If you've followed my youtube video forecasts, you know that on April 1, 2010 i forecasted inflections for last week (wk of April 12th) and for this week (wk of April 19th). This means that last week ended an uptrend and this week should exhibit a lower high and lower low than last week.
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Since this week is also a forecasted inflection, it means that we have a profitable whipsaw on tap, so next week (wk of April 26th) should show a higher high and higher low than this current week of April 19th. In other words, assuming the forecast is accurate, you can enter long virtually anyplace this week and exit profitably sometime next week- but try and pick the lowest spot this week to maximize gains.
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This simple forecasting method comes from the FLIR2 eBook, available at orangequant.com . The video forecast made April 1 is at youtube.com/orangequant .
Monday, April 19, 2010
Sunday, April 11, 2010
First Judgement $2.6 mil in Drywall Case
The first part of the video below details this bad China drywall judgement; the latter part is a BAC forecast (Bank of America). Watch Treasuries, guys, watch Treasuries. Opportunity calls.
Thursday, April 08, 2010
Something Wicked This Way Comes
Hear that sound? As the old song says:
"Stop, hey, what's that sound? Everybody look what's goin' down!"
-The Buffalo Springfield
Yesterday, Wednesday April 7, 2010, i heard that sound, the same sound i'd heard three years ago with the China Market Meltdown in late March 2007. Like the sound in a suspense movie just before the bad guy jumps out of the shadows and knifes somebody. Yea, that sound. In the video below i talk about that sound and what it was for me this time around. You may have heard it too-- or not-- or maybe soon you'll hear a different sound that means the same thing. But what sound am i talking about? Let me set the stage...
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The FOMC (Federal Open Markets Committee) has 12 members. Nearly all of them recently voted to keep interest rates the same, right? And the market loved that, right? So why the dickens did the market get all rattled yesterday (Dow dropped 100+ pts in two hours) when just one lone member said the Fed needs to raise the rate to 1%, and that's just an "accomodation" (i.e., we really need to raise it even higher)? Why? I mean, considering that this guy is 'way in the minority in that opinion, why did it spook the market so badly? Does the speaker, Kansas City Federal Reserve chief Dr. Thomas Hoenig, have some hidden superpowers that scare big traders and market movers? Probably not-- but he scared them just the same. And of course, he's absolutely right. But, unfortunately for him and a lot of ordinary people, he's being treated like a market Cassandra, ala Mr. Roger W. Babson of 1929 fame. What a shame.
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So the actual sound i heard was the Dow clattering its way down 100+ pts on news of very little practical significance. Just like the non-China markets shook and trembled for months after that China meltdown, on even the tiniest bit of bad news, even though their market fully recovered within 48 hours of the event. It was the sound of BIG people on edge. And we all know what started happening a few months later. And that's what yesterday's sound was- BIG people on edge about something.
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So as you watch this short video, remember that verse: "Stop, hey, what's that sound? Everybody look what's goin' down!"
And keep listening- there will be other sounds.
"Stop, hey, what's that sound? Everybody look what's goin' down!"
-The Buffalo Springfield
Yesterday, Wednesday April 7, 2010, i heard that sound, the same sound i'd heard three years ago with the China Market Meltdown in late March 2007. Like the sound in a suspense movie just before the bad guy jumps out of the shadows and knifes somebody. Yea, that sound. In the video below i talk about that sound and what it was for me this time around. You may have heard it too-- or not-- or maybe soon you'll hear a different sound that means the same thing. But what sound am i talking about? Let me set the stage...
.
The FOMC (Federal Open Markets Committee) has 12 members. Nearly all of them recently voted to keep interest rates the same, right? And the market loved that, right? So why the dickens did the market get all rattled yesterday (Dow dropped 100+ pts in two hours) when just one lone member said the Fed needs to raise the rate to 1%, and that's just an "accomodation" (i.e., we really need to raise it even higher)? Why? I mean, considering that this guy is 'way in the minority in that opinion, why did it spook the market so badly? Does the speaker, Kansas City Federal Reserve chief Dr. Thomas Hoenig, have some hidden superpowers that scare big traders and market movers? Probably not-- but he scared them just the same. And of course, he's absolutely right. But, unfortunately for him and a lot of ordinary people, he's being treated like a market Cassandra, ala Mr. Roger W. Babson of 1929 fame. What a shame.
.
So the actual sound i heard was the Dow clattering its way down 100+ pts on news of very little practical significance. Just like the non-China markets shook and trembled for months after that China meltdown, on even the tiniest bit of bad news, even though their market fully recovered within 48 hours of the event. It was the sound of BIG people on edge. And we all know what started happening a few months later. And that's what yesterday's sound was- BIG people on edge about something.
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So as you watch this short video, remember that verse: "Stop, hey, what's that sound? Everybody look what's goin' down!"
And keep listening- there will be other sounds.
