Sunday, November 30, 2008

What Next?

November was another bad month. But we had a nice rally after Nov 24. If you look at the chart of S&P index (or of SPY), there is the perfect reverse head and shoulders formation with bottom on Nov 20. And then we had rally. Number of bulls on TV grew up a lot.

This rally might mean that hedgies finished forced selling for the year. Or maybe they just made a pause.

I don't feel that this rally has legs. Three indicators are against it. Number 1: number of bulls on TV (contrarian). Number 2: falling volumes last week (weak indicator, might be related to the holiday). Number 3: S&P is right at the level of October lows, if you don't count Oct 27.

I'm waiting for direction here. If S&P breaks above 950, it might be bullish. To see complete reversal of the bear market, we need a break above 1000, better yet, above 1050. If rally stops here, I probably would go short S&P, either by shorting SPY, or by going long SDS.

Full disclosure: at the time of publication author had no positions in SPY or SDS. Positions can change any time.

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Thursday, November 27, 2008

I AM Thankful

I am thankful to my wife, for the happy years together.
I am thankful that I'm in good health, for my age.
I am thankful to USA, great country I live in and to American people.
I am thankful to capitalism, because it allows me to make money to live comfortably.
I am thankful to democracy, which allows me to choose who is governing the country.
And I'm thankful to all reasonable people of this world, for making it better, one small thing at a time.

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Tuesday, November 25, 2008

Market Is Telling Something

I just don't get the message. First of all, up three days in a row. Great! Maybe time to short, but several gurus, including immensely respected Todd Harrison, are neutral, so me too. Strange picture on the treasuries market. I thought that failure to deliver (what on the stock market is called naked shorting) several trillion dollars in size is just a temporary blip, but it's going on for at least three weeks now. There is only one explanation possible: huge unsatisfied demand for treasuries. Which means panic: financial world is buying the safest investment vehicle. At the same time, dollar fell significantly against practically all currencies and gold went up sharply. Gold price is just another side of panic: "safest" way to hold your money in valuables. Dollar fall is not that clear (looks like I sold UUP just in time).

If dollar grew up as well, the message would be clear: deflation and depression. As it is, not clear. Let's wait and see. Maybe it's time to short treasuries, they just can't get much higher, by definition. They are at 1930s level already.

Full disclosure: at the time of publication author had no positions in UUP and no positions in other stocks mentioned. Positions can change any time.

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Sunday, November 23, 2008

OTC Stocks: Good News

I just noticed that now quotes for many over the counter stocks are available real time. Before, until about three weeks ago, they were available only some time after close, which made trading quite hard. Now you can see real time quote information provided by broker and Yahoo! Finance. Of course, I don't care for most of the OTC stocks, they are usually worthless pieces of paper. But, there is a lot of ADRs (American depositary receipts) trading over the counter, and among them you can see such companies as Volkswagen (VLKAY.PK), Nestle (NSRGY.PK), the world biggest food company, Australian and New Zealand Banking Group (ANZBY.PK) and many others. These are big companies, with liquid stocks. There is only one reason they are not listed: they don't want to comply with Sarbannes-Oxley requirements, mostly because it increases costs.

Makes our life a little bit easier. It's always good to find good news, it's even better in bad times.

Full disclosure: at the time of publication author had a long position in ANZBY.PK and no positions in other stocks mentioned. Positions can change any time.

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Friday, November 21, 2008

Cautious And Temporary Optimism

Looks like 7500 Dow bottom holds. For now. It might be good temporary bottom, good enough for a trade or two. One more reason for optimism: CNBC poll results. 2/3 of all polled think that market can go down to 6000. This is a pretty good contrarian indicator. We might hold here for a while. Can we hold till the end of the year? Anybody's guess.

Why don't I think that we have a real bottom? First of all, I'll be insanely happy if it is. I still have significant long portion of my portfolio, and if market goes up, not only I would be happy, I'd make money. But I'm pretty sure that we are in Great Depression v2.0 now. There are a lot of entries in this blog about it. And I don't believe in real market bottom until acceptance sets in.

There is a lot of talk that stocks are cheap on valuation. So what? During and after Great Depression, they were insanely cheap on valuation, comparing any other time, including this one. Some data from last similar period.

September 3, 1929. Dow closes at the highest point to date: 381.17
October 28, 1929 (Black Monday). Dow closes at 260.64, dropping 38 points.
November 13, 1929. Dow closes at 198.69, lowest point for the year. 47.9% Drop from the high.

