Monday, May 31, 2010

I See A Trend

I've started noticing that when the US markets are closed and our traders are taking the day off, world markets tend to be less volatile. That might lead one to believe that the leader of the free markets world is responsible for the wild gyrations we see.

Anyway, I couldn't help but notice the yield on BP (NYSE:BP) is approaching 8%. Interesting, but if they don't stop that leak soon that yield will be approaching 12%. Now they have no problem paying it, but I'd hate to collect a 10% dividend and watch half my money evaporate with the stock price.

It's worth paying attention to.


Thursday, May 27, 2010

Rise Of The Machines, Fall Of Our Markets

Over the past 3 to 4 years, many have wondered why our markets have become so volatile. Well the rise in volatility just happened to coincide with regulators making it really easy for the machines to run our markets. They do away with rules that prevent free falls and allow traders to naked short and stay that way. Then they let the massive, destructive algorithms run our markets.

Many of you probably don't know that two thirds of trading is high frequency trading (HFT). They say it provides liquidity so our markets are better off. Don't believe it, it's just churning. Trading for the sake of creating volume and volatility.

As we've said in the past, don't try to trade this market and don't go in to areas like options or futures (unless you want to lose everything by lunch time).

We've pointed out some good buys and we stand by them. Let's hope regulators wake up and stop catering to speculators.

By the way, what a day in the markets, up 3+%.


Tuesday, May 25, 2010

Same Story New Day

Our markets have become a traders playground. I wonder if 'they' thought they'd be able to cause this sort of world panic, probably not. Once again, you know it's irrational when all asset classes, except US treasuries (and by proxy, the US Dollar) decline.

Equities, fixed income, oil, gold, grains, etc. are all being beaten again. Well that's not suppose to happen. If there was selling driven by fundamentals, you'd see buying in at the very least, gold.

The question remains, how long can we remain in this state? We're down just over 10% from our recent highs, economic news has been great, and company profits are surging. No doubt, this is a great time to dress up the IRA, 401(k), or whatever you're using, but don't try to trade this market. We've made that point numerous times in the past. Look for good investments, not trades.


Thursday, May 20, 2010

So Many Names To Choose From, So Little Money?

If you haven't started buying, what are you waiting for? Do you really believe Europe is burning, if not, then get those shopping lists out. There are so many good names out there that we don't know where to start, so we'll just list them - GNW, DOW, HIG, CLF, GE, DNDN, C, AFL, FCX, VZ, INTC, PBR and RIG (yes, we like that name at these levels).


Well There You Have It, A New Reality

Some traders reality (dream) has become our reality. Recall that this started with tiny Greece, and now all we hear is European crisis. The story finally stuck and the Euro is approaching 1.20 and the S&P is down 10+% from its 2010 high, but what's really happened in Europe. Where's the concrete evidence that things are so dire over there? Concrete evidence isn't trader talk.

Hedge funds and speculators of all types must be having a party because volatility is more than twice what it was just 3 weeks ago. They must also feel embolden, as we see some of the same tactics used back in 2008. Why wouldn't they feel good since nothing has been done on the regulatory front.

I spoke with a trader from a small hedge fund recently and he actually admitted that he was surprised that nothing has been done. Leverage is still the same and they still use the same tactics.

You know we're in an irrational state when the relationships between asset classes break down - equities are down, fixed income is down, oil is down, gold and other metals are down, everything is down except the US dollar. Sound familiar. Also, there's a total disregard for the economic data.

With that typed, we're holding the line. We're not believers in what we see or hear from the talking heads. We're not short term traders, but investors and we certainly don't see some double dip in the economy, no matter how many times the repeat it on TV. Go back to the first paragraph - you'd have us believe Greece is the catalyst for the next big recession. Like Dubai back in January.


Tuesday, May 18, 2010

Good For Germany And What's With The SEC

The Germans banned naked short selling and buying CDS without owning the debt. Those are two no brainers as far as we're concerned. Now we have to listen to the talking heads claim that action was the reason the markets were down today. Give us a break.

The rampant speculation and runaway capitalism is the reason we were down today. Free markets gone wild.

Also, what's with this stupid 5 minute circuit breaker proposed by the SEC? If a stock falls more than 10% in a 5 minute span, it's halted for 5 minutes, as long as it happens between 9:45AM and 3:35PM EST. Who are these people and why are they in charge.