Tuesday, April 06, 2010
Chinese Drywall Stink Fouls Markets
I'm really going to try to blog here more often-- been mostly doing SPY forecasts at youtube. But this Chinese drywall issue needs to be better understood by all of us retail traders, myself included. The current story has got little traction with mainstream media-- yahoo finance is where i saw it last Friday, then it sunk slowly down the list of stories and just faded away... the main drywall story is old news-- but last Friday's development should be HOT news, and i mean HOT HOT HOT....
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In brief, the U.S. Consumer Product Safety Commission (CPSC) issued a report last Friday saying that ALL the bad drywall must come out, as it poses a safety hazard (they only rule on safety, not health issues- that's maybe the EPA?). This means that between 100,000-200,000 homes must be gutted, the drywall replaced, the wiring gutted and replaced, gas lines gutted and replaced, plumbing fixtures replaced, smoke alarms replaced, and A/C possibly replaced..... cost is estimated at about $100,000 per home. Getting the picture? This is HUGE. Who is going to pay? And that $100k per house doesn't even cover potential liability for injury to health, inconvenience, other losses, or punitive damages, or damages to appliances and electronics (devastating to computers).
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So i began looking for short targets. And doing some reasoning. About 30 seconds into the embedded video below (made friday night) i forecasted that China would start dumping Treasuries in order to pay off the drywall overhang-- whether they did or not on Monday is an open question, but something sure spooked the T-bond market into a hard gapdown Monday (see TLT or IEF charts, or watch my video at this link: China Dumps T-Bills on Drywall Overhang?). So i'm on track to comprehending the implications, i guess.
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(More of this post below the video)
Now comes the monkeywrench. In the above video, i say watch banks, homebuilders, and insurance companies, because they're all potentially liable for the $100k per house pricetag. So monday they all pretty much went up, leaving me wondering what kind of fakeout crap this might be. Bottom line, i began to run some FLIR2 synthetic trendlines and h2o5 on BZH and it does look like it could run up some thru April, but then may face a massive downside. On researching various insurers, i came up with Allstate (ALL:nyse) as the only major insurer with significant exposure (might be others) and sure enough, today it began to slip after yesterday's fakeout. But, in truth, with all the cross-bets and CDSs (credit default swaps) of these clowns, i expect them all to take a major hit as the spring and summer wear on, including the banks and homebuilders.
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In the whole mess, i think the homebuilders may fare the best, i.e., lose the least, because they'll be paid to fix all that crap. USG (United States Gypsum) actually looks pretty good on synthetics, so (ironically) they may be expecting to recover most of their damages outlay from China, even though their monday fakeout was exposed today by a sharp downturn.. And China has no choice but to pay for the rehabs-- because if they don't, then the USA has an excuse to default on at least part of its debt to China. See what i mean?- this whole thing is monkeywrenches tied up in knots with wet bubblegum.
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So, it seems to me, it all boils down to this---- ALL is cooked; Treasuries are french-fried; homebuilders are roasted after April; and USG should be scalded but gets away with only first-degree burns. Why do i say USG "should" get scalded? because they (apparently) relabeled Chinese drywall as their own, as apparently did National Gypsum (NGCO:AB, Saudi Arabia Exchange). I think the most reliable plays will be shorts/puts on t-bill ETFs-- a bit tricky because China won't dump all at once but in stages of dumps with small bounces to suck in retailers. So i'd place puts some distance out (in time) 'til dumping's over. I'm also about to run FLIR2 on some charts for Home Depot, Lowes, Builders Square, etc.--- these may have some legal exposure but might also actually profit in the long run from this fiasco.
p.s.-- no matter where you live in USA, you may have bad drywall. see a lawyer. SYMPTOMS: rotten-egg smell, or ammonia smell (or like cat urine), or sweetish smell-- these odors may "disappear" due to olfactory fatigue after a few minutes; may not even be noticeable in low-humidity regions, but try to notice after showering or after cooking/boiling something; black deposits on wiring or inside smoke alarms or on A/C coils; respiratory or sinus symptoms may indicate bad drywall- in some dry states, this is the only symptom. HOME TEST: crumble some drywall into a large jar, sprinkle a few drops of water to create humidity (not to soak it), drop in a shiny copper penny, cap jar and set in sunlight for two weeks. If penny corrodes or turns black, you got bad stuff. If still shiny, it's good stuff. NOTE: your builder or remodeler may have used drywall from more than one supplier, so a "good" test is not necessarily definitive.
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In brief, the U.S. Consumer Product Safety Commission (CPSC) issued a report last Friday saying that ALL the bad drywall must come out, as it poses a safety hazard (they only rule on safety, not health issues- that's maybe the EPA?). This means that between 100,000-200,000 homes must be gutted, the drywall replaced, the wiring gutted and replaced, gas lines gutted and replaced, plumbing fixtures replaced, smoke alarms replaced, and A/C possibly replaced..... cost is estimated at about $100,000 per home. Getting the picture? This is HUGE. Who is going to pay? And that $100k per house doesn't even cover potential liability for injury to health, inconvenience, other losses, or punitive damages, or damages to appliances and electronics (devastating to computers).
