing its intention to join NATO. I’m sure that we would welcome them into the coalition of the willing. Those Iraqi insurgents haven’t seen anything until they’ve been faced with a starving North Korean soldier seeking to establish democracy in the cradle of humanity.
It could happen, but since I’m not really counting on that happening, it will probably end up just being the slow news day that I had been expecting.
Luckily though, on some slow news days it’s easy to come up with a topic.
Today is one of those easy days, because today would have been Szelhamos’ 85th birthday.
Hello? Have you not seen what the title of this blog site is? Maybe that’s why it was easy to come up with a topic.
Honoring Szelhamos is what compels me to write. It doesn’t compel me to read what I’ve written, but it does make me write. If I were to actually read what I’ve written, I would probably be compelled to cancel my internet account. I don’t want that kind of garbage coming into my house. In case you were wondering, that’s the same position I hold on pornography.
I often wonder what Szelhamos would think as he reviewed the days’ events. Usually, he would shake his head, or shrug his shoulders and say “It’s a free country”. Those words said it all. It was always a perfect way to summarize irrational and odd-ballish kind of behavior. The wonderful thing about life is that there is never a shortage of the kind of behavior that would evoke an “It’s a free country” comment. He would have loved all of the Britney Spears stuff.
What he especially would have loved was if my use of the word “pornography” in this blog would have gotten the Szelhamos Rules web site indexed under the search term “pornography”.
I think that he would have liked his alter ego associated with that word. It would have made the 82 world based years all worthwhile.
Most of all, I know that Szelhamos will be watching as we celebrate his oldest grandchild’s 21st birthday. The one who has the same initials as Szelhamos is quite a Szelhamos himself. I’m certain that we will raise a glass or two to him. He would have been proud to see his grandson at this stage in his life.
By the way, if you are uncertain as to the meaning of the word Szelhamos, I’ll have to refer you back to “Who is Szelhamos”. Sit through the 2 minute pictorial show that just scratches the surface. If you like, you can check out a hundred or so of Szelhamos’ finest pictures. There are very few pictures of him when he is not mugging for the camera. It would drive my mother crazy that he just was incapable of striking an ordinary smiling pose for the camera. But he just wasn’t an ordinary kind of guy.
Or if you don’t want to do any of those things, you could just Google it, because we continue to be the number 1 Szelhamos referenced site on the internet. Believe it or not, if you do Google Szelhamos and limit your results to English only, you’ll still get lots of hits.
But we’re number 1. With a bullet and with a readership in over 20 countries and with lots of people accessing the “Who is Szelhamos” show. For all we know, or as we’ve been warned, be careful what you post on the internet, because it may live on forever, as some job applicants have learned the hard way as their Facebook pages seem to linger long after they had been erased.
But since this site is supposed to be about the financial markets that’s the direction that I am mandated to take. And make no mistake, Szelhamos loved the stock market, but as with the horse races, which he also loved, he believed that the stock market was fixed. Don’t get me started on his theory about the electoral process. Let’s just leave it as, “they’re all crooks”.
He was probably right on all counts. You really don’t want to know what he thought about doctors and dentists. And phlebotomists? Forget about it.
So as I look for things to write about tonight, I sit in the airport awaiting my delayed flight and trying to ignore someone who has recognized me from my workplace and already engaged me in endless conversation.
But regardless of what topic I think that I want to address, I always come back to thoughts of Szelhamos.
So Szelhamos, happy 85th birthday. You’re missed but there’s an ever expanding universe of people who are getting to meet you for the first time. Why you have a regular visitor from Viet Nam, I have no clue, but it’s a big tent and all are wecome.
Maybe, just maybe, I can do justice to your memory.
From all of your loved ones and from all of your new fans, Happy Birthday.
Are You Ready? October 3, 2007
Barely a month ago we were where we are right now. And it turned out not to be a very good place. More and more these days, I want to be in a happy place. A month ago, there were no happy places. It was just a barrage of bad numbers and bad reports. Back in the ‘60’s it would have been called bad karma. Not that I’m old enough to remember the ‘60’s, nor have enough gray matter left to remember the ‘60’s, but that’s what I’ve been told.
Who knew that a drop in interest rates would be the cure for bad karma? Back in the days when we used to talk about karma, I’m not even sure we knew what interest rates were. But nonetheless, all it took to break that bad trip was a drop. Of course, once again, back in the ‘60’s what would have been dropped was acid, not interest rates.
A month ago the preliminary ADP employment numbers were released. They weren’t very good, but the market wasn’t completely certain how to react, since the correlation of the ADP numbers with the official Jobs Creation numbers apparently hasn’t been quite a good as it was before they started publicly releasing the numbers. That’s just further evidence of the validity of the Heisenberg Principle. The ADP numbers were great before anyone actually started looking at them.
