Tuesday, September 30, 2008

The Petro Dollar

This is a well made documentary on the relationship of US economic power with respect to Mid East oil.

Several points of interest

  • US ran out of its own oil sources in the 1970's
  • Saddam began to sell oil for Euro instead of USD roughly a year before the invasion
  • Iran established its own exchange and currently trades oil for non-US currencies
  • Saudi Arabia is considering changing currencies as well
Perhaps it's time to look at taking some long positions in oil.

Part 1/4


Part 2/4


Part 3/4


Part 4/4

Sunday, September 28, 2008

Cramer Again


Last Friday, Sept. 26th 08, Jim Cramer suggested that the Dow could lower to 8,000; thereby implying that the market will likely rally in the near term future, probably the next few weeks. As average mainstream investors make up the typical CNBC audience demographic, the winning edge lies against all proposed by seasoned network personnel.

Nature of Cramer

There is absolutely no incentive for Cramer to help the average CNBC audience. Instead, he gets paid by sponsors pushing their agendas. In this case, it is likely that Cramer’s handlers look to do some bargain hunting, and they want improved liquidity from the uninformed crowds.

Current sentiment too negative

In the past couple of weeks, much of the frantic selling from uninformed, scared investors have already liquidated. Historically speaking, the more fear investors feel, the more likely markets will rally in the immediate future. Panic quantified points to volatility; today, the VIX (implied volatility for S&P 500) or VXO (Implied Volatility for S&P100) are at significant highs.

How to play this

For the next several weeks, keeping in mind that big money intends to buy; taking only long positions in the equity markets would provide a slight winning edge. Just keep in mind that regardless of how cliché “Buy Low/Sell High” may sound, it is the only way to survive this game.

Saturday, September 27, 2008

Updown.com


OK, I don't want to make this an advertisement, just this hedge fund backed site seems pretty cool. They let you paper trade US stock markets, and if you're profitable some real money is paid out in the form of paypal. It's a good place to get your foot in the door, check out how most players perform, and practice without any real money risk.

Here's the link
www.updown.com

I'm there to test some strategies of my own. To find me there, search through investors for "rockochen"

Thursday, September 25, 2008

Max Keiser

I like Max Keiser, he isn't so scared of holding back truth in light of political correctness.


Tuesday, September 23, 2008

Stock Wars!

Now we know why those stocks tanked, woowie!

"Distressed assets"


The US tax payers are getting royalled fudged, but then again, it's partly due to the apathy of the majority. Can't simply blame politicians, after all, US politicans grew up just like the average citizen...

Sarcasm at its best, Buy My Shitpile!

"

With our economy in crisis, the US Government is scrambling to rescue our banks by purchasing their "distressed assets", i.e., assets that no one else wants to buy from them. We figured that instead of protesting this plan, we'd give regular Americans the same opportunity to sell their bad assets to the government. We need your help and you need the Government's help!

Use the form below to submit bad assets you'd like the government to take off your hands. And remember, when estimating the value of your 1997 limited edition Hanson single CD "MMMbop", it's not what you can sell these items for that matters, it's what you think they are worth. The fact that you think they are worth more than anyone will buy them for is what makes them bad assets.

"

Monday, September 22, 2008

ASX Bans Shorts

Australia Bans Short Selling


The Australian Securities and Investments Commission Sunday banned covered short selling of all listed shares following moves by other countries to ban short selling of financial stocks.

In a rapid escalation of the clampdown on short selling, ASIC said in a statement that it had decided to ban covered short selling from the start of trading Monday because a number of countries had banned covered short selling of financial stocks and there was a risk that if Australia didn’t follow with its own ban that there would be a risk of “unwarranted activity” in the Australian market.

“These measures are necessary to maintain fair and orderly markets (ed: yeah right!) in these exceptional times of global crises of confidence in financial markets,” ASIC Chairman Tony D’Aloisio said in a statement.

“Because of the relatively small size and the structure of the Australian market, it is necessary to extend the prohibition to all stocks,” he said. “To limit the prohibition to financial stocks, as has been done in the U.K., could subject our other stocks to unwarranted attack given the unknown amount of global money that may be looking for short-sell plays.”