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So i began looking for short targets. And doing some reasoning. About 30 seconds into the embedded video below (made friday night) i forecasted that China would start dumping Treasuries in order to pay off the drywall overhang-- whether they did or not on Monday is an open question, but something sure spooked the T-bond market into a hard gapdown Monday (see TLT or IEF charts, or watch my video at this link: China Dumps T-Bills on Drywall Overhang?). So i'm on track to comprehending the implications, i guess.
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(More of this post below the video)
Now comes the monkeywrench. In the above video, i say watch banks, homebuilders, and insurance companies, because they're all potentially liable for the $100k per house pricetag. So monday they all pretty much went up, leaving me wondering what kind of fakeout crap this might be. Bottom line, i began to run some FLIR2 synthetic trendlines and h2o5 on BZH and it does look like it could run up some thru April, but then may face a massive downside. On researching various insurers, i came up with Allstate (ALL:nyse) as the only major insurer with significant exposure (might be others) and sure enough, today it began to slip after yesterday's fakeout. But, in truth, with all the cross-bets and CDSs (credit default swaps) of these clowns, i expect them all to take a major hit as the spring and summer wear on, including the banks and homebuilders.
.
In the whole mess, i think the homebuilders may fare the best, i.e., lose the least, because they'll be paid to fix all that crap. USG (United States Gypsum) actually looks pretty good on synthetics, so (ironically) they may be expecting to recover most of their damages outlay from China, even though their monday fakeout was exposed today by a sharp downturn.. And China has no choice but to pay for the rehabs-- because if they don't, then the USA has an excuse to default on at least part of its debt to China. See what i mean?- this whole thing is monkeywrenches tied up in knots with wet bubblegum.
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So, it seems to me, it all boils down to this---- ALL is cooked; Treasuries are french-fried; homebuilders are roasted after April; and USG should be scalded but gets away with only first-degree burns. Why do i say USG "should" get scalded? because they (apparently) relabeled Chinese drywall as their own, as apparently did National Gypsum (NGCO:AB, Saudi Arabia Exchange). I think the most reliable plays will be shorts/puts on t-bill ETFs-- a bit tricky because China won't dump all at once but in stages of dumps with small bounces to suck in retailers. So i'd place puts some distance out (in time) 'til dumping's over. I'm also about to run FLIR2 on some charts for Home Depot, Lowes, Builders Square, etc.--- these may have some legal exposure but might also actually profit in the long run from this fiasco.
p.s.-- no matter where you live in USA, you may have bad drywall. see a lawyer. SYMPTOMS: rotten-egg smell, or ammonia smell (or like cat urine), or sweetish smell-- these odors may "disappear" due to olfactory fatigue after a few minutes; may not even be noticeable in low-humidity regions, but try to notice after showering or after cooking/boiling something; black deposits on wiring or inside smoke alarms or on A/C coils; respiratory or sinus symptoms may indicate bad drywall- in some dry states, this is the only symptom. HOME TEST: crumble some drywall into a large jar, sprinkle a few drops of water to create humidity (not to soak it), drop in a shiny copper penny, cap jar and set in sunlight for two weeks. If penny corrodes or turns black, you got bad stuff. If still shiny, it's good stuff. NOTE: your builder or remodeler may have used drywall from more than one supplier, so a "good" test is not necessarily definitive.
Tuesday, February 16, 2010
Forecasting with h2o5
FLIR2 contains about four relatively simple methods for forecasting future inflections (synthetic trendlines, tau/iota valuation, h2o5, and FLIR1), as well as assorted trading strategies, and methods for determining support/resistance and trends. It's 118 pages plus a large appendix, more than 25,000 simple words, 70 charts and illustrations, is fully printable, includes as appendices one simple tutorial on using spreadsheets and one on using msPaint. It also contains TOS code (thinkorswim) for implementing h2o5 and its histograph. Literally, a 10-year-old could use this stuff. orangequant.com
.today, i want to talk about one issue using h2o5. no, i'm not going to show how h2o5 is derived- that info is in the FLIR2 eBook. this post mainly helps those who already have the book. but it also shows others how easy it is to use h2o5 (Hudson 2nd-order Oscillator).
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the issue i want to address is accuracy. the longer your trendlines on h2o5, the stronger the inflection might be. the shorter your trendlines on h2o5, the more accurate your forecast. this is a purely mechanical issue- not a data issue or system failure. later, i plan to blog a trig function method to reduce such error and an AUTOMATIC calculator so you won't have to know anything about trigonometry to use it. alright, here's the problem: when drawing a line from Point A to Point B, your mechanical skills are much less important to accuracy if Line AB is very short than if Line AB is very long. in other words, a couple degrees of error on a pair of short intersecting lines hardly makes any difference; but the longer the lines are, the more that error gets magnified. this can result in forecasting the wrong date or time of inflection. here's an example:
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As you can see above, the slight difference in alignment of the dark blue trendline gives you an inflection that will be off by at least one period compared to the other intersect. So you could be off a day, an hour, a week, or a month, depending on your chart's timeframe. the best remedy for this, since you know the exact values of A,B,C,D, is algebra or trigonometry. but that's 'way too much for most people. so, as i said, i'll soon be doing a blog on how to use an automatic calculator to find the exact intersects. meanwhile, the best solution is consistency in your drawing habits, i.e., always draw right through ABCD or always just above. then backtest your method--- it should show consistent accuracy, or it should show consistent delay or advance and you would factor that in.