Sunday, May 16, 2010

Looking For Opportunities

So traders and other speculators have been successful at changing sentiment and raising volatility. In case you're not aware, you should be by now that 'they' throw negative stories around until one sticks, short the market by selling S&P futures with all their might, then get the 'talking heads' to close the deal by repeating their story every 20 minutes.

Down we go for a while, but this is when we break out the shopping list and pick up those names we've had our eye on.

This story about Europe entering another dark age is pretty dumb, as their situation has been this way for some time and the Euro wasn't in any real trouble until speculators decided it was the slow, frail gazelle running in the heard and easy prey. Besides, their situation really isn't much different from our situation when you look at our country's balance sheet.

See previous posts for ideas for a shopping list.


Monday, May 10, 2010

Bank, Hedge Fund, Other

What exactly is Goldman Sachs? I vote for other. They do all sorts of deals, they have a bank charter, and they trade like a hedge fund. I heard today that they made money every trading day in the first quarter. They already told us that trading, like the other banks, made their quarter.

Should an entity like that be allowed do exist. Recall, they received a bailout, tax payer money, even though later, Blankman said they didn't really need.

I don't see how a company like that operates enjoying the best of all worlds. It's like that 15 year old who goes out and does something really bad and risky and later says, " what, I'm a juvenile, you can't do anything to me."


So Much For The Short Timers

Traders were looking for volatility and they got a lot more than they bargained for. The word was the short side was about to double down on their shorts this week, but instead they were forced to cover. Before we investors celebrate, let's see how the week ends.

It's really about time the Europeans did something to at least slow down the speculators that were ravaging their currency. Probably the same people that sent the DOW down 1,000 points. In case you didn't hear, there's an investigation going on as to the role speculators played in Spain and Portugal.

As far as the rating agencies go, what good are they? Speculators move in, then the rating agencies threaten to downgrade an entity, more speculators move in, situation gets worse, downgrade, more speculators, downgrade, feeds on itself, etc. Many times it's just a self fulfilling prophecy. Why don't they downgrade themselves and let the shorts raid them.

Don't get us wrong, we're free market, capitalist over here. With that typed, we also believe in fair, transparent, orderly markets.


Friday, May 7, 2010

What To Do With This Market Updated?

What do you do with an irrational market? A market that is anything but efficient or transparent? Don't trade it. Pick your spots, get long or short, and know where you want to exit. Expect to hold for at least a few months or a year plus. We're at the beginning of the economic upturn, so we can hold for a while.

We had cash on the sidelines and freed up a little more, as some of the opportunities were too good to pass up. Here's what we did,
1) Bought Genworth (NYSE:GNW) back at around $15 after selling it at $18+ a couple of weeks back. We were originally in at a buck when everyone said they were done.
2) Added to our position in Dow Chemical (NYSE:DOW) at around $27. This is simply one of our favorite stocks and we've been in since $5+.
3) Added to our position in General Electric (NYSE:GE) at around $17. What's not to like here. The company had only good things to say and GE will be one of the chief beneficiaries of the economic rebound.
4) Added to our position in Cliffs (NSE:CLF) a hair under $60. This is a $100 stock passing as a $57 stock.
5) Bought Dendreon back (NASDAQ:DNDN) at around $46. We sold last week at $51+ after being in at $3+.

We're not buying the nonsense, but rather buying good stocks. We talked about this more than a few times, but the return of volatility was expected and we'll ride this one out like we rode it out in January. The economic rebound is real. All the economic data points to it. As long as you're not on margin, you can ride these moments out.

Consider this, we're just about down 10% from the recent high. We believe the coming week is the turn, probably close to options expiration. Our downside target is 1090 on the S&P. If we break that then possibly 1050.

By the way, ignore Europe and Goldman. Those are side shows. Speculators tried to introduce volatility with those two stories, but they never really took hold, so they went out and unleashed their computers on the market. Look at the VIX at the bottom of this page. Now they have something to spook us all with, how transparent. Wish our markets were that transparent.

Forgot to note that we added a little more Verizon (NYSE:VZ) at about $28. Hard to resist that 6.5% yield.


Thursday, May 6, 2010

Where Are Regulators When We Need Them Most?