Looks pretty bad so far. But

July 6, 1932. Dow closes at 41.22, the lowest point of Great Depression.

November 23, 1954. Dow closes at 382.74, setting first new high after 1929.

So, market went down 89.2% from the high of 1929 to the bottom in 1932. And then it spent 22 years more to reach 1929 level. Should be especially comforting picture for buy and hold folks.

If we are really in GD 2.0:

Dow high for 2007: 14164.53, on Oct, 9.
Dow low for 2008: 7,552.29 yesterday (so far): 46.7% drop from high (hey, pretty close!)

Lowest point should be: around 1530, for 89% from the high. Impossible? Why?

Honestly, I don't think we sink that low. But the real bottom might be much lower than anybody thinks.

All numbers are from Yahoo! Finance.

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Thursday, November 20, 2008

Great Depression v2.0: Road Ahead

More and more small facts are telling me we are there already. Deflation, including core CPI deflation, is confirmed for October. It should be expecially comforting for those inflation hawks who shouted that core CPI is a hoax and full CPI is the only real inflation indicator. One of those is Paul Volcker, former Fed chief, who successfully fought inflation in the end of 1970s and beginning of 1980s. He is a great man, but disaster in waiting if Obama appoints him Treasury secretary. He is a general who successfully fought last war, with inflation. We have deflation now.

Consumers are on strike. This is serious. Latest poll in Minnesota results: average consumer is going to spend 11% less on Christmas shopping than last year. Year, we are thrifty here, in the Midwest, but double digit figure is scary. And unemployment situation in Minnesota is better than average in the country.

Oil dropped below $50 today. I was bearish on oil since May, but never believed it can fall so low so fast. Hell, I didn't believe it can go below $50 at all.

Stock market dropped below all reasonable levels, but technical indicators tell me that it has a lot more to drop.

Bond market still in disarray. Although LIBOR is at reasonable level right now, bond issues are sold at huge premiums.

Treasuries are insanely expensive. They are at Great Depression (yes, that first one) level.

When is it going to end?

We need to go through usual 5 phases: denial, anger, bargaining, depression and acceptance, before things get better. Right now almost nobody is in acceptance phase (OK, I am. And Todd Harrison is pretty close). Most people, and, more importantly, most decision makers, are still in denial phase. Some are in anger phase, Congress for example. Some are bargaining: auto makers, Jim Cramer. Although Jim is moving to depression phase quickly. Just two more steps, Jim. Two small, easy steps.

We will start getting out of depression when acceptance becomes common. It will be very easy to spot: there will be articles in all major newspapers and magazines (those which survive): "We are in a Great Depression II!" It will be the greatest time to buy stocks. The question is: are we going to have any money to do that?

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Nardelli Doesn't Deserve $1 A Year

Bob Nardelli said that he agree to work for $1 a year if Chrysler gets government help. This is a clinical case, Nardelli is not Iacocca. Yes, Lee Iacocca, after receiving government help, set $1 salary for himself, sharing sacrifices with employees. But Iacocca, before becoming CEO of Chrysler, was a successful manager at Ford, launching two great cars, Mustang and Fiesta. What successes Nardelli had? He almost killed Home Depot, destroying shareholders value. Does he understand anything about auto industry at all? We don't know. He should go. Of course, Wagoner is the first, but Nardelli is close second.

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Local Bottom?

Action today was almost capitulation. Almost. Still, lots of dancing bulls around. Come on guys, you should be leveraged long already! If not, you are liars, if yes, you are stupid.

I'm thinking of buying something tomorrow for a trade.

I don't believe it's a real bottom. We have a long and rough road ahead. More about it later. In short, we need to wash out most of the bulls.

Bought more Altria (MO) today. I can't believe it can be this cheap.

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

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Wednesday, November 19, 2008

Time To End Piracy

That's too much. Supertanker taken by pirates is a threat to the whole civilized world. It's about time to end piracy in the Aden Straits. I've read that UN doesn't want to allow to attack pirates on the ground, because it can harm innocent people. But history tells us that if region or country becomes threat to the civilized world, you just have to take care of the problem, harming innocents in process. Afghanistan is the latest example, but there are multiple examples in history. Barbarians have to be stopped, and if you can't do it gently, so be it.

I don't care much what measures should be taken. Commandos raids, artillery or air bombardment, international occupation of Somalia and maybe parts of Yemen, doesn't matter. Piracy have to be stopped now, or it will become much bigger problem. Al Qaeda, hosted by Afghanistan under Taliban, didn't seem to be big problem, even after Cole and embassy attacks. Result is well known: 9/11. Do we really want something like this happening this time?