SPY (S&P 500) Forecasting
Been a long time since last post, huh? Time passes faster than we know.
I plan to start doing some occasional "extra comments" here on my forecasting videos. I've been doing regular SPY forecast videos for some time now, achieving about 85% overall accuracy. I focus on calling INFLECTIONS, rather than price values, though my new FLIR2 system also allows price forecasting (Forward Looking Information Radar). Links are as follows:
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the FLIR2 eBook orangequant.com (very simple methods for forecasting inflections for any stock or forex or commodity, etc.), also has current forecast videos.
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forecasts at youtube (current and past): youtube.com/orangequant (so you can verify by timestamp).
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a recent forecast:
I plan to start doing some occasional "extra comments" here on my forecasting videos. I've been doing regular SPY forecast videos for some time now, achieving about 85% overall accuracy. I focus on calling INFLECTIONS, rather than price values, though my new FLIR2 system also allows price forecasting (Forward Looking Information Radar). Links are as follows:
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the FLIR2 eBook orangequant.com (very simple methods for forecasting inflections for any stock or forex or commodity, etc.), also has current forecast videos.
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forecasts at youtube (current and past): youtube.com/orangequant (so you can verify by timestamp).
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a recent forecast:
The above is a forecast for SPY for the week of Feb. 8, 2010. A lot of people made a lot of money on this one forecast. FLIR2 is used to forecast inflections days, weeks, months, or just minutes away (yes, i've used it for daytrading too on intraday inflections). I do this SPY forecasting partly as a public service but mainly as a way to promote the FLIR2 eBook. As of this writing, I still offer it at just $18.95, though i'm seriously considering raising it a lot. I might as well blog that issue here and now, just to get it off my chest...
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Back in the day, before the internet came along, you had relatively limited choices when trying to buy the best book in your subject area. You could read reviews in newspapers to help you make up your mind. And, book prices were set by publishers who had a reasonable idea of the value of the book's information. But now, EVERYBODY and their GRANDMOTHER is a publisher, prices often get set according to whim, and you can't possibly read all the reviews that are out there (besides which, the publisher of the review might not be trustworthy). So you often find yourself kind of stuck as to what to buy for your needs.
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Internet eBook publishers are aware of these factors and one other: they know that the higher priced an item is, the greater its "perceived" value. A higher perceived value might translate into more sales, providing that extra something to tip the scales. But there's a limit. A potential customer may say, "Yeah, that eBook's probably worth every penny of that $195.00 pricetag, but I'm not taking a chance to find out." On the other hand, if price is too low, people think the item's not all that good to begin with.
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So, like other publishers, i struggle with these issues too. I call it "finding the middle ground between affordable risk and true value". But i have an edge which other trading eBook publishers either can't or won't use: i do actual forecasts with FLIR2, and that SHOWS true value. just google around for "stock forecast" and you'll see that real forecasting is rare as cabbages on the moon. with FLIR2, i call INFLECTIONS well in advance. nobody else does that. instead, forecasting systems you see out there talk about their success rate, give a lot of testimonials, but somehow none of it is ever actually checkable (that's why i use youtube, as a way for you to see timestamps, or you can just subscribe to the channel and know that way).
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Anyway, i'm at the point where i've proven the value of the FLIR2 eBook and it's time to raise the price because, for one thing, it's driving me nuts and, for another, it's causing people to underestimate its true value. the methods in there are easy to set up- really, a 10-year-old could do this. so now i'm thinking $39.95 or thereabouts.
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okay, that ends my little intro to this new phase of my blog. now you know why i'm here, what i'm doing, and what you can do about it. NEXT BLOG: "Forecasting with h2o5".
Saturday, January 17, 2009
The Hartford: The Next Nail in HIG's Coffin
A short blog here.
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i've been doing some more reading and sentiment sampling on HIG over at yahoo boards. man, those folks really hate shorters! but that doesn't bother me and, btw, i am still holding HIG puts... from my examination over several hours (i don't usually hang out on yahoo), it seems that, besides the conspiracy theories i mentioned in the previous blog, folks in particular just don't understand why HIG tanked so hard this past week.
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so let me explain- my version anyway. for HIG, it's all about retail. their overweight investment in commercial mortgage backed securities, whether directly as cmbs or as cds (credit default swaps), makes them HIGhly sensitive to retail sector weakness because so much of their paper is tied to whether or not retailers will or will not default. (hope you liked my little play on words- "HIGhly").
