Thursday, January 31, 2013

1500 Breached, But Just Barely.

Well, SPX did not hold 1500 at close but after hours futures are up and my prognosis remains the same as yesterday. That we will chop around here for a while before the next move.
Gold and silver gave up all the gains of yesterday and that's exactly what I was afraid off.
Everything is churning and I find such situations quite frustrating and outright dangerous for the portfolio.
So we better go for skiing.

We will come back when it the time is right.
Subscribers will get the 1st glimpse this Sunday as to what the crystal ball is predicting. And if you would like to know, please join the gang. Time to join the February subscription runs out on Sunday.

Have fun folks.

Wednesday, January 30, 2013

How To Become A Dealer / Sales Trader

Follow up on my posting on how to become an equity analyst, this one refers to the very uncertain, multi definition role of who and what a dealer is. It depends on the securities firm, whether they are players in the institutional business.

Let's start by defining the various dealing roles:

a) remisiers - you basically work for yourself, pass the required papers, put down at least RM50,000 or RM100,000 and you can start getting clients onto your account, you probably get 40-60 sharing on commission though some may even get 30-70, the latter being your share, you must treat this as your own business, so the question is what do you bring to the table, buying a stock from any remisier in town is the same thing, its not like buying fresh fish which may differ in quality from one stall to the other ... if you cannot clarify what your value adds are, then you will be a mediocre remisier, are you prepared to face the challenges where more and more people are trading on their own via the internet (yes, they can still be your client but the rates drop substantially)

b) company dealers - they are usually fresh grads trained inhouse to key in the orders once they have passed the requisite papers, if their skills is just in keying in orders with no client list, then they end up working for a dealer who does the sales and marketing, there are good company dealers in that they are quick and efficient, a crucial role in execution, to get to work in elite teams especially for big institutional dealing teams ... the person must be dependable, responsible, meticulous, good at math, can do some excel to tabulate average execution prices, etc...

c) dealers/dealing teams - you can be part of a dealing team that has been built by one or two enterprising dealers, they basically also work for themselves, salaries are deducted from group commissions, structure of profit share depends on negotiation skills and the kind of revenue you can generate, you get to look after private, corporate and institutional clients, again what are your value adds, if you cannot clarify them you will end up in a mediocre team ... the difference here is that usually the team do not need to put up any collateral, dealing teams are better in that you do not exist alone and has the support and newsflow and buy/sell flows from a cross section of the market, the bigger your team is the better the terms, some even get to carry positions over a few days

d) sales trader - top of the food chain, used to be called institutional dealers, but I think sales traders get paid better, employed solely by company but focuses on bigger clients usually foreign based, may concentrate on hedge funds type, usually exist only in the top tier houses and bank backed houses, the very big funds or indexed funds may only be allowed to trade with big top tiered firms and bank backed, sales traders are also part of the placement arm for IPOs and matching orders, must be able to take positions on books to bid/offer for blocks,  do switching strategies (e.g. sell KLK buy FGV) or reweighting by indexed funds

How To Start

Your parents did not spend RM50,000-RM100,000 a year for 3 years for you to come back and sit by a phone or just keying in orders into a terminal, almost like a receptionist. Many see the roles as the easiest way to earn a living. If you think like that, then I can guarantee you will be way below average.

Its a sales job. No matter how good you are if you are working from a second or third tier securities firm, you will never get the big institutional clients. Hence you need to get to a top tier house and positions there are usually not advertised. Usually they are filled by frustrated analysts, frustrated corporate finance people, frustrated xxxxxx within the securities firm. You need to know somebody who knows somebody to get the prime positions. Once inside a big top tier house, you won't want to move too often, and should only move horizontally to another top tier house.

If you are a good sales person, with good skills such as technical analysis, fundamental analysis, good spotter of movers, good trading instinct, has a good network of reliable information flow ... it doesn't matter much which type of securities firm you operate out of, then you are better off building your own team.

Best way for a fresh graduate is to join an established dealing team. You won't amount to anything being a company dealer at a third tier or fourth tier firm. The dealing team may throw you a few small clients to start with but you have to go and get your own to build your rolodex. Once you figure you have outgrown your team, then go and set up your own team. If you just rely on your team leader's clientele, you will be no more than a receptionist.

Can you learn to be a good dealer? Can you learn to be a good trader? To a certain extent yes, but that will never qualify you for success. It has to be inherent in your blood. You need to feel excited by the markets. You must want to better the markets. You must care about making the right calls. You must want to make a lot of money, not just want but really really want.

If you are a sales trader, then EQ skills are very important as you will be dealing with too many clients with big egos and small dicks. In fact that is the number one skill for a great sales trader, the other skills are just tools of trade.

So How ...

Must know why you want to become one. Must be passionate about the markets. Must like reading about stocks and business news, business personalities and business magazines. Must be open to abuse. Will need to handle high stress. Must be able to drink a bit. Must have a bit of an ego. Should be an alpha male for a guy and for a girl must be able to work with dickheads and around dickheads.

This posting ties in well with my previous take on ....