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GD 2.0: Jim, We Are There.

Jim Cramer said today on Mad Money that we need to do everything to avoid Great Depression v2.0. Sorry Jim, We are there. The question now is how long is it going to take to get out of it. And whether we can get out of it without major war. His recipes might be right. When I wrote GM Has To Die, I didn't mean that it (or other autos) should get no help. I think government should help them, help big time. But they should pay a steep price for that help. A lot of people have to go, and Rick Wagoner is number one on the list. Bob Nardelli is number two, hiring the guy who almost ruined Home Depot (HD) to head Chrysler wasn't a bright idea, to put it mildly. Unfortunately, thousands of others have to follow, but US auto companies have to be restructured.

Anyway, we are in GD 2.0. Today's FOMC report forecasting recovery is way too optimistic. I think of the end of 2010 the earliest, most likely 2011. I don't believe recovery can happen before stabilization of housing market, and that wouldn't happen before end of 2009. Houses are still overpriced, inventory of new ones is way too big and builders are still building new ones. Prices have to come down to normal affordability level, home ownership have to fall to normal level of 65%, only then we can see housing stabilization.

Can it be worse? Sure.

Full disclosure: at the time of publication author did not have any positions in GM or HD. Positions can change any time.

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That Sinking Feeling

Market broke through October lows. Just what I was afraid of yesterday. Let's see if it goes straight down to 7700.

Steve Ballmer of Microsoft (MSFT) repeated today that they don't want to buy Yahoo! (YHOO) anymore. Surprise! Not for me. In February Microsoft had a lot of free cash to pay for Yahoo! (terms of the deal were half stock and half cash). Not anymore, all that cash is allocated already for a huge buyback. And Mr Softee is not eager to get in long term debt. Damn, I didn't short Yahoo! yesterday because pop was too low to my taste. Well, opportunities are made up easier than losses. Now both companies are in "don't touch" category for me.

Bought some Constellation Energy (CEG) today. This is an arbitrage trade, Berkshire Hathaway (BRK.A) is buying it for 26.50 (all cash) sometimes next year. I normally don't do arbitrage, but this one looks as low risk, relatively high reward deal. And while waiting for a deal, I can enjoy 8% yield.

Full disclosure: at the time of publication author had a long position in CEG and didn't have any positions in YHOO, MSFT or BRK.A. Positions can change any time.

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Tuesday, November 18, 2008

Great Depression v2.0: Reason For Optimism

I wrote why I think we are falling into Great Depression here and here. So far, my thoughts were right, unfortunately. But lately I found a reason for optimism.

Everything is happening faster than I expected. I expected Fed rate to be below 1% in January. Target rate is 1% right now, but real rate is below 0.4%. I expected commodities go down in price, with oil reaching $90 for a barrel by the end of this year. You know where oil is. I expected dollar to go up relative to other currencies and wanted to make 10% in about a year, in half a year at best. I made almost 15% in less than three months.

Looks like things are moving faster than in the first Great Depression. And faster than in Japan after 1989 crash. Which tells me that maybe we will go through this one fast. This doesn't mean it's going to be easy. No! It's hard enough already, and going to get harder. Just one look at my portfolio makes me cringe. But we will go through this in three years, four max. Maybe two, but it would be way too optimistic. It's just a hunch, can't confirm it with numbers. And comparing to most of "analysts" it's way too pessimistic, they think that in 18 months everything will be just great. But even four years will be great improvement comparing to the first GD. And, I hope, we'll get out of this one without big war.

Can we make money from this hunch? Don't know yet. Big moves in commodities and currencies are probably done. Stocks are trying to breach October lows, and don't seem to be oversold, which means that probability of breach is high. I'm taking a break to think. Jim Cramer is right: this is a trader's market, not investor's market.

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Monday, November 17, 2008

Understanding Jerry Yang

Jerry Yang is resigning as CEO of Yahoo! This is the right move, Jerry had to go.

I wanted to call this article "In Defense Of Jerry", but I can't. His position during talks with Microsoft is not defensible. As CEO, his duty to shareholders was to get maximum value for their money. Which meant to sell the company. $31 a share was a great price and $33 offer, if it ever really existed, was an incredible price.