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so, very simply, what happened was, when the December retail sales numbers came out, the big institutional traders saw catastrophe on the horizon and began shedding HIG shares at warp speed... since then, of course, cooler heads have prevailed, but only for the time being and probably only under considerable duress from those who fear a HIG meltdown could take down the whole market. i'm speculating about the "duress" thing, but it seems likely to me that the so-called "plunge protection team" (PPT) must have collared a couple big institutional players and promised to backstop them if they played along. and so they did. for now.
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up next, this thursday 1/22/09, is the housing starts report for December. actually, that's not expected to be too bad. but if worse than expected, HIG will take another hit because this implies that people still aren't buying new houses, and they aren't buying new houses because they haven't got any money, and if they still haven't got any money they'll spend even less in the retail sector this month than last, and, well... connect the dots.
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adding fat to this fire is the Circuit City (CC) debacle, with them announcing friday just five minutes after the closing bell that they're totally closing up shop and will be liquidating about $1.8 billion in inventory over the next few months.
http://biz.yahoo.com/ap/090116/circuit_city_bankruptcy.html
adding yet more fat to this fire was this week's BK announcements from Goody's and Gottschalk's. in each of these cases, there are two very serious consequences for CMBS and CDS holders.
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first, it means these chains will by definition default on their leases, and in turn the property owners will increasingly default on their mortgage notes, triggering massive demands against the CDS holders, and greatly reducing (or largely even eliminating) cash flow for CMBS holders. second- and to look at Best Buy's (BBY) 8.11% gain friday you might doubt this-- it will mean heavy liquidity pressure on competing stores. why? because as places like CC, Goody's, and Gottschalk's begin unloading existing inventory at fire-sale prices, their former competitors will have to cut prices too or suffer a long sales drought. so competitors' earnings will go down. BBY's friday gain was just an emotional reaction to CC going under. the market will soon wake up. and, as competitors' liquidity dries up, they will begin to be late on their lease payments, and some will out and out default, and that kind of stuff hits HIG hard again.
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so i'm hanging onto my HIG puts, and when they expire, i'll get more. actually, though, this coming week kinda scares me because i think the market makers have set up a massive fakeout on HIG, running it up to kill the shorts and puts before dropping it like a rock the following week.
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i've been doing some more reading and sentiment sampling on HIG over at yahoo boards. man, those folks really hate shorters! but that doesn't bother me and, btw, i am still holding HIG puts... from my examination over several hours (i don't usually hang out on yahoo), it seems that, besides the conspiracy theories i mentioned in the previous blog, folks in particular just don't understand why HIG tanked so hard this past week.
-------------------
so let me explain- my version anyway. for HIG, it's all about retail. their overweight investment in commercial mortgage backed securities, whether directly as cmbs or as cds (credit default swaps), makes them HIGhly sensitive to retail sector weakness because so much of their paper is tied to whether or not retailers will or will not default. (hope you liked my little play on words- "HIGhly").
-----------------------------
so, very simply, what happened was, when the December retail sales numbers came out, the big institutional traders saw catastrophe on the horizon and began shedding HIG shares at warp speed... since then, of course, cooler heads have prevailed, but only for the time being and probably only under considerable duress from those who fear a HIG meltdown could take down the whole market. i'm speculating about the "duress" thing, but it seems likely to me that the so-called "plunge protection team" (PPT) must have collared a couple big institutional players and promised to backstop them if they played along. and so they did. for now.
-----------------------------
up next, this thursday 1/22/09, is the housing starts report for December. actually, that's not expected to be too bad. but if worse than expected, HIG will take another hit because this implies that people still aren't buying new houses, and they aren't buying new houses because they haven't got any money, and if they still haven't got any money they'll spend even less in the retail sector this month than last, and, well... connect the dots.
-----------------------------
adding fat to this fire is the Circuit City (CC) debacle, with them announcing friday just five minutes after the closing bell that they're totally closing up shop and will be liquidating about $1.8 billion in inventory over the next few months.
http://biz.yahoo.com/ap/090116/circuit_city_bankruptcy.html
adding yet more fat to this fire was this week's BK announcements from Goody's and Gottschalk's. in each of these cases, there are two very serious consequences for CMBS and CDS holders.
------------------------------
first, it means these chains will by definition default on their leases, and in turn the property owners will increasingly default on their mortgage notes, triggering massive demands against the CDS holders, and greatly reducing (or largely even eliminating) cash flow for CMBS holders. second- and to look at Best Buy's (BBY) 8.11% gain friday you might doubt this-- it will mean heavy liquidity pressure on competing stores. why? because as places like CC, Goody's, and Gottschalk's begin unloading existing inventory at fire-sale prices, their former competitors will have to cut prices too or suffer a long sales drought. so competitors' earnings will go down. BBY's friday gain was just an emotional reaction to CC going under. the market will soon wake up. and, as competitors' liquidity dries up, they will begin to be late on their lease payments, and some will out and out default, and that kind of stuff hits HIG hard again.