We've beat this topic almost to death, but given the fiasco in the market today, we'll beat it a little more. Speculators and other short term opportunist are responsible for the crisis of confidence that must exist in US equity markets.

Over the past few weeks 'they've' tried to change market sentiment from bullish to bearish and actually sent signals that they were gearing up for a rout. Recall over the past 2-3 weeks we've had days where we fell off a cliff (yes we wrote about that). Traders need volatility and it had been on the floor - not any more!

The 'talking heads' blamed Greece. Informed investors knew that Greece was smoke and mirrors. Greece is a fly on the back of a hump on the back of a camel on the back of a 747 as far as world markets go.

This is what happens when you have no real safeguards or rules that make sense (e.g. no uptick rule, high frequency trading, dark pools, etc.)

How do you take a stock like Procter & Gamble (NYSE:PG) down 40% or Accenture (NYSE:ACN) down 99%. If you're going to let traders run massive computers wild in our markets then there needs to be real checks and balances. We believe in free markets, but not so free that a group of knuckleheads can drive this bus off a cliff.

If regulators don't do something to change the rules, then the average Joe will leave and not return for a generation and who can blame them. The stock market isn't suppose to be a place where people just get together and gamble, but a place where among other things, capital is raised and value exchanged. Once the government conned everyone into believing that 401(k)s were the answer to our dreams and pensions were bad, then the feds have an obligation to ensure fair, transparent, and orderly markets.

We wish we were optimistic that something might be done to prevent this from happening again, but we're not. Regulators will take the excuses and those who operate in the shadows, like hedge funds, will continue to raid our markets periodically. For those people who sold today at ridiculously low prices, you have our sympathies. Rein this in while we're still able.


Wednesday, May 5, 2010

Stay The Course

The shorts are trying to change sentiment and they've done a pretty good job, but don't be fooled. Think longer term. Nothing has changed. Greece is a diversion, the Euro is a diversion, and Australia is a diversion. What's going on right now is a bump in the road and by July you'll look back and not even remember it. Do any of you remember late January, early February? Probably not, but we had a similar pullback. Do any of you really think Greece is the start of the next big thing.

What's really changed? Nothing. All the economic news we get points to a strong recovery. Those who disagree have no proof, just rumors and the hope that panic will spread like last year, but hey, we do what we do and they do what they do.

These are just excuses to sell and create volatility. Ignore the talking heads or you'll always be buying after they've bought and selling after they've sold.


Tuesday, May 4, 2010

We're Not Impressed

Today's sell off had nothing to do with Greece and everything to do with sellers wanting to sell. The economic news is great, companies are reporting great numbers, and M&A activity is picking up.

Ponder this, first the market sells off when Greece can't get a bailout and now it sells off after it does. Now the lies, I mean rumors about Spain start. These are the same tactics speculators used to take down companies last year and the year before.

Volatility had been on the floor and traders/speculators find it hard to make money with very low volatility. In the short run these things happen and they fired a shot across the bow a few weeks ago (we wrote about this) and let everyone know it was okay to sell em.

Clearly, a group of speculators are very short the Euro and the S&P, thus the raids. I see days like this as sales, not the clearance prices we had March 2009, but still things are going on sale. Over the next 2 weeks there should be opportunities to dress up the IRA.


Monday, May 3, 2010

All The Miners And Metal Stocks Are Being Beat Because Of The Aussies?

So the news is that Australia wants 40% of the profits from miners beginning in 2012. I should qualify that by saying from Australian companies. That's what I heard. So what does that mean for a company that has a subsidiary there and minor operations - not a lot.

Just more excuses for short timers to sell companies that have run long and hard, like Cliffs (NYSE:CLF). Even if the Aussies decided to levy more taxes on foreign companies, the effect is small, especially compared to BHP (NYSE:BHP) and as usual they'd find a way to make us pay.

By the way, you know it's irrational because 'they' sold all resource stocks indiscriminately and this sure sounds like good news for companies that have no operations at all in Australia. The metal stocks were even sold off.

Situations like this present excellent buying opportunities. We love CLF in the 50s and if Freeport (NYSE:FCX) gets there, we're buying that too. We're in the early stages of the economic recovery. These are the stocks you want to own at this point in the cycle. In six months when CLF is 90+ and FCX is 100+, you'll thank yourself for having a cool head.

One more thing, a lot can happen between now and 2012.


The Vix

About This Blog

Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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