Things will get worse. Without bids from short covering traders, when selling pressure commences, the market will drop like a hot knife through butter. This is therefore caused by either utter incompetence, or intentional destruction. The latter is more likely.

Sunday, September 21, 2008

1929

Basic Lessons:
1) The closer to a heavy drop, the harder Wall Street pushes the "everything is just dandy!" propaganda.

2) The so-called industry experts either intentionally deceive or are clueless numb-nuts.

3) When dumb-money, e.g. the bank teller, shoe shine boy, decide to buy... it's time to sell.

4) Volatility increases on downside moves, due to fear of further losses, which ironically causes increased price drops.

5) The market does not move in a straight line fashion. A few days of rallying does not necessarily mean the panic's over.

Most importantly- Learn how the market works before diving in with real money. Once mastered, fortunes can be made off these moves.

Enjoy the video!

Part I


Part II


Part III


Part IV

Friday, September 19, 2008

Ways to Short Indirectly


Now that financial stocks are "unshortable" directly until October, below are some ways you can do so through derivatives:

1) Buying Deep In-The-Money Puts: the deeper ITM, the less time value it'll carry and behave like the underlying stock.

2) A synthetic short with options: long Put and short Call at the same strike price

3) Short single stock futures: though I hear the liquidity isn't all that great

4) Inverse ETFs (Exchange Traded Funds)

5) Shorting Index Futures: almost as good, as the financial companies are positively correlated to the stock indexes.

I'll add to this list as I think of more!

Wednesday, September 17, 2008

Lehman Victims


Reserve Primary Money Fund Falls Below $1 a Share

"The fund, whose assets plunged more than 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck. Reserve Primary, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days."

Potentially Profitable Scheme

Search out for companies/funds who invested heavily in debt issued by troubled banks, and short them off short term rallies. Many are not in the spotlight, yet, of course by the time they are, it's too late to get in the party. These opportunities will not present themselves on silver platters, it takes some work to search them out, and that is where your job comes in.

As mentioned in "Statistical Moments of Real Stock Returns" , the edge is on your side when you bet on the downside. Taleb also wrote in The Black Swan that destruction usually comes swiftly, while the build up takes time and patience (paraphrased). Don't blindly agree with everything I write, but do your research, learn the game, and make it work for you.

Tuesday, September 16, 2008

ANZ Bank Risk

Now let's think about the financial condition at ANZ, who currently holds no more than $4billion in reserves. They own 50% of ING, therefore liable for roughly half the losses. Of the two credit funds (Regular Income Fund, Diversified Yield Fund, withdrawals frozen since Mar 08), realistic losses should stand at roughly 90%.

That would not be so bad, if unleveraged, as the original investment prospectus suggested a goal of roughly 10% return per annum, it suggests their gains/losses probably stood somewhere around 300% to500% of market performance. In this case, it means they've lost about 270% to 450% of investors' capital. Each fund held roughly $500m, and being liable for half the damages, ANZ lost at least $1.5 billion off those two funds alone (other losses are mounting).

Excessive Credit Risk

ANZ has sold about $23 billion worth of CDS, guaranteeing against practically junk status credit instruments. Simply put, more defaults will come from the now begun credit contraction, and ANZ will not be able to handle all the write downs. If you're a customer of the bank, it would be high risk to leave the bulk of your wealth there.

Nouriel Roubini

Roubini has been right from the beginning, that most of these commercial/investment banks have become insolvent, in the wake of Lehman Bros collapse.

Key talking points:

1) Real market value for the distressed credit instruments are likely to hold only 5 cents on the dollar.

2) Excessive leverage applied, hence the now crisis.





Monday, September 15, 2008

Treasury CDS

This is from Bloomberg.

"

Sept. 9 (Bloomberg) -- The cost of hedging against losses on Treasuries rose to a record on concern the U.S. government faces higher liabilities because of its rescue of mortgage companies Fannie Mae and Freddie Mac, credit-default swaps show.

Contracts on U.S. government debt increased 3.5 basis points to a record 18, up from 6 basis points in April, according to CMA Datavision prices for five-year credit-default swaps at 5 p.m. in London. Credit-default swaps on German government bonds cost 8 basis points and Japanese bonds 16.5 basis points.

"

The US government is considered to hold higher default risk as of now than Japan and Germany. This is unprecedented, volatility's likely to jump in the near future.

