Buying More BAM

Added even more Brookfield Asset Management (BAM) to my position today. I think it's a great bargain at current price.

Full disclosure: at the time of publication author had a long position in BAM. Positions can change any time.

Oil Futures: It's Not Manipulation, It's Stupidity

Bravo, Cramer! On Mad Money show today Jim at last agreed that oil futures market doesn't reflect oil supply/demand picture. He thinks it's manipulation. I don't agree. Thing is, future market became a way of investing for a lot of institutions. Organizations, which you can't call manipulators, like State of California pension fund or Harvard endowment fund, are investing a lot of money into commodity futures. They invented for themselves a new asset class and invested hundreds of billions.

There is one fundamental problem with the futures: they are not a real product. They are just pieces of paper. And when volume of futures becomes high enough, and traders on the market have no relation to particular commodity production/consumption/trade, prices of futures don't reflect supply/demand of a real product. They reflect only supply/demand of the futures themselves. As a result, we had last year's boom/bust situation in oil futures. And it looks like this situation repeats right now, on a smaller scale. Tail wags the dog.

Government regulation exists on all markets. It's ridiculous to think that it shouldn't exist on the markets of commodity futures. Cudos to CFTC for looking at the regulation at last.

One note to Jim Cramer (no, he is not reading my blog, I'm sure): oil is not alone. Most of commodity future markets separated themselves from real products. I can't even imagine all consequences of coming regulation.

Last, but not least, a note to "investors" in commodities. Stop right now, before you destroyed even more capital. Paper speculation destroys capital of most participants. Investing in commodity futures is not wisdom, it's stupidity.

Technical Meltdown?

Dow and S&P crossed down 200-day moving average. So much for good technical indicators I wrote about last week. There are different hypotheses around why is it happening. I subscribe to two right now: sell-off before earning season and long awaited correction.

We'll see the difference next week. Reaction to the earnings will show. But I'm afraid it's a correction.

I'm still operating from the 1932 perspective. And if you look at Dow Jones Industrial index chart in 1932, you'd see that there was a sharp rally after market bottom in July, and then there was long correction. That time, rally lasted 9 weeks, and correction took almost 6 months to unfold. This time, rally, measured between March 9 and June 12, lasted three months. Does it mean 9 months correction? Million dollars question...

Now What?

I'm trying to look into my crystal ball for the nearest future.

Technicals

Technicals are mostly pointing up. S&P and Nasdaq composite are well above 200-day moving average and above 50-day and 13-day averages. Dow still can't get over 200-day MA with conviction, but I don't know how relevant is Dow right now. Markets are overbought, they are overbought for more than 3 months already. There is a small reverse head and shoulders formation in Dow, and kinda the same in S&P, but it's not conclusive for me.

Sentiment

Sentiment is still bearish. Majority on TV is bearish, majority in the 'net is bearish, even Warren "be greedy when everybody is fearful" Buffet is bearish. I don't see buying panic, which is surprising after 3 months of bull market. Sentiment being contrarian indicator, this is very bullish.

Fundamentals

Nothing to write home about. "Green shoots" mostly exist in the imagination of bulls. Sure, speed of the decline slowed, but economy is still going down. Deflation rules, despite all efforts of Fed. Companies beat expectations, but most of those are very low, and year-to-year comparisons are scary. Fundamentals are as bearish as they can be.

Other stuff

This is the end of the quarter. After the whole bull market quarter you'd expect huge windows dressing buying. Somehow it failed to materialize. Huge bull market in commodities is even more confusing: there is no growth in economy! There is no increase in demand of physical products. But we see that, in Jim Cramer's words, commodities, or to be more precise, commodity futures, became an asset class of its own and lots of fund managers are buying them left and right. They think that they are buying "hard stuff", not so long ago we heard the same about real estate. And, of course, commodities crashed last year, destroying a lot of capital, there is no reason why they won't crash again. Another problem with commodities boom: higher commodity prices are putting brakes on possible economic growth. My feeling that these points are bearish.

Conclusion

I don't feel this market. By 2 to 1 vote, we should be in bullish territory. But fundamentals are still bad, and they matter more than technicals and sentiment combined. I am going to do nothing so far and try to understand what market is telling me. Of course, I will make an occasional trade if I feel like that.

Health of Steve Jobs Is Material Information

First of all: Steve, get well soon.

As for Apple (AAPL), it plays on the edge of the law. Maybe lawyers can prove that Steve's health is a private business. Maybe. But for the market it's material information, no doubts about it.

For me, Apple is not an investable company anymore. I still have a small position, as a speculation play. But long term investment is not for me. Accounting irregularities equal sell, what about informational irregularities?

Full disclosure: at the time of publication author had a long position in AAPL. Positions can change any time.

The Great Bing Scam

It's amazing how much trust people still have in Microsoft (MSFT). Company launched a new search engine lately and it was meat with some incredible claims. This article reports that on the first day Bing overtook Yahoo! (YHOO) and asks if Microsoft can challenge Google (GOOG) in search. Hailstorm of articles makes similar incredible claims.

I was almost ready to believe it myself, but one small thing caught my attention. I just started a new assignment, and at my new workplace Internet Explorer 6.0 is the only allowed browser. Of course, in the first several hours I mistyped some link in the browser address field, and, surprise, I see a Bing search page! It was a classic WTF moment. I checked browser search settings, Google was a default search engine. A little googling made things perfectly clear.

This article explained it all to me. Microsoft made a "mistake" and IE 6 in the whole world switched to Bing as a default search engine. Why on earth all MSFT "mistakes" are always to the company benefit?

Bing is not a Google competitor. All statistics showing Bing great start are caused by this "mistake", which, if you ask me, is just a scam. Thing is, IE 6 is still the most popular browser, because of policies of many companies and common people laziness. So, when default search for a browser was switched to Bing, it made a blimp on the statistics. Little wonder, more than 50% of internet users still use IE 6. I'm surprised that this blimp wasn't even higher. Of course, Microsoft had to correct this problem soon, otherwise company would have serious antitrust problems. But initial jump in statistics gave Bing publicity it wouldn't get otherwise. Shame on Microsoft. More shame on everybody who get caught on this cheap trick.

(Correction made on June 23, 2009: IE6 is not the most popular browser anymore, it's share is about 15%).

Full disclosure: at the time of publication author had a long position in GOOG and did not have any positions in MSFT or YHOO. Positions can change any time.

Buying More VmWare

Bought more VmWare (VMW) on weakness today.

Full disclosure: at the time of publication author had a long position in VMW. Positions can change any time.