------------------------------
so i'm hanging onto my HIG puts, and when they expire, i'll get more. actually, though, this coming week kinda scares me because i think the market makers have set up a massive fakeout on HIG, running it up to kill the shorts and puts before dropping it like a rock the following week.
Friday, January 16, 2009
The Hartford: The Truth About HIG
i don't want to make the people who've lately lost money in HIG feel bad. in fact, i'm hoping this will make them feel better by understanding what's really happening with HIG.
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tonight i was on yahoo message boards and that's what's sparked this latest blog. i saw people screaming and complaining about daytraders and shorters and how they're killing HIG. like it was all some dark conspiracy... gimme a break! you can't down a company this size with some lightweight pinksheet-style attack. yes, once blood is in the water, the sharks do come out-- but first, blood has to be in the water!
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so here's the deal. HIG was not brought down by a conspiracy of daytraders and shorters. HIG was not brought down by lifting the one-tick rule. HIG was brought down by some very bad bets its management made. they not only insured against a ton of defaults on commercial mortgages, but they did this with terrific leverage, which on one hand meant it could make a lot more profit with a lot less cash reserve, but on the other hand meant that if those bets went wrong, it could wipe HIG out in a hurry. and now, those bets have gone very, very bad indeed. an example is helpful....
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once upon a time, there was a savvy entrepreneur named janie. janie noticed that stores and factories near her sometimes couldn't make the payments on their lands and buildings, and sometimes they even went out of business. she learned that this is called a "credit default". janie began to wonder how the banks could stand it! it didn't happen that often and this gave janie an idea.
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so she went to a couple banks and said, "i will insure you against these defaults and you just pay me a premium for doing so." and the banks agreed. and janie started making money because she had calculated carefully how often defaults happen. her business grew and grew. but not fast enough for janie! janie noticed that there was soooo much market and she had soooo little cash to back her bets.
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so janie went to the state and feds and said, "hey, you can see my risk is very low in this business and these people really need the insurance, so how about you allow me to sell 'way more insurance than i've got cash to cover?" and the state and feds said, "okay." and thus began the leveraging. pretty soon, janie was making money hand over fist, and she went back and got permission for more and more leveraging. and she prospered mightily and even issued stock and bonds.
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then one day, people stopped shopping so much, and the malls and stores and factories began to default pretty fast. at last, one morning, janie woke up and found all these bankers and bondholders at her door with their hands out. "alas!" she cried, "i'm almost out of money--- i'm down to my last $500 million in reserves!" and right about this time the Big People who knew her company's condition began selling off janie's stock. and then there was great blood in the water, and pretty soon the sharks came along and made matters even worse.... and that's the basic story of HIG. not dark and conspiratorial, just plain bad judgement.
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disclosure: yep, i'm deep into HIG puts.
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tonight i was on yahoo message boards and that's what's sparked this latest blog. i saw people screaming and complaining about daytraders and shorters and how they're killing HIG. like it was all some dark conspiracy... gimme a break! you can't down a company this size with some lightweight pinksheet-style attack. yes, once blood is in the water, the sharks do come out-- but first, blood has to be in the water!
.....
so here's the deal. HIG was not brought down by a conspiracy of daytraders and shorters. HIG was not brought down by lifting the one-tick rule. HIG was brought down by some very bad bets its management made. they not only insured against a ton of defaults on commercial mortgages, but they did this with terrific leverage, which on one hand meant it could make a lot more profit with a lot less cash reserve, but on the other hand meant that if those bets went wrong, it could wipe HIG out in a hurry. and now, those bets have gone very, very bad indeed. an example is helpful....
.....
once upon a time, there was a savvy entrepreneur named janie. janie noticed that stores and factories near her sometimes couldn't make the payments on their lands and buildings, and sometimes they even went out of business. she learned that this is called a "credit default". janie began to wonder how the banks could stand it! it didn't happen that often and this gave janie an idea.
.....
so she went to a couple banks and said, "i will insure you against these defaults and you just pay me a premium for doing so." and the banks agreed. and janie started making money because she had calculated carefully how often defaults happen. her business grew and grew. but not fast enough for janie! janie noticed that there was soooo much market and she had soooo little cash to back her bets.
.....
so janie went to the state and feds and said, "hey, you can see my risk is very low in this business and these people really need the insurance, so how about you allow me to sell 'way more insurance than i've got cash to cover?" and the state and feds said, "okay." and thus began the leveraging. pretty soon, janie was making money hand over fist, and she went back and got permission for more and more leveraging. and she prospered mightily and even issued stock and bonds.
.....
then one day, people stopped shopping so much, and the malls and stores and factories began to default pretty fast. at last, one morning, janie woke up and found all these bankers and bondholders at her door with their hands out. "alas!" she cried, "i'm almost out of money--- i'm down to my last $500 million in reserves!" and right about this time the Big People who knew her company's condition began selling off janie's stock. and then there was great blood in the water, and pretty soon the sharks came along and made matters even worse.... and that's the basic story of HIG. not dark and conspiratorial, just plain bad judgement.