But as a programmer myself I perfectly understand Jerry. The systems you created are like children to you, and you never sell your children, in good times or bad (well, most people don't). Microsoft (MSFT) - Yahoo! (YHOO) deal could never happen with Jerry at the helm. But, according at least to some reports, not only Ballmer wanted Yahoo!, but he wanted it with all best geeks, Yang and Filo included. Reports could be wrong or right, I don't know. I know one thing for sure: neither Jerry Yang, nor David Filo would work for Microsoft. Probably half of key programmers wouldn't work for Microsoft either.

There are plenty of rumors around that Microhoo! deal might be back in some form now. I'm not that sure. If Yahoo! goes up in price now, I'd probably short it or buy puts. Microsoft just doesn't get the Web. Never did, never will, it's not in company's DNA. I already wrote here what would happen if Microsoft buys Yahoo! Such deal is off the table now. There are some other possibilities, for example buying just search technology, or some shared interest. Maybe it happens, don't know.

Yahoo! shareholders shouldn't complain. They had their chance. When Microhoo! deal was announced, I wrote here that Yahoo! shares are to be sold right there and then. Even big holders could unload significant part to arbitrageurs. They had their chance and blew it. C'est la vie.

I bought Yahoo! shares in 1998 and sold last year.It's not an investment for me anymore. But it's still a service I use every day, and for that I'm grateful to two geniuses, Jerry Yang and David Filo.

Full disclosure: at the time of publication author didn't have any positions in YHOO or MSFT. Positions can change any time.

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Sunday, November 16, 2008

GM Has To Die

No, I don't make this statment lightly. This is a great US company, it employs tens of thousands of people, it buys parts and raw materials from companies which probably will go bankrupt too if GM fails. I even think that it's a good idea to help US auto makers.

But I'm absolutely against helping GM in its current form. Any help to this particular company should come with one condition: current management has to go, common stock is canceled and all current contract with UAW are voided. Sorry, commercial companies should not exist to support employees. That would be Soviet model. Companies exist to make profit. GM has to be restructured to make it profitable. There are possibly several different ways to accomplish that. One extreme is to declare bankruptcy and government help would go to accept pension liabilities and guarantee loans which financial arm of GM took. Or maybe government can also help for early retirement of some workers. Government can even throw big money to buy out most of the employees and pay for plant closure. Anything will be cheaper than giving money to Wagoner. He has to go.

Full disclosure: at the time of publication author did not have any positions in GM or any other auto company. Positions can change any time.

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Friday, November 14, 2008

What's Going On In China?

Current forecasts: 6% growth. Current situation in sectors previously driven by China: below bottom. Commodities are easiest to track, nothing good is going on there. Spot shipping prices, according to today's CNBC talk, are below costs. Good information from Diana Shipping Inc (DSX): Fleet Employment. As you can see, 7 of 12 Panamax class ships don't have contracts beyond Feb 2009, which is 3 months from now. A year ago, all ships were contracted at least one year forward. This is one of the best dry bulk carriers in the world!

Then we have stimulus package from Chinese government. It's scary. It tells me that building activity in China stopped cold and needs government money to continue. The package itself is OK, it will help economy. But the only possible reason for it is hard drop of business building activity. Half a year ago, China was building like crazy. That's the country which produced half of steel in the world and consumed most of it. Businesses stop building for one reason: they don't need extra capacity. Which means: they don't see growth in near future. If recession in Europe and USA is helped by crisis in China, we might get full blown global depression.

I might be too scared right now. But there are good reasons to be scared. Total lack of reliable economic data from China doesn't calm me down.

Can we make money from this? The best I can come with: don't buy any Chinese stocks or companies with sales in China. Wal-Mart (WMT) can get better deals from suppliers, one more reason to invest in it.

Full disclosure: at the time of publication author did not have any positions in DSX, WMT or any China based company. Positions can change any time.

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Thursday, November 13, 2008

It's Still a Bear Market

Good bounce today. Sold my yesterday's lot of Spiders (SPY) in the end of the day. Hit it to quit it.

I don't believe it's a bottom. We had a typical bear market rally today, 550+ Dow points without any meaningful news. We might even go higher, for a while. But there is no reason for a sustained stock market growth. And mood on the Street is not what it should be at the bottom: we need doom and gloom, complete capitulation of bulls, growling of bears to make a bottom. Real bottom happens when almost everybody is bearish, when almost everybody sold everything. Then, there is nobody else to sell anything and market starts rising. That's about what Jim Cramer says. That's what I'm waiting for. So far, let's make money on volatility.