Tuesday, September 9, 2008

Fannie Freddie

Jim Rogers is easily the most truthful and least scripted person on financial media today. Here're his opinions of the Fannie & Freddie rescue package.

Rough summary- Not Good.

Sunday, September 7, 2008

Problem Loans

Gerard Cassidy of RBC Capital Market made that claim on Bloomberg, the interview is available at youtube. Of course some of us are fully aware of the coming bank failures, this gives even more reason to avoid upside bets on the economy.

It's interesting that Bloomberg TV has disabled embedded availability of the video, where one could speculate that they do not want public investored informed. (I uploaded it here manually)

video

Saturday, September 6, 2008

Institutional Investments

OK this was originally a video by Xenix2012 at youtube, and it appears that he's removed himself (or been removed) from the website. I will try and paraphrase his points below.

Large financial institutions tend to work alongside lenders, namely banks and the Fed, therefore they hold enough capital to sometimes impose their will upon the markets (except for "Black Swan", low probability events). So exchange price fluctuations mostly result from their orders.

They do not apply the so-called mainstream analysis of historical prices. Only semi "useful" thing I've found deriving from price has been historical volatility, and even this calculation remains limited in forecasting directional bias.

They buy low, and sell high, based on hints from the banks or the Fed. This is probably why monitoring credit conditions (e.g. LIBOR spreads, CDS yield, bond rates... and etc.) remain important in assessing equity markets, for the retail traders.

Here's something that we all know already (deep down). The institutions usually take opposite positions as those pushed through media outlets they own. E.g. when Goldman Sachs announced oil prices likely to hit $200 several months ago when it was $145, GS sold its positions instead to dumb money who take "infotainment" as truth (See article for details) . Today, I think oil is at $95/barrel.

*Whoever commented on the video disappearing, thank you!

Wednesday, September 3, 2008

Eugene Matthews

This is kind of hilarious since these guys are half serious and half... well, less reserved. Watch it and enjoy the 10 minutes!

Tuesday, September 2, 2008

ASX bearish


According to Jacob Greber, Australia May Cut Rate for First Time Since 2001, Signal More, and it signals a high probability of the market ending lower in the coming fiscal period. I'll try and explain this as simply as possible.

Common media pushes the idea that lowering interest rates induces equity market rallies over in the long run as investors may find debt instrument less desirable as result. The sentiment is true, among the newbie, uninformed investors; and the markets do tend to go up on the very days where interest rates lower, the momentum often loses air soon after.

However, reality (often far from conventional beliefs) lies through the perspective of the few consistent winners. The right question would be, what is the true motivation for the central banks to lower interest rates?

Motivation
They do it because they believe things will get worse in the coming fiscal period, and lowering interest rates might produce a soft landing. As the Gods of central banks understand current economic conditions better than most of us, and unlike popular TV economists, they are CORRECT more often than not.

Pretty simple logic right? The financial institutions are not charity organizations. Every news release, publicized analyst opinion hold a specific purpose. Once understood, one could start finding real value off mainstream financial media.


Monday, September 1, 2008

Lehman Is screwed

I ran across this today, Lehman is a buy — and here's why ; from what I've read, the article only displayed reasons why you should short the stock.

Analyst says Lehman will address problems or face hostile takeover bid

By John Spence, MarketWatch
Last update: 11:29 a.m. EDT Aug. 29, 2008

BOSTON (MarketWatch) -- One of the more candid analysts tracking Wall Street is sticking with his buy rating on Lehman Brothers... the embattled investment bank planning to lay off as many as 1,500 employees...

Chart of LEH
Chief Executive Richard Fuld is also said to be facing an internal rebellion...

'This saga is not likely to continue much longer. Since I believe the result will be a positive one,' Bove said, even though markets are expecting "dismal" results for the fiscal third quarter, which ends Aug. 31. End of Story

reflections:
The attempt at deception is unbelievable, Bove thinks we're stupid. He tried to entice investors into buying Lehman stocks with only a "I believe the results will be a positive one...", he could've done better than that. Not even the dumb money would swallow that up.

Lehman Brothers is f&*$ed, and Bove's handlers want to dump the stock, it would be great if some uninformed investors decide to make the investment off the above propaganda for a nice rally to sell off from. There's some truth.