....
disclosure: yep, i'm deep into HIG puts.
Saturday, December 20, 2008
Dow is Not Going Up. Dow is Never Going Up.
For several days now, i've been confronted with a disturbing possibility, i.e., that the DOW might presently begin a strong and steady recovery. That notion conflicts with my basic bearish disposition-- my friends over at http://www.topguntrading.net/ have lately taken to calling me mean-spirited names like permabear, deservedly so, i suppose, though i insist that this is not a personality defect of mine, but rather a logic-based predisposition.
------------------
Don't get me wrong-- that forum is by no means a bunch of market pollyannas-- it's pretty much high-class tech and quant traders who know their business. As such, the whole place is mined with tripwires to detect the slightest indication of market movements, and lately more of those indications have been turning up. I've steadfastly managed to ignore most of these signals but the other day i was browsing my copy of Futures Magazine and came across this--
http://www.futuresmag.com/cms/futures/monthly%20issues/Issues/2008/12/Editorial/Markets/Markets-Tech%20talk
And what that is, exactly, is a strange chart and brief discussion of DOW outlook using the CPO (Cycles Project Oscillator), which seems in the past to have been devastatingly accurate. And what it says, exactly, is...
"...The CPO indicates that the stock market decline is ending and the Dow will start a move that should take it up to the 12000 area by mid summer of 2009..."
--------------------
So my problem is that i'm a quant, and when i see quantish stuff i'm inclined to pay attention and this one had me absolutely spooked for a couple days. The measure of my annoyance was in exact proportion to my confidence level in reliable quants like this one. Go peek at that chart and you'll understand.
--------------------
But, having had a few days to digest it, along with everything else, i'm back to my permabear den. Logically, yes, this quant is true. Logically, yes, my topgun associates' assessments are true when they argue that current and planned massive government capital injections (printing press economics), along with a falling dollar, are going to result in massive inflation and powerful equities runups. Based on historical performance, the CPO chart is true. So, it is all true. So now what's my problem?
------------------------------
Since you ask, my problem now is that truth isn't always reality. It is true that the thermometer outside my New Mexico home registers a freezing temperature, but it is false to assume that last night's snowfall will survive past lunchtime in the desert sun. It is true that the Titanic can survive virtually anything short of a direct hit from a gigantic glacier, but it is false to assume that it will never find one.
------------------------------
You see where i'm going with this? Yup. Black Swan theory. Just because you've never seen a black swan doesn't mean there isn't one out there someplace, just waiting for you to meet up with it in the time continuum. And what we have right now is a technical bias to the upside and it's a perfect recipe for a blindside by a black swan. We are believing our charts and one economic fundamental: enhanced money supply produces higher equity prices.
------------------------------
Now listen to me. What we've got here is a huge pile of explosive crap. But we're sprinkling water on it to prevent sparks. So we religiously believe we've got this thing under control, that all those commercial mortgage credit default swaps, residential prime mortgages about to recast and reset and therefore default and ruin a couple more big banks and wipe out a couple big insurance companies holding the credit default swaps on them, impending credit card defaults, and steadily declining real estate values-- all of that-- is going to be cured by capital injections and fed rate cuts. It therefore cannot explode. And the DOW will therefore go up. Horseradish!!
-----------------------------------
Risk is not just a measure of probability, it's the combination of probability+consequence.
------------------
Don't get me wrong-- that forum is by no means a bunch of market pollyannas-- it's pretty much high-class tech and quant traders who know their business. As such, the whole place is mined with tripwires to detect the slightest indication of market movements, and lately more of those indications have been turning up. I've steadfastly managed to ignore most of these signals but the other day i was browsing my copy of Futures Magazine and came across this--
http://www.futuresmag.com/cms/futures/monthly%20issues/Issues/2008/12/Editorial/Markets/Markets-Tech%20talk
And what that is, exactly, is a strange chart and brief discussion of DOW outlook using the CPO (Cycles Project Oscillator), which seems in the past to have been devastatingly accurate. And what it says, exactly, is...
"...The CPO indicates that the stock market decline is ending and the Dow will start a move that should take it up to the 12000 area by mid summer of 2009..."
--------------------
So my problem is that i'm a quant, and when i see quantish stuff i'm inclined to pay attention and this one had me absolutely spooked for a couple days. The measure of my annoyance was in exact proportion to my confidence level in reliable quants like this one. Go peek at that chart and you'll understand.
--------------------
But, having had a few days to digest it, along with everything else, i'm back to my permabear den. Logically, yes, this quant is true. Logically, yes, my topgun associates' assessments are true when they argue that current and planned massive government capital injections (printing press economics), along with a falling dollar, are going to result in massive inflation and powerful equities runups. Based on historical performance, the CPO chart is true. So, it is all true. So now what's my problem?