The official rollout of ADP measurement tool hasn’t been the accurate barometer that it was claimed to be. But each month, someone from ADP in response to questions regarding the tool’s validity, always points back to the 5 years worth of unreleased data that was purported to be eerily accurate. But at least each month there are 20 minutes worth of CNBC airtime that can predictably be devoted to discussing the reliability of the numbers. If you can’t have a happy place, at least you should have a predictable place.
The market did move down with last month’s ADP numbers, but there wasn’t any really good conviction in the selling. The conviction, though, really came on the Friday after the ADP numbers, when the Jobs Creation number turned out to be a record low and then to top it all off, the previous 2 months were revised drastically downward.
So let’s get this straight. The ADP numbers aren’t accurate, but we then responded to the Jobs Creation numbers, as if they were gospel variety accurate, despite the admission that the previous 2 month’s reports were wildly inaccurate.
Stop me when it makes sense.
And so that marked the last major fall that we went through last month. Many speculate that it was those job numbers that convinced Bernanke and the committee to finally cave in and drop interest rates. Others don’t speculate, they just know that was the kick in the rear end that put the Fed into gear.
So here we are, again. Jobless numbers are due on Friday. This time, though, the ADP numbers were only mildly disappointing. But the market again failed to follow through on Monday’s great day and just drifted lower and lower as the day wore on. Tomorrow will probably be more of the same as we just sit back and wait for Friday’s numbers.
What may turn out to be interesting is that many are still predicting 2 more small rate cuts before the end of the year. Another bad Jobs Creation report may end up being just the impetus needed to get those cuts.
But better yet, a bad number may send some of those now too high stock prices down. I’m talking to you MasterCard, Halliburton and Apple. Especially since I’ll be losing them at $150, $37.50 and $155, respectively, unless they go down some.
For me, Wednesdays are mostly spent in a vacuum. I finish work at 7 PM and know very little of what moved and shook the world. As long as I don’t see a nuclear plume outside the window, I feel pretty good about things, almost as if I were in a happy place.
On Wednesdays I only know about the numbers that I see flashing on the computer screen. Occasionally I see extreme numbers and that requires some investigation. But today, once again, there were no extremes. No extremes equals no investigations equals “happy place”.
Admittedly, though, curiousiyt did get the best of me, so I did check the New York Times’ web site for any breaking news, but I doubt that Bush’s veto of the proposed S-CHIP program had much impact on the market.
So much for a “compassionate conservative”. Does anyone remember that 2000 election campaign phrase?
So there really wasn’t any good reason to search the internet for the days’ news. Besides, these days, in order to reliably end up in a happy place, I tend to get my news from Comedy Central, especially since the hotel doesn’t get Pay-per-view.
By the way, ending up in a happy place is not necessarily synonymous with a happy ending.
If only they would do the weather on Comedy Central. They would probably be more reliable than the usual sources of weather information.
So, once again, nothing much happened today. We ended up losing a little more ground, closing below 14,000, once again reminiscent of the actions the last time we were in this rarified neighborhood.
In the meantime, tonight there is something much better than the anticipation of the excitement surrounding Friday’s Job Creations numbers.
That’s because tonight is the premiere of the new season of South Park and the Sarah Silverman show. And best of all, tomorrow night is the season premiere of Drawn Together. The only thing that could make all of this better would be if they could do the Sarah Silverman show as a cartoon.
I’m not sure what I would do without Comedy Central, especially since you can’t catch Tom Brokaw on the air on a regular basis, anymore.
Now he was funny.
But he’s gone and all I have left are my cartoons.
So tonight, as I revel in my vacuum, I am ready for 60 minutes worth of a happy place, as opposed to 3 seconds of a happy ending.
And the best part is that at midnight, they rerun that happy place. Imagine that, being in that happy place just an hour later. I’m really ready for that.
Radiohead Versus Apple and Springsteen October 2, 2007
You have to admire Radiohead. You may or may not know their music, but you have to hand it to them. They know how to shake things up.
Crazy? Or just crazy like a fox?
For starters, they were so far ahead of the curve, that they appeared on South Park long before it was fashionable. Just like the early pioneers that guest voiced characters on the Simpsons, when no self-respecting actor would even consider debasing themselves, Radiohead is once again setting the agenda.
You saw what an early appearance on The Simpsons did for Jackie Mason’s career. Okay, so maybe that’s not a good example, but you get the idea.
To a large degree, today’s news from Radiohead about the sales strategy for its upcoming album, reminded me of Mr. Katz. I hadn’t thought about Mr. Katz for years, but the parallels are remarkable.
Mr. Katz was a high school teacher of mine. I had taken classes with him for 3 years and always did well. Well enough to consider asking him for a college letter of recommendation. I knew that he would write me a great letter.
To my astonishment, Mr. Katz pulled a Radiohead on me. Long before there was even a Radiohead. That’s how far ahead of the curve Mr. Katz was.
You see, today Radiohead announced that their new album would only be available digitally. But the real kicker is that anyone wanting to download the songs could do so, without any copyright protection and get this, they could name their own price, or no price at all. Revolutionary.
Even more revolutionary, they set their sights on the iTunes ala acarte download model, where all songs are identically priced and you can select which songs from an album you would like to download.
Apple, the one time revolutionary led by Steve Jobs, recently called for the drop of copyright protection for recordings. That certainly was revolutionary, although Apple really didn’t have anything to lose.
But Apple is not the revolutionary anymore. Now, it is more like “The Man”. Because, really, would a real revolutionary be caught dead being the CEO of a company with a $157 stock price? “The Man” would, but not the one time Che Guevera of the computing world. And who in their right mind would consider suing a company for dropping prices, unless it was to “put it to The Man”. That’s what happened to Apple as a $100 million lawsuit was filed today in response to Apple’s decision to drop iPhone prices.
In a poll taken of people likely to download songs, meaning copyright thieves, the range of prices that they said that they would be willing to pay to download a potentially free album was from $2.05 - $10.50.
They lie. Since you really can’t beat the quality and price of illegal downloads. In case you weren’t certain, they are free.
But that’s exactly what Mr. Katz did to me. He didn’t lie, he just pulled a Radiohead.
He said that I should write my own letter of recommendation and he would sign it.
Just like Radiohead, he must have had the psychology aspect of all of this figured out. He knew that I wouldn’t go overboard with the superlatives and would probably write a balanced and fair recommendation letter for myself. He knew that I would gladly pay anywhere from $2.05 - $10.50 for a high quality letter of recommendation.
But he knew that it’s hard to be yourself when others place misplaced trust in you.
Or very possibly, Mr. Katz just didn’t want to be bothered. Or maybe he just wanted me to agonize over the process and through the agony I would write a fair and balanced letter.
And maybe that’s what Radiohead is being motivated by as well. Sometimes you just don’t want to be bothered, or sometimes you just want to put others through agony. Do you know how difficult and agonizing it is to sign a contract? The process of putting pen to paper, especially for multiple copies, is arduous.
On the other hand, the one time badboy of New Jersey, Bruce Springsteen just resigned with Columbia Records, probably having figured out how to use carbon paper.
For those blog readers aged 25 or less, carbon paper was something that we used to use so that we wouldn’t have to sign our name more than once. That’s how hard it is. For some reason, they don’t make carbon paper anymore. I think the recipe died with Colonel Saunders.
In the case of both Radiohead and Springsteen, who is also releasing a new album after an extended dry spell, these are just different paths in an attempt to re-attain relevance.
What does any of this have to do with the events of the marketplace today?
Really nothing, but it was just another of those boring days when nothing much happened. Sure the falling dollar compared to the Canadian dollar has made it possible for the old Toronto Dominion to buy Commerce Bank and I suppose that was news, but it was a yawner.
For me, news of a Canadian bank purchasing an American upstart like Commerce Bank just reminded me of the Academy Award losing South Park song, “Blame Canada”. Hard to believe tat it lost to Phil Collins. But back then, the Academy was behind the curve.
Although the market ended up taking a little breather today, I sat and watched with some incredulity as some of my stocks for which I have written options, just continued to climb toward the stratosphere.
The best example of that was Google, which at one point was up about $14, putting it within about $2 of the $600 strike price. But for some reason it lost $13 of that gain in the final hour.
Same for Goldman, except that it didn’t lose any of its $5 gain, putting it $8 ahead of my $220 strike price.
And Apple? It just continues on its unrequited trek toward tech bubble-like prices. My strike price is at $150, while Apple is now at about $158.
Talk about bad timing.
So as I often do, for the next few weeks, I’ll be hoping that the market moderates, and some of these stock prices fall.
Is that asking too much?
It’s too bad that they can’t apply the Radiohead model to stock prices. I know that I would always be willing to pay 1 cent less for a stock than the strike price of the option that I sold. And happily so.
Mr. Katz would be proud of me.
Instead, now I agonize about whether to buy back the options now at a loss, or wait until near the end of the options period to see whether to buy back the options. The latter way, there is risk of getting even further into the hole.
It’s all about the risk. Should I take the sure loss or risk losing more?
Or maybe I should pull a Springsteen and do the easy thing.
For me, as I figured out just yesterday, the easy thing would be to get out of the market and go entirely into a 5% money market.
And that safety switch would work, because at that rate, for the amount of time I plan to keep working, I would still arrive at my retirement goal. That’s only because the last couple of years’ returns have been exceptionally good. The real risk is to keep spinning the dice.
But like Radiohead, who is taking a risk with their strategy, risk makes it all interesting.
So here’s to Radiohead.
Apple and Bruce? I still have a spot in my heart for you, but it’s all about the risk.
That’s what I’m talking about.
That’s What I’m Talking About October 1, 2007
I’m about 500 miles away from a friend of mine at the moment. But I know that if were near him right now, he would be quoting someone else, who would likely refer to today’s trading session in the following way:
“That’s what I’m talking about”.
The original source of the expression, and its intonation and accent in which it is delivered which is every bit as important as the sentiment, is not known to me. I don’t know whether he is a friend or an acquaintance, or just a passerby, but he is, by all counts, a good judge of obvious events unfolding around him.
It is that kind of good judgment, for example, that led to a swift decision to surrender after Nagasaki.
That’s what I’m talking about.
Better judgment would have been a surrender after Hiroshima, or selling my ProShares Dow Ultrashort shares before the market climbed 500 points, or even after it climbed 250 points .
That’s what I’m talking about.
Like very few things in life, whenever that expression is used, it really doesn’t need any explanation. For my friend, it’s a doubly good day, because with about 1 hour left in trading, besides the Dow being up by more than 200 points, gold is up another $4. As long as the dollar keeps falling, it does look as if you can have it both ways. You could always use your stock trading profits to offset the cost of your upcoming European vacation.
The day started off with one of those potential warning signs, as one analyst pointed out the October is traditionally a good month. This came on the heels of a traditionally bad month, September, which turned out to be a great month. Think Bizarro World.
It reminded me of one of the first times that I heard near unanimous opinion about the market. I’m sure there have always been periods of near unanimity, but I’ve only recently started paying attention and keeping a scorecard.
That was a few years ago when just about everyone was on the January bandwagon. At this point, I forget the statistic, but it was something like in 24 out of the past 25 years, the month of January has been an up month. The January Effect. Remember that one?
Of course you know how that story worked out.
Later, someone developed a corollary to the January Effect. As goes January so goes the year. That one doesn’t work very well, either. Well, let me clarify that. It worked in hindsight.
Then of course, you also have the NFC and AFC theory. With adjustments made for old and new NFC teams, or something like that.
By the same token, The fall has always been a good period of the technology sector and the market in general, although the tech sector already did very well in the past quarter. So you know what that means.
But this morning’s tepid pre-open was furthered tempered by the news that Citicorp would be announcing a bad quarter. Ordinarily, that’s one of those things that seems to cast a pall on the market. Then to top it off, UBS announces layoffs. A pall to come for sure.
But I’m not good at judging obvious events unfolding. Obviously.
And so you guessed it. There was no pall today. Not today. For some reason, in the absence of good news, the market opened up on a tear. It shot up about 70 points and from the very onset decided to challenge the 14,000 mark. Blame it on short covering. And why not, they get blamed no matter what direction the market takes.
The Citicorp and UBS bad news was ultimately spun into good news. The thinking was that they dumped all of the bad numbers into this past quarter, thereby giving them a clean sheet ahead. That’s what is so ridiculous about all of this.
There is obviously no material difference in the company or its future fortunes. All that is different is that they are playing an accounting game.
In Citicorp’s case, they are setting themselves up for a great quarter.
How do I know that?
I don’t, but they were exceptionally aggressive in their bad news that they rolled into today’s report. For example, they included all mortgage payments that were 3 days late or more, as being non-performing.
They are assuming that those accounts that are 3 days late will never make another payment. From that starting point there can only be good news ahead. So when Citicorp is ready to announce results again in 3 months, it will be time to load up prior to the announcement. And by loading up, I mean on in the money, or nearly in the money call options.
After hovering around that mark for an hour or so, all of a sudden, the market just decided to add on another 100 points and convincingly shot past the previous closing high made in mid-July.
I’m glad that I have the stock market to make me happy, because my beloved New York Mets have lived up to their name. The Amazing Mets.
All year I’ve been waiting for the opportunity to sit in front of our now one year old big screen HDTV and watch the Mets in the playoffs and then onto the world series.
Last year, the set was delivered the day after the Mets were eliminated from the playoffs. How may times have I heard “we’ll get them next year”?
But alas, I’ll have to wait until next year, again. How appropriate that the Mets should fall to the Phillies, as their September Swoon evoked images of 1964. Unbelievably, that was 43 years ago and people still seem to talk about it as if it was yesterday.
More unbelievably, I remember the 1964 Swoon, but I really don’t remember yesterday.
That’s what I’m talking about.
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