Full disclosure: at the time of publication author didn't have any positions in SPY. Positions can change any time.

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Wednesday, November 12, 2008

Et Tu, Paulson?

This is the worst thing possible, change of plan in the middle of execution. President and Treasury secretary spent a lot of political capital pushing TARP, and now what? The most important thing, nobody understands why. So much for promised transparency...

Bought even more Altria (MO) today. Maybe it might get in trouble and cut the dividend. But it's more likely that it's one of the stocks hedge funds are selling right now. Also bought some Spiders (SPY), thinking that everything is oversold too much. I'd prefer some individual stock, but don't see anything obvious. This is a trade, I can sell SPY at any moment for a lot of reasons, including taking profit or being stopped out.

I wonder how much more redemptions hedgies have to meet. It's just unbelievable. Looks like every endowment fund, every state pension fund and a lot of others are withdrawing their money from hedge funds. What were they doing in the hedge funds in the first place? Is anybody there doing some risk analysis? When state pension funds invests into oil futures, that's crazy. When diversification of such funds means investing in oil futures, China and real estate, it's even more crazy. Any state official making that decision should be on the street right now. Doing community work.

Full disclosure: at the time of publication author had long positions in MO and SPY. Positions can change any time.

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Tuesday, November 11, 2008

Selling UUP

Everything moves way too fast this year. 10% moves of S&P in two or three days. Currency exchange rates go up or down 15 or more percent in couple of months. Great stocks drop 50% or more in a month. What do we do? We stay nimble.

I bought UUP in August and increased position in September to take advantage of rising dollar. Wanted to make about 10% in half a year or maybe a year term. It's up more than 15% in less than three months! Chart looked just too much parabolic until the end of October, and now it's range bound. Fundamentally, dollar should stay strong, but who knows, in this market. Today I sold UUP into strength.

Full disclosure: at the moment of publication author didn't have any positions in UUP. Positions can change any time.

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Monday, November 10, 2008

Thinking Google

Was tempted by action on Google (GOOG) today. Price was down to under 310 at one point. Decided not to buy anyway, was scared by the fact that almost all technical indicators were bearish. In current market, if in doubt, don't buy. I know that Google is cheap under 500, never mind current price. But I don't want to buy when it can go even lower. Looks like we are in one of paradox situations described by Jim Cramer: hedge funds have to sell something to meet redemptions. And they sell what they can, not what they want. Google is one of the most liquid stocks, so they sell it as well. Today's earnings downgrade was just an excuse to sell, come on, target price was lowed to 490, which is 1.5 times higher than current one.

Let's see what tomorrow brings.

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

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

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Sunday, November 9, 2008

Deflation Is Horrible

Great article in Minyanville last Friday. Agree with author on almost everything. Yes, world economy is in big trouble. Yes, people and businesses are taking on less debt and this is going all the way to the top, i.e. Fed. As a result, inflation in current situation is close to impossible, despite all attempts by Fed and Treasury. The only thing I disagree with is the premise that deflation is good.

OK, everybody might agree that prices going down make you feel better. And in some sectors of economy it's decades long reality (computers, for example). Unfortunately, what's good for a person is bad for economy, and as a result, for everybody. In deflationary environment, everybody tries to delay purchases. Why hurry, this thing will cost less later! Economy slows down, companies cut expenses the usual way: laying off employees. Less paid employees means less demand for goods, creating positive feedback, or as it's known since Great Depression, deflationary spiral. Eventually economy might find equilibrium in deflationary environment, but this equilibrium will not be happy one, with unemployment much higher than in inflationary environment. Empirical rule known to economists as a Phillips Curve, defines inverse relationship between inflation and unemployment. There is only one example of deflationary economy after World War II: Japan. In 1990s it experienced deflation. Surprise, it was also a period of almost constant recession. This paper suggests that Phillips Curve flattens in the negative inflation (deflation) zone. The problem with it, Japan is a quite unique example. Businesses there are not eager to lay off employees at a drop of a hat. It just might be that Japanese corporations kept extra workforce on their payroll because they used to do that (remember lifetime employment?). In US example (Great Depression), picture was very different. Unemployment jumped to 25% and stayed there for a long time.

Some people can argue that world lived mostly in deflation since invention of money. True. But world also lived in economy which wasn't growing much and most people had subsistence living standard. They couldn't cut expenses even if they wanted to. Great Depression showed us for the first time what can happen when deflation hits economy in which significant part of spending is discretionary. Our current economy has much higher discretionary part than in 1930s.

My take on it: be afraid of deflation, be very afraid. I applaud Fed and Treasury efforts to stop deflation. And I'm afraid that they are too late.

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Thursday, November 6, 2008

Sinking Feeling

Not only because of today's market. Mostly because people making decisions can't get their act together. Sure, generals are always ready for the last war. For current financial leaders last war was inflation and deflation was distant memory. Some of them even said that it's easy to fix deflation, just run the printing press. Year, right, and Japanese experience didn't tell them anything. As if Japan was some obscure country, not the second biggest economy in the world.

Interest rate cut by European Central Bank is telling, I didn't expect 0.5% from Trichet. But cut by Bank of England is more like full blown panic. It tells me that, despite falling LIBOR rates, there are some other problems ahead. Maybe banks are lending money to each other, but credit is still not cheap for people and businesses. Banks are cutting credit card limits. And it looks like people are not eager to spend money, awful! They cried that people need to save more, spend less, but when it really happens and they see consequences, truth hits them: it's a road to total disaster. Our economy (and I mean world economy here) is mostly based on production of discretionary goods. Which means that people really can cut expenses when they want and bring economy to its knees. Last time such thing happened, in 1930s, depression was cured by World War II. Now discretionary part is much bigger in economy, people can cut their expenses much deeper. What can pull us out of it now? Nuclear war? Thanks, no thanks.

Bought more Altria (MO) today. Looks like we are going to retest October lows, so I'm ready to buy more.

Too many talks about bottom. Too many people are bullish, even some permabears. Sorry, bottoms don't happen like this. We need total capitulation, when almost everybody is bearish.

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

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Wednesday, November 5, 2008

Trying To Make Sense

My yesterday's post was wrong. Instead of crying, I should keep trying.

Current picture, collected from bits and pieces of information: funds got mad. By the way market reacts, significant percentage of them. That includes hedge funds, mutual funds, university funds, state pension funds, i.e. all kind of them. Looks like many funds use methods developed by hedge funds in order to increase performance, "beat the market". The biggest problem with this approach, as Jim Cramer noted in his great book "Confessions of a street addict", is that you can't beat the market if you are the market. And many funds behave the same way, buy and sell things (stocks, bonds, commodity contracts etc.) at the same time. We can see the results of this behavior in the commodities run in the end of the last year and beginning of this one, huge downfall of stocks in September-October and last week rally.

Of course, not all funds are doing the same thing. But you only need about 10% of participants to behave the same to screw up market. So, when hedge funds started liquidating after Lehman Brothers collapse, stocks went down huge. When pension funds felt that oil is going down and there is no force in the world to keep it above $120, they sold everything.

Of course, there is a huge problem here for the funds themselves. If fund calls itself "hedge fund", it can't have huge one-sided positions. It needs to hedge positions, buy options to defend long or short positions, sell 6 months ahead future contract if they buy 4 month one etc. But you need to do a lot of work and performance would suffer. So they try to find current trends and play them. The problem is, when funds are the market, or at least the active part of the market, they magnify any trend they are in and create bubbles.

How can we profit from it? Tough, but not impossible. We need to identify bubbles and short them when they are bursting and identify severely oversold stocks which don't deserve it. I did it with oil in the end of July and beginning of August (sold DTO too fast, granted, but made profit anyway). Another approach is to detect trends which are not obvious for other market participants yet, like I did with dollar. I'm still holding UUP, but now looks like time to sell. We'll see. I don't allocate big part of my portfolio for such trades, until last year I was pure long term investor, but this market is not for investors. I think of allocating more of capital for trades from investment.

Full disclosure: at the time of publication author had a long position in UUP and no positions in other stocks mentioned. Positions can change any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

Tuesday, November 4, 2008

This Market Makes No Sense

First of all, my congratulations to Barack Obama! It's really historic victory in really historic election.

Now, back to the market. It's crazy. Jim Cramer said today that stocks trade like both candidates won. Market is severely overbought, almost everything is up. It might be time to sell something into strength, will think about it tomorrow. Of course I'm glad that market is up, it makes my portfolio go up as well. It's just annoying that I don't see any reason for it and I'm not alone.

There is some silver lining in the financial markets: LIBOR rate is about 2.7% today. That means that world credit freeze is thawing somehow. Maybe we can avoid deflation. Life is looking a little bit brighter.

Monday, November 3, 2008

Good Riddance, October

The most awful month in my investment life. I wish never to see another one like this.