TUESDAY, JULY 17, 2012

How To Behave Like a Badass Sales Trader/Dealer/Broker

Getting into a dealing room is difficult in the first place. After the initiation period, you will have to behave accordingly in order to be a "stockbroker". Most of the behavioural traits will be inculcated via osmosis, but you can always learn some handy tricks.

Yell Occasionally - Its no point being a soft spoken, polite person, in a dealing room. You will be accorded no respect. You have to yell occasionally to voice urgency. Easy targets will be when speaking on the phone to back room or settlements - use phrases like "the deal is done, don't bother me again"; "don't bother me again, just cross it it"; etc... The other easy targets are your execution dealers, some choice phrases include: "just hit the bloody thing to the stupid buyers"; "what do you mean we are still above the average buying price, ..C'MON"; etc...

Foul Language - This is a given, its the vibe, its a must. If you are not using occasional foul language, your bosses and colleagues will think you never do deals big enough or have clients that are big swinging dicks (or dickheads in most cases). No need to do it over the phone as you try not to swear to your clients. Just pick up any research report and exclaim, "these fucking analysts know dick shit", you get the drift ... a good trick is to put the phone down and then yell "Fucker" or "Useless fucker", hey, you might not even be on the line with anyone, but your colleagues and bosses will think you are doing "good work". "Good work" meaning "taking shit from clients".

Slam the phone - You are not a good broker if you have never broken a phone before. Sometimes the PABX system board may be very expensive, in that case, take the receiver and just whack on the table a few times till it can be heard across the room. Nobody will mess with you cause you will be perceived as a badass broker-dealer-trader. Works every time.

Use Useless Abbreviations & Insiders' Lingo - Sprinkle it in your conversation especially among friends not from the industry. Examples: dog with fleas, dead cat bounce, GN4, PN17, ostrich, pig, sheep, DK, Bollinger, arb, bp, CAC40, CFD, DAX30, front loading, front running, alpha, gamma, beta, GTC, RRR, warehousing, Sharpe ratio, theta, XD ...etc..

Badass behaviour in the dealing room is accepted because you are all fighting for the same clients. Some orders you got is some orders the competition did not get. To maintain good service, acute attention must be given to order instructions and execution precision - hence if you have to ensure the down line gets the message, you will yell and shout and curse, as its your head thats on the chopping block, not theirs. 
Getting yelled at by clients are normal, and as the punching bag, you will have to take those punches. Once the phone is down, that accumulated stress has to go somewhere or you will get an early ulcer or some cancerous growth.

Drink like a Fish - Badasses drink almost every other day. Either you have a really bad day in the office - so, need a drink. Or you had a really good day - so, have to drink to celebrate. If you are not a constant drinker when you are a trader/dealer/broker, you'd probably never amount to much. But basically you have to drink like a fish to numb your soul for being around so much money thats not yours, so many assholes, so much false pretences and bad behaviour,and so many devious sycophants. 

If you have read The Prince by Niccolo Machiavelli, you will know that a badass broker/dealer/trade is a true  Machiavellian. A person  who "views and manipulates others" for "personal gain, often against the other's self-interest". By reputation, stockbrokers have manipulative personalities. So do people who sell cars or houses. Its really hard to differentiate between the three.

How To Comfort Yourself - When your clients lose money, its a terrible thing and you will feel bad (for a little while). This always helped me when I was one, you will snap out of it when you repeat the mantra "Well, it could have been worse, it could have been my money, or it could have been me". Always work wonders.

How To Comfort Clients - When clients faced losses, they need to be handled. Tell them, you also suffered losses in your personal account on the same stock. Tell them another fund/client had even bigger losses than them. 

At the end of the day, a badass broker/dealer/trader is a person with high EQ (when necessary) and thinks that there is a vast gap between truth and untruths. Do you lie ??? ..., well, we don't call it lies when we are withholding some facts, ...we don't call it lying when we over exaggerate the attractiveness of a stock, ... we don't call it lying when we underplay the risk, ... we don't call it lying when we shove a placement down a client's throat because we just have to get the thing off our books.

What does a hedge fund manager with no fund to manage say?
Would you like fries with that sir?

A stockbroker is someone who invests your money till it's all gone!


How to know you are not cut out to be badass:
- when you avoid calls from certain clients, if you can't face the music, you don't have the balls for the industry
- when you can't sleep well most nights worrying about positions
- when you look at yourself in the mirror coming home from work and you hate yourself
- when you feel like Spiderman in a bull market but feel like an idiot during a bear market (market cycles should have little effect on you emotionally, just the place you spend your holidays .. Mauritius or Redang)
- when you have no life apart from the markets

In the end, the financial markets, if you work in them, are just places where you help in the movement of funds from one to another. You live by the flickering lights on the screen. You stare at 4 screens the whole day and go home to stare at another screen, and if you are constantly on FB and Whatsapp, make that 6 screens - that is if you do not go to watch a movie, which would be 7 screens, what a life, screens the whole fucking day. In the end, you take your cut (or commission) with the movement of funds. You hope to value add in your service to clients via "good analysis" or "good execution" or "good information flow" ... mainly its all bull shit, and you know it too, and guess what, the client knows it too.

Will 1500 Hold?

We are coming close to end of the month and barring something unexpected, it will be a positive January. So we have every Jan. indicators positive. On the flip side, my upside target for SPX was 1510 and we have come few pennies away from that target. If we can close convincingly above 1510, then the next target is 1530. But I have my doubts that it will happen anytime soon.

Today SPX gave up about 6 points but still managed to close above 1500. As if it is now acting as a support. And I think it will move around this level (1500-1510) for a while.

Folks are now actually getting bullish. It seems retail investors are now returning to the market and are talking about their portfolio. I wonder at what stage of the sentiment cycle we are at.

Is it at the Hope stage? I don't think so. I think we are somewhere between Thrill and Wow, I am smart stage. And if my reading is correct, then we would chop around here a bit before a decent correction. Yes, I know that would be the fodder all the doomsdayers are waiting for but my Crystal ball can't see beyond next few months and can't tell me whether this is minor top or major top.

Yes, I know, calling a top is fools errand and that's why I am not suggesting that we should short now. I am suggesting that we wait for confirmation for price action either way and wait for sell signal. As of now, we do not have any sell signal and the bull case is still strong. But again, it is late in the game to join the dance. May be we will be asked to shut the lights off because we would be late in the party. So better to wait and watch. Remember last Jan/Feb? Everyone was calling for top and shorting the market, only to get killed. This year is more of the same.

Commodities are also not doing much, just moving in a range. Today's spike in gold and silver is not convincing enough to go long again and it looks more like a pump and dump action. Till gold closes above$ 1700 and stays there, we could see more correction in prices.

Oil on the other hand can go up a little more but not much juice left for now.

All in all , we need to remember how to be patient in this market.

Good luck trading, folks.

Monday, January 28, 2013

Stocks For Post Elections - The Flip Side

Starbiz daringly came up with 8 stocks for those who think that the government will stay in power. The reasoning being, you may see volatility or weakness in stocks as the polling date draws nearer. They are of the view that IF you think BN stays in power, the following stocks may be "collected on weakness"

They include: Sapura Kencana, MMHE, Handal Resources, Cypark Resources, Prestariang, MYEG, CIMB and Gamuda.

My question is: Does that mean that if the opposition wins, the above 8 stocks will be hammered? Well, I think so. You cannot have your cake and eat it at the same time. The very ingredients that the writers relied upon in assessing the stocks as to why they are in favour, will also work against them if the flip side occurs.

Somehow, nobody seemed to be focused on what stocks to buy and sell should the opposition wins. Here are my selections:


1) TENAGA - Obviously, they have been "forced" to leak profits to IPPs. Can safely say that there will be a lot of mutual reviews and  renegotiations, and maybe cancellation when the due date comes up for some IPPs. All will be in favour of Tenaga.

2) Some Banks - If CIMB is a sell, then a more level playing field will favour the ones in 2nd-4th place in IB.

COULD BE SELLS - These are predicated on supposed changes in the competitive landscape for the major industries which will not favour the current crop of industry leaders. Industries most affected should be oil & gas, autos,  toll concessionaires

1) Sapura Kencana
2) DRB Hicom
3) MMC
4) Litrak
6) Gamuda

Industry Developments

PLANTATIONS Companies - Not many are aware that there are still a number of layers involved for CPO companies when they want to export their products. I assume these layers will be dismantled. However, more rules could be implemented to ensure sustainable agriculture and to meet global best practices. Neutral.

AUTOS - Proton cars are usually around 50% cheaper overseas. Enough said.

MONOPOLIES & FIEFDOMS - Industry which currently are monopolies could be unshackled, such as flour and rice. The water concessionaires are not making our lives easier. Read between the lines.

BIG GOVERNMENT TO BE DOWNSIZED - Industries which are currently very much dominated by GLCs or government presence will be downsized as it is highly ineffective and unreasonable to have such high government presence at the expense of the private sectors. Sectors currently with very high government presence include Utilities (90%), Transportation & Warehousing (80%) and Agriculture, Banking, Communications (more than 60%).

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Bears Rejoice. Red SPX.

We had a red day with SPX and Dow but Nasdaq was green.
Obviously, all the financial bloggers are feeling happy because they can see the next crush just round the corner. Yet it was not even 3 points down. At this rate, unless something unexpected happens, January barometer will be positive.

So we have a positive Santa Clause Rally, The First Five Day was positive and most likely we will have the whole month of January positive. What does the past statistics say for that?
Well, I have this chart from Stock Trader's Almanac.

S&P 500 SCR, FFD & JB Positive 1-Year Pattern since 1950 Chart

There is still plenty of time for things to go wrong and I do not recommend to buy in equities now because to move higher, we need a good pullback. My point is: a big correction is not the end of the world.

VIX raised its head above the water but I do not think it has completed its downward journey yet. May be soon and then bears will rejoice.

Let us therefore take things as they come and not have a pre-conceived notion as to how the year will end. Its been just four weeks out of 52 and lots of ups and downs will come. As of now, I see indices moving sideways and even making a higher high, before the fat lady sings.

Have a great evening folks. 

How To Become An Equity Analyst

I get this question all the time from younger folks wanting to get a foot into the financial markets. When we talk about investment banking, we are talking about equity analysts, sales traders and investment banking (corporate finance included) primarily. IB basically are the guys (gals) who meet with company owners listed/private and getting them to do deals which may include listings, corporate exercises such as rights, warrants, bonds, placements and/or M&A deals. Sales traders are the new fangled name for institutional dealers of the past. Sales traders deal with flows from clients, placements and basic buys and sells orders. It can get tricky with switching strategies, reweighting and ability to take on positions on books. I will talk about the IBs and sales traders in later postings.

Today its how to be an equity analyst. The easiest way, well not really easy, is to get a good degree from a good university. The named universities such as the Ivy league, plus the LSE, Oxcam or Sydney University or Melbourne University is a start. There are the second tiered ones such as Monash University, UNSW ... and you must score well. Most top houses will at least grant you an interview.

The most important subject to take is accounting. If you don't like accounting, forget it. You must be very good at Excel, if you hate spreadsheets, this is not for you. Get your niche early, know one or two industries very well.

If you are like me, screwing around during university and getting so-so results, there are plenty of ways to get your foot in as well.

a) Get a good internship - Use your contacts, your network, hope your parents know some BSDs at some investment banks. An internship at any top 10 brokers would do well on your resume. If you get your internship, don't just do what's been told to you. Ask around and get to know the BSDs in the right department. Hint that you want a starting position when you graduate, failing which, its OK to beg.

b) Do your CFA - This is the best route if you come from a university not in the top 100, and/or your results are so so only. Once you land a "business type" position, enroll and try to pass all the papers. It always look better if you can put in your resume, passed CFA Level 1, completing Level 2 etc... May not get you into the top 10 houses but getting into a local one even is a foot in. Get your foot in first.

c) Specialise - Do you want to be an equity analyst because you heard it pays well, or do you have a passion for analysing industries and companies? If its the former, you'd probably won't make much of yourself even if you get in. All analysts end up covering one, two sectors at most. Do your research, you can go the indirect route by specialising in plantations or banks, or semiconductors or technology, or mining etc... If you have spent 3 years at a plantations firm doing relevant work, you will be familiar with the parameters for that industry, what they look at, how to get the data and make predictions. 

To be an analyst in Malaysia is a small thing, if you can, work yourself into a regional position. Know the regional stocks as well. The big money is in becoming a regional something. You may have to move to HK or Singapore for those roles, except if you are in plantations, which you can basically look at companies in Malaysia, Indonesia and Singapore. The best paid person in IB, for sure is the top notch analyst ... look for the person who covers only ONE stock, e.g. Samsung or BHP ... they are paid over a million USD a year.

How to ace that interview:

a) Speak well - Besides researching and writing abilities, you need to speak well as all good analysts will have to speak to fund managers sometime. Your command of English must be good and your verbal skills as well.

b) Convincing - Be passionate, don't come to an interview even for a junior position without knowing anything. Must say you have deep interest in one or two industries, and you will be grilled further, and you must know your stuff. How? Read a few industry and companies research reports and things must roll off your tongue. If you can't even do that, then you better hope and pray you are a very pretty girl. (...its still a male dominated domain).

In the end, getting in is tough, once in you can move up by networking with better houses. Write good research reports that brings value to readers. I would say only 1 out of 5 analysts starting out become good ones, the rest just stick around and at best become Senior Analysts after 5 years but cannot progress.

To make it, you have to be early in calls, and be right most of the time. You have to be vocal. If you do not have the "stuff" to do that, then you will not make much headway. You have to get closer and closer to the company owners. You have to stick around at conferences and industry sessions. You have to write well, you have to be PERSUASIVE. You have to make a name for yourself. You are your own brand, the house is just a shell. Brand yourself first. 

Its not everybody's cup of tea, its a high stress job, you work 12 hours a day, everyday there's updates, results ... you keep spreadsheets that run pages and pages, you have little time for socialising. Your job is never secure, you can get laid off when times are bad (i.e. every 3 years), the higher you go the harder it is to find similar positions when there is a crisis or market contraction. So you better be very good at what you do. 

Analysts get crucified all the time. Sales traders think you are useless paper pushers who cannot hack it in the real time wheeling and dealing. IBs think you are their lackey boys to support whatever corporate exercises they are doing. Bosses think you are a huge mf cost center. Good luck!

Friday, January 25, 2013

SPX Closed Above 1500. Did we Erase 2008?

There you have it.

Depending on whether you walk on hoof or on claws we are either on the verge of a giant collapse ( just round the corner for last 5 years?) or about to see another bull era when stocks will go up and up with the rainbows
Personally, I think it would be foolish to marry either of the positions.

All I know and believe that there are real value stocks out there which are beyond my reach today and I would love to buy them at 50%-60% discount and sit on it for ever. I would like to buy KO for less than $10, XOM for $20 and so on. Unless we get a massive sell off, how in our life time we will get that opportunity? And no I would not touch any tech. company for long term investment.

So yes, I would love a huge correction but I do not think that would be the end of the world.

For last may posts I have written that we are on buy signal and as I have shown yesterday, we have been long from beginning of January, only to harvest now. And we are not going to short the market yet, however over bought the indices / indicators are. The corrections will come, nothing lasts for ever. And I am very hopeful that God willing, we will be on the right side of the market even then. No need for any dramatics, no need for any fancy charts or Analogues, no need for splitting hair with macro economic s**t. No need to cry foul that Ben has distorted the market. Because those are beyond our control and don't help us in anyway to make money. Talking of Ben, I don't know how his gamble will play out in the long run, but I would like to share the following chart with you.

At least he did succeed in bringing down the unemployment with his QEs. What will be the unintended consequences, we don't know. So let us just concentrate as to how we can beat the market and make some money, if we may please.

Right now the best entertainment is being provided by Ichan vs. Ackman

It has become personal with insults flowing all around.

Back to markets, SPX closed green 8 days in a row. I think even the 9th day will be green. I have been writing not to short or front run and hopefully you have listened to my unsolicited advice. Overbought is not the reason to short the market and it is not that overbought yet.

I wish ZH and other similar bloggers who are unable to come out of the shock of 2008, would shut up and instead of crying of all possible conspiracy theories, would tell their readers how to beat the system and make real money. But I also know that that is not going to happen and in the next 20% correction they will claim vindication. Alas!

Anyway, lets enjoy the ride while it lasts. Right now, the most favoured position is "Cash". And yes, cash is a position. I think the upside is limited but the indices may churn here for a while.

That's all for this weekend. Have fun folks and remember that Feb. Subscription is open now.

Is finance different than medicine?

Readers of this blog know that I generally write about the risks of finance -- risks I think are systematically underestimated by standard economic theories. But finance does of course bring many benefits, mostly when used in its proper role as a means to insure against risks. I just happened on this terrific paper (now nearly a year old, not breaking news) by two legal scholars from the University of Chicago who propose the idea of an FDA for finance -- a body that would be charged with approving new financial products before they would enter the market. It's a sensible proposal, especially given the potential risks associated with financial products, which are certainly comparable to the risks of new pharmaceutical products.

But beyond this specific idea, the paper gives a great discussion of the two fundamentally opposing uses of derivatives and other new financial products -- in acting as insurance, to spread risks in a socially beneficial way, or to act as mechanism for gambling, to increase the risks faced by certain parties in a way that does not bring social benefits. The following two paragraphs give the flavor of the argument (which the full paper explores in great detail):
Financial products are socially beneficial when they help people insure risks, but when these same products are used for gambling they can instead be socially detrimental. The difference between insurance and gambling is that insurance enables people to reduce the risk they face, whereas gambling increases it. A person who purchases financial products in order to insure themselves essentially pays someone else to take a risk on her behalf. The counterparty is better able to absorb the risk, typically because she has a more diversified investment portfolio or owns assets whose value is inversely correlated with the risk taken on. By contrast, when a person gambles, that person exposes herself to increased net risk without offsetting a risk faced by a counterparty: she merely gambles in hopes of gaining at the expense of her counterparty or her counterparty’s regulator. As we discuss below, gambling may have some ancillary benefits in improving the information in market prices. However, it is overwhelmingly a negative-sum activity, which, in the aggregate, harms the people who engage in it, and which can also produce negative third-party effects by increasing systemic risk in the economy.

This basic point has long been recognized, but has had little influence on modern discussions of financial regulation. Before the 2008 financial crisis, the academic and political consensus was that financial markets should be deregulated. This consensus probably rested on pragmatic rather than theoretical considerations: the U.S. economy had grown enormously from 1980 to 2007, and this growth had taken place at the same time as, and seemed to be connected with, the booming financial sector, which was characterized by highly innovative financial practices. With the 2008 financial crisis, this consensus came to an end, and since then there has been a significant retrenchment, epitomized by the passage of the Dodd-Frank Act, which authorizes regulatory agencies to impose significant new regulations on the financial industry.
Of course, putting such a thing into practice would be difficult. But it's also difficult to clean up the various messes that occur when financial products lead to unintended consequences. Difficult isn't an argument against doing something worthwhile. The paper I mentioned makes considerable effort to explore how the insurance benefits and the gambling costs associated with a new instrument might be estimated. And maybe a direct analogy to the FDA isn't the right thing at all. Can a panel of experts estimate the costs/benefits accurately? Maybe not. But there might be sensible ways to bring certain new products under scrutiny once they have been put into wide use. And products needn't be banned either -- merely regulated and their use reviewed to avoid the rapid growth of large systemic risks. Of course, steps were taken in the late 1990s (by Elizabeth Warren, most notably) to regulate derivatives markets much more closely. Those steps were quashed by the finance industry through the action of Larry Summers, Alan Greenspan and others. Had there been something like an independent FDA-like body for finance, things might have turned out less disastrously. 

Forbes (predictably) came out strongly against this idea when it was published (over a year ago), with the argument that it goes against the tried and true Common Law notion that "anything not specifically banned is allowed." But that's just the point. We specifically don't allow Bayer or GlaxoSmithKline create and market new drugs without having extensive tests to give some confidence in their safety. Not only that, once approved those drugs can only be sold in packages containing extensive warnings of their risks. Why should finance be different?