------------------------------
Since you ask, my problem now is that truth isn't always reality. It is true that the thermometer outside my New Mexico home registers a freezing temperature, but it is false to assume that last night's snowfall will survive past lunchtime in the desert sun. It is true that the Titanic can survive virtually anything short of a direct hit from a gigantic glacier, but it is false to assume that it will never find one.
------------------------------
You see where i'm going with this? Yup. Black Swan theory. Just because you've never seen a black swan doesn't mean there isn't one out there someplace, just waiting for you to meet up with it in the time continuum. And what we have right now is a technical bias to the upside and it's a perfect recipe for a blindside by a black swan. We are believing our charts and one economic fundamental: enhanced money supply produces higher equity prices.
------------------------------
Now listen to me. What we've got here is a huge pile of explosive crap. But we're sprinkling water on it to prevent sparks. So we religiously believe we've got this thing under control, that all those commercial mortgage credit default swaps, residential prime mortgages about to recast and reset and therefore default and ruin a couple more big banks and wipe out a couple big insurance companies holding the credit default swaps on them, impending credit card defaults, and steadily declining real estate values-- all of that-- is going to be cured by capital injections and fed rate cuts. It therefore cannot explode. And the DOW will therefore go up. Horseradish!!
-----------------------------------
Risk is not just a measure of probability, it's the combination of probability+consequence.
Tuesday, December 12, 2006
NUVO and So-Called "Analysts"
i haven't blogged in a bit but this deserves a special blog. monday NUVO crashed 80% on failed FDA test results of its new drug (and there are good fixes for the failure but that's another story). Bayer has been partnering with this outfit.
IMMEDIATELY wall street's so-called "analysts" pounced and they've been at it all day today too. it's absolute proof you can't trust what these jackasses say. they now have a target price of only $3 but it's been holding $4-4.49 all stinking day in spite of 'em. fools. absolute fools. traders are getting 'way more savvy than they used to be and they've learned not to trust these wall street clowns who get paid to bash. disclosure before i forget: yeah i'm in this stock.
there's word on the wires of a merger or buyout. could be Bayer even tho they said they're backing out of collaboration by early 2007. could be anybody. but SOMEBODY had paid these wall street bashers to do a number on NUVO. here's the bit that any six-year-old could figure out: BEFORE the new drug pr's started coming out, Nuvelo Pharmaceuticals (NUVO nasdaq) was trading at abt $7.50-8.00 . so it makes sense that even if the drug is totally wiped out (which it ain't) the new target should be abt $7.50, right? but the jackass "experts" have downgraded target to $3 ??? these people get paid to do this stuff- NEVER TRUST THEM!!!!!! i'm not saying buy this stock- it takes 'way more guts than most players have- and for good reason. i'm just saying never trust the so-called "experts".
IMMEDIATELY wall street's so-called "analysts" pounced and they've been at it all day today too. it's absolute proof you can't trust what these jackasses say. they now have a target price of only $3 but it's been holding $4-4.49 all stinking day in spite of 'em. fools. absolute fools. traders are getting 'way more savvy than they used to be and they've learned not to trust these wall street clowns who get paid to bash. disclosure before i forget: yeah i'm in this stock.
there's word on the wires of a merger or buyout. could be Bayer even tho they said they're backing out of collaboration by early 2007. could be anybody. but SOMEBODY had paid these wall street bashers to do a number on NUVO. here's the bit that any six-year-old could figure out: BEFORE the new drug pr's started coming out, Nuvelo Pharmaceuticals (NUVO nasdaq) was trading at abt $7.50-8.00 . so it makes sense that even if the drug is totally wiped out (which it ain't) the new target should be abt $7.50, right? but the jackass "experts" have downgraded target to $3 ??? these people get paid to do this stuff- NEVER TRUST THEM!!!!!! i'm not saying buy this stock- it takes 'way more guts than most players have- and for good reason. i'm just saying never trust the so-called "experts".
Thursday, November 09, 2006
HYPR Bankruptcy Play?
i am not recommending this play unless you're REALLY good with charts. HYPR just announced (nov. 9, 2006, abt 5pm) it's filing bankruptcy. this is not a quant thing right now- it's more of a t/a play with a 15-min chart. "Q's" often bounce and this one might too. since they haven't yet actually filed, i don't know if friday it'll be HYPR or HYPRQ.
Stick Around
yeah, stick around. i'm watching one. when it gets ripe i'll holler. check in over the weekend- it may be ripe by then.
now i want to go off topic a bit. here and there you may have noticed my links to my quant website whattolearn.com. well, last night i found out, to my great anger, that my so-called hosting service was screwing up again and my site was "site unavailable". the hosting service was vizaweb.com. i am now with another server. a word to the wise if you're putting up a website: never ever trust vizaweb.com. they lied to me about a "compensation plan" for their downtime but never came through. and now i can't even reach their site.
Monday, November 06, 2006
TD Ameritrade Haