Getting Back To Business

I was awfully busy lately. So busy that I didn't have time to write, didn't even have time to seriously analyze my investments, which is even worse. Now I'm getting back.

There are several new trends around. First, and foremost, July looks better than I expected, so far. We had a huge sell-off last week, true, but it looks out of steam. Best of all, barrage of bad news doesn't seem to be able to crush market. And we had a lot of bad news. Libor scandal (it's much larger than anybody thinks), JPM (lesson to Jamie Dimon and all traders: never declare your losses until you close the trade), GDP and manufacturing trends (flatlined), unemployment (holding it's own). Let's add fiscal cliff here. I don't know if GOP has guts to ruin economy completely by refusing to talk about anything but complete surrender from Dems. Experience tells me that they should stop at the last moment. In any case, I'd rather returned Bush tax cuts than doing austerity (just ask Eurozone how much good it does).

But anyway, market holds. Trend, started in June, is not broken. This week is very important. We are getting a lot of earning reports. The earnings themselves are not as important as market reaction to them. Another trend: Treasuries are on the way to my forecast: 1% for 10-year note by Jan 1, 2013. Is there a way to profit from it? Sure, sell puts on TLT or calls on TBT. I'm not doing it, risk is too high, reward is too low.

Last couple of months the only money I made came from trading ranges in muni CEFs. Well, I'm going to continue this range trading.

Last, but not least: gold is broken. And broken hard. It's well below 200-day MA, barely able to stick to 50-day MA. Watch $150 line in GLD, that's the last line of defense.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I have long positions in several Muni CEFs.

Why I Am Buying Facebook

I opened Facebook (FB) position today. This decision will probably draw a lot of negative comments. Well, the more the better...


Watched this IPO from the beginning. I absolutely agree with Cody Willard (Why I'm buying Facebook right now). Let's review all arguments again.

1. IPO was a disaster. I agree with Cody and disagree with the most. IPO was a great success. Stock fell below IPO price? That just means that company, not speculators, received money.

2. Nobody wants this stock anymore. Wrong! Most tech oriented funds just have to buy it. Stock was depressed because speculators had to close positions quickly. Yes, it might fall even lower. I will buy more then.

3. Company doesn't have good earnings. This argument is ridiculous. Company does have real earnings. Future P/E 40 for a growing company is low, not high. If you subtract 8 dollars of cash from the price, future P/E is about 28!

4. Company doesn't have any foothold in China. Do you really think it's a problem? More like opportunity.

5. Everybody hates it! That's exactly the reason to buy.

Of course, there is a lot of risk. Somebody might invent something better. Management might screw up execution. Many bad things can happen to a new and growing company. That's the risk I'm willing to take.

I also sold July $25 puts for $1.20. If price is falling, I'm going to buy $FB for 23.80.

Disclosure: I am long FB.

Additional disclosure: Positions can change any time

How To Fix Eurozone

There is a lot of talk on what to do with Eurozone. Greece should leave. Spain and Italy should follow. Blah, blah, blah. There is only one sensible idea: create analog of FDIC in Europe. It will really stop runs on banks and protect depositors. But to implement this, Eurozone should get rid of just one country. It's not Greece, not Ireland, not Portugal. It's (hold your breath) Germany!




Thing is, Germany reaps all the benefits of Euro without sacrificing much. It's currently on a roll after many years of stagnation caused by unification. Economy is strong, exports are strong too, most of them are going to Eurozone. Now, other countries should make Germany face a choice: adopt sensible policies, like bank deposit insurance, stimulus for Eurozone economies, help to troubled countries (conditional, yes, but please, no austerity which completely kills economies). Or other countries kick Germany out of Eurozone. There are ways of doing this, for example they all leave Eurozone, and create their own common currency. Most probably Germany would be forced to agree to reforms. If not, well, it's going to lose the most: new Euro would be much weaker than new Mark, resulting in stagnation imported by Germany.

Still Feels Like A Bottom

Market is down after my last post: feels like a bottom. It might slide even more. But I don't see big downside from here. That is, if our wise leaders, in US and EU, will not push us into next step of Great Depression 2.0. If everybody is going to push austerity, economies of the world will continue contracting. And contracting. And contracting. Some people may argue that in 19th century such contractions stopped sooner or later. Right. The structure of economies was much simpler then and any contractions ended at the point when people couldn't cut their expenses anymore (everybody has to eat, have at least some clothes and live somewhere). In current economies, there is much more room for contraction.




Anyway, I don't think it's going to go that far. That's why I added to my portfolio today: added to position in Red Hat (RHT).



Disclosure: I am long RHT.



Additional disclosure: Positions can change any time.

Feels Like A Bottom

Markets are calming down. Last week wasn't that bad. This week started bullish. Let's see what we have in cards.

Fundamentals are still good. At least in US. Economy maybe not growing fast, but it's growing. More to the point, profits are growing faster than economy, and profits define stock valuations. Big headwinds are Europe and China. I hope Europe will get its act together. As for China, things are much worse than they appear. If Chinese economy is growing slower than expected, it's no big deal. There are much bigger problems with China. Statistics are not reliable, to put it mildly. Banks still work in communist era, decisions to issue credits are made in governments of different levels, not in the bank offices. And political situation is not that stable as Communist Party wants you to believe. But even China matters much less than growing US profits.

Technicals are awful, but they are usually awful at the bottom.

Sentiment is great. I mean, it's so bad that I feel good.

In short, it does feel like a bottom. Of course, I might be wrong. Should stay humble, or market will do it for me (yes, this is what Todd Harrison is saying).

Buying Panic

Bought panic today, again. Added to my Red Hat (RHT) position. Current market carnage might well continue, sure. But today's action close to the end of the session was a panic, and I an a buyer, not a seller of panic.

Disclosure: I am long RHT.

Additional disclosure: Positions can change any time.

Trading Around

Today sold my position in Managed Duration Investment Grade Municipal Fund (MZF). Again, this CEF traded over 4% premium to NAV. So far, it's quite easy and I hope to make more such trades in the future: buy below 1.5% premium, sell over 4%.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MZF over the next 72 hours.

Additional disclosure: Positions can change any time.