Thursday, January 24, 2013

January Recommendations & Results

In my earlier post, I said that I will report the final scorecard of our January picks later, by the 1st week of Feb. But since almost all the positions have been closed, I think I can show you the results now.
Please keep in mind, this is my results and may not be same with everyone else because everyone has different time frame for execution. Some will be better, some worse but I would expect most would be close to the range.
Please do remember, past performance is no guarantee for the future.
I personally expect February to be spectacular.

SPX Green 7 Days In A Row!

For the 1st time since 2007, SPX crossed 1500 although it did not close above. But it was green 7 days in a row which has happened only 4 times before. 

So green or red tomorrow? Honestly, it does not matter, 

Are we done here?

I would say not yet. May be there will be some profit taking tomorrow, little red, entice some new short positions but not the turning point you are looking for.

Subscribers of this blog went long at the beginning of January and we have remained long till now. Readers were advised to harvest gains yesterday and today morning. We knew that 1500 will be taken out in SPX and for most parts, we have made handsome gains on our position.

The following is a snapshot of our Jan. 2 Newsletter:

Market Analysis & Trade Ideas

For the Week Jan 2- Jan 4, 2013.
Happy New Year.
I have been out of the equities for almost half the year and I don't think I have missed much, except the emotional roller coaster ride. In the mean time I have played in Crude, Nat. Gas, Gold and other commodities. Now I see some definite trends developing in equities and I would like to share some of my trades herein below.
Before I start, few techniques or principles worth remembering are:

  • Always scale in. For e.g. the equities that I am going long, I will scale in over two weeks or more. For commodities, I will scale in in a shorter time frame.
  • Always have stop loss. Nothing is guaranteed in the world of trade and investment and we must guard against a trade going against us.
With that preamble, the following are my trades for this week and next.
  1. Long SLB. 1/3rd each on this week and week afters
  2. Long ANR. 1/3rd each on this week and week afters
  3. Long NEM. 1/2 each this week and next week.
  4. Long XIV. on 4th Jan
  5. Long SSYS. 1/2 this week and 1/2 next week.
  6. Long DDD. 1/2 this week and 1/2 next week
  7. Long HZU.TO (Canada) or AGQ (US).1/2 this week and 1/2 next week
  8. Long CDE. 1/2 this week and 1/2 next week
  9. Long NUGT. 1/2 this week and 1/2 next week
  10. Long EWG. 1/2 this week and 1/2 next week
  11. Long EWN.1/2 this week and 1/2 next week
  12. Long SLW.1/2 this week and 1/2 next week
  13. Long INDL. 1/2 this week and 1/2 next week
  14. Long Gold through LEAPS. I am buying Dec. 2013 calls on GLD
You can do your own math as to how we have done so far. Subscribers have got regular emails / notifications, sometimes multiple times in a day, suggesting, when to exit, take profit or harvest. We cut losses on one or two trades but let our winners run.And most of our trades have been winners.
I will publish the final scorecard of our January buy list in 1st week of Feb. along with our exit prices.
By the way, all the above trades are done and now is not the time to chase them. The easy money has been made. We have closed these trades.

And if you think Jan. was good, Feb. is going to be still better.

We will not trade the market with any pre-conceived notion. We don't care if the market goes up or down. We just want to be on the right side of the market. Neither a bull nor a bear. Even the best  makes a wrong call from time to time. 

Here is Peter L Brandt today morning:
Peter Brandt ‏@PeterLBrandt

When I am wrong, I am wrong $AAPL Looks like attempted bottom has failed.

And he is as respected as they get. So I will not be an exception. But the key is to have more winners on a consistent basis.

Apple got hammered. Regular readers know that many moons back I have mentioned about Apple cycle topping and Apple closing below $ 500. That time it looked like a fantasy and now folks can't get out of the door with Apple. And the cycles did not bottom yet.

Readers know that one of thing that differentiate me from others is my call for patience. I tell readers that we do not have to be long or short always. There are times, when I prefer cash. That advice in itself is more important than anything you can find anywhere. Let us call it "Art of not losing money". Again, I do not claim to be right all the time. Rather, the effort is there to increase the odds of success and hopefully my subscribers will vouch for that.

Back to markets, although SPX could not close above 1500, the bull case is still strong and we most likely will see another push up soon. Rarely such a momentum stops on a dime. But we will not pick up nickels in front of the steamroller. We have achieved 96-98 % of our price target and we will take our money and run. And no, we will not short the market because we are not done yet. At the same time, we don't want to be greedy. And while SPX gave up most its gains for the day, VIX was not that strong either. It closed a whooping $0.23 cents higher than yesterday. I have no doubt ZH will be writing a lot about that huge gain in VIX.

So if you would like to benefit from some very unconventional yet highly successful trading methods, try out the subscription for just $49 for a month and judge it for yourself. It is much less than a cup of Starbucks' cappuccino every day. The subscription for Feb will remain open till 2nd Feb. when the Newsletter for Feb. will go out. By the way, subscribers get the Newsletter every Sunday and daily updates if any action is needed. 

That's all for tonight. Don't front run and trade safe. GLTA

Wednesday, January 23, 2013

February Subscription Is Now Open

If you will like to make some money or rather not lose money in the Wall St. now is your chance.
The February Subscription is now open.
Some good opportunities of the year is coming up and you do not want to miss them.
So click on the donate button to pay the monthly subscription of $ 49.
Please write "Feb. Subscription" in the subject.
Thank you for your trust and support.

Tuesday, January 22, 2013

Dilbert Compilation Part Dua

Wow! Didn't realise I did so many Dilbert cartoon mash ups. This is the second compilation of my gag Dilbert cartoons. I keep doing that I will have enough for a book soon, but then will have to talk to Dilbert's owner about royalties.

Higher High Ahead

SPX at five year high. It seems there is no respite for bears these days. Lots of talking heads are calling for the Top and in various daily trade forums folks are discussing all obscure indicators to justify talking shorts. But I have bad news for the bears.
Its still too early for the top and higher high is ahead for indices.
One of the indicators I would like to share today is the short interest.

(H/T :Schaeffers)
As you can see, the short interest is still high and there are still good deal of short interest out there which will be taken out by the BOYZ in the coming days. It is like low hanging fruits for them. As SPX comes closer to 1500 and may be struggle a bit, folks will pile on the short side and then BOOM! SPX well past 1500. Till short interest capitulate, the market will keep grinding higher.

Schaeffers talks of lower trending or higher trending short interest but I think at this point of time, that distinction is more academic.

While I would suggest not to short the market at this point of time, I would also not suggest to be aggressively bullish. We are long on selected stocks from start of January and most of them are doing fine. Like everyone else, we have not had the chance to add more on weakness but at this point, we are holding on to our long position. I will email to subscribers as to when is the right time to harvest the gains.

Our positions in PM are doing well, (praise the lord). While Gold is struggling to break through $1700, once through the gate, it will most likely run away. Silver will also follow.

So if you are long, enjoy the ride up. Other than that, there is nothing more you can do in this market. This is a repeat of 2012 and therefore play accordingly.

Good luck trading all.

Maybe Only In Japan

CEOs who behave with integrity and share the burden of their employees, a collective kind of leader ... and he is not even an owner. Only in Japan.

When They Were Young & Not-Yet-Famous


Bruno Mars

Lady Gaga

Snoop Dog

Jennifer Lopez

Kanye West

Avril Lavinge




Bruce Springsteen

Monday, January 21, 2013

UMA On Bursa

This was a really funny quip, somebody suggested that an UMA should be issued to the Bursa for yesterday's market weakness. Well, truth be told, the market had its biggest single day drop since October 2011, plus it was unusual market activity, and thirdly nobody can really say for sure why.

Sure there is speculation about the reasons, but its pretty much like a deserving UMA to me. If you were to ask Bursa, they'd probably reply: "We are not aware of any unusual or material developments".

So, UMA it is to Bursa. You fall some more, we will issue a second UMA or designate all stocks ok.

Seriously, its about elections. Tell us something we don't know. It has to be held soon. How far will it go down to prior to election day. I think its more likely to be closer to 1500 than 1550. Thats just my view.

If opposition wins, we may see a knee jerk quick sell down to 1450 to be followed by a swift rebound provided the transition of power is smooth. If not, we could be in for more uncertainty and downside.

Its all necessary as in birthing pains, but it will all turn out well ...

Assuming the opposition wins, and power transition was smooth, I believe funds will flow back almost instantaneously within weeks. It is not as dire or nasty as some make it out to be. All I am worried about is the transition of power process be smooth.

A cleaner government, better management of resources, more transparency, less leakages ... how not to attract more funds? It will not be perfect, they will make mistakes, there will even be cases of corruption and mismanagement, but I think they will be a lot fewer and lesser in quantum. How not to have a vibrant post election market?

Saturday, January 19, 2013

Why I Hate ZH and Other Similar Creatures.

Regular readers of this blog know that I dislike ZH with a passion. The over riding reason is, these guys have scared the retail investors since 2009 and have caused the biggest missing investment opportunity of our life time, when SPX more than doubled from its lows. I could write many valid points but toady I want to share the following from Joshua Brown ( the reformed broker)

Without further ado, here is what Joshua Brown has to say about the merchants of gloom & doom:

Escaping the Fear Factory 

Are the birds chirping? Is tranquility close at hand?
There are many who believe so or at least admit that they can see it in sight.
The world is awash in liquidity and opportunity abounds in every region around the world:
Distressed investors in Europe are now reaping the benefits of their midnight maneuvers where no one else dared to tread. Dan Loeb (Third Point) made a half a billion dollars buying Greek bonds before Labor Day and selling them before Christmas. Marc Lasry (Avenue Capital) is taking whole portfolios of performing loans off the hands of Belgian and French banks at steep discounts, bringing liquidity to one of the last deserts without it.
Animal Spirits are returning to the equity markets as five-year highs are penetrated with a persistent and lusty thrusting from below. The same is true in the corporate bond market asinvestors line up for the latest offering like sneaker aficionados on Air Jordan launch day. Not every waking second is being spent on avoiding loss - people are once again looking to win, a psychological seachange as important as any quantitative market indicator you want to present to me, I promise you that.
Housing, formerly the Achilles Heel of the US economy, is now the engine driving us out of the negative feedback loop.
Goldman Sachs is back to being Goldman Sachs again, smashing estimates from trading to I-banking to M&A to underwriting.
Bank of America is putting the sins of its acquired mortgage business behind it with every settlement and charge-off.
Even Citi has a request in front of the regulators to up their share buyback.
Morgan Stanley's just traded through a new 52-week high with very little other than green field ahead of it now that it's no longer the poster child for hidden Euro exposure.
You may look at the return to prominence of the big banks and say "How unfair!" You will be right, but please compartmentalize that notion. Because it has nothing to do with your duties as an investor.
The deficit hawks have read the polls, they now understand how unpopular their debt ceiling stance is with the people. They are unwilling to allow the "Republican Recession of 2013" to become the rallying cry of the Democrats during the next elections. And so they cave and grant an extension so that negotiations may continue.
The US stock market is trading at a 13 multiple on the $108 in earnings analysts are expecting for this calendar year's S&P 500.  The Schiller PE (a 10-year average to smooth out cyclicality) stands at 22.8, a higher-than-mean reading (the mean being 16) to be sure - but not obnoxiously so and given the massive earnings nosedive in 2008-2009, some generosity is required here.
Headline-wise there are just a few more hurdles, we are told, and then the Era of Crisis 2007-2012 will be germaine only to the historians and the professors.
And with our passage into the new era, we will leave behind the baggage of the old one.
There will be bloggers and journalists and newsletter writers who continue to fight the old battles that no longer matter. They will spend countless hours on "Who really caused the Crisis" and lament the favoritism shown by Geithner and Paulson. They will continue to chase mortgage fraud headlines down the rabbit hole of who-gives-a-shit and expend a great deal of time and energy on fearing high frequency trading and loathing the banks.
To which the productive and creative and ambitious among us will say "Whatever."
We will stop reading these diatribes, they will no longer enter into our decision-making process. Like the screams of the Wicked Witch of the East as she melts into the ground, their yowls and yelps will grow even more shrill and abrasive as our collective attention continues to fade. This will be embarrassing - like an older family member who seeks to bait you into a heated discussion about Vietnam at Thanksgiving dinner. We will not read or watch or click this stuff anymore.
Phasers set on ignore.
Our escape from the Fear Factory will not be an easy one. There will be surprise spikes in the Vix and drops in the market during which all the old alarmist assholes are trotted back out into the spotlight - however briefly - to sow the seeds of uncertainty and discord. They will return with their old catchphrases - "The Fed is shooting blanks, kicking the can, Bernanke is facing a liquidity trap, etc."  For an amazing, museum-quality look at everything the permabears got wrong these last few years, please visit this page of newsletter archives - it's like a compendium of every single horrible call you could have made all in one place. When you run a bear fund, this is your job I suppose - to make hay while the sun is not shining.
Hope they made the most of their moment, nobody will care going forward.
To say that "risks remain" and that "headwinds persist" would be an understatement. Many things must go perfectly right this year so as to ensure a continued expansion and the possibility of derailment is significant. Much of what needs to be fixed remains broken, even if less visibly so thanks to the healing power of time. The bandaids will not remain affixed to the wounds forever, at a certain point an actual treatment will be necessary - possibly a painful one.  The market understands this, has processed this and has decided that the issues we face are manageable.
We are coming off of our wartime footing. In the streets, shopkeepers are sweeping up the broken glass and putting their establishments back in order. Banks are lending again and filling the air are the sounds of hammers and drills and felled trees and the rumbling of machinery. We are borrowing and building and planning and hiring again. Only a lonely, bitter old man would fail to see this - his mind poisoned by his growing irrelevance in a world that's rapidly passing him by. How else to explain something like this bit of June 2010 commentary from the Dow Theory Letter's Richard Russell:
"Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt  and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him."
If you've been overdosing on shit like that since 2008, you can stop now. Richard Russell cannot hurt you anymore. His time has passed and his furtive scratching and clawing at our time can be safely ignored.
The next drop in the stock market is around the corner - perhaps it will be a garden variety 5% correction and perhaps something more in response to politics or last quarter's earnings. This is what you should expect. In fact, if your time horizon as an investor and an accumulator of financial assets is longer than ten years, it would be irrational for you to be rooting against that!Pray for it, you will need it.  And what you will see on this next dip is a change in behavior, in investor mentality. These sell-offs will be bought up gleefully and rapidly by those who've remained in the Fear Factory for too long. This can go on for quite awhile, especially should interest rates remain low. The investor class has favored bonds to stocks at a rate of 33 timesthese past five years - an imbalance like that takes a long time to correct.
The next crisis is already in the works - this is how things will always be but remember that their risks are our opportunities. And smile. Think of what you've been through thus far!
Welcome the new era - whatever it brings - as a former prisoner of the Fear Factory welcomes the first rays of sun on the outside of the wall.

Bravo Josh. Very well said.

We will get corrections from time to time, sometimes even 20% or more but that would be another shopping opportunity. We do not have to be long all the time but we do not have to be scared all the time as well. 

Happy long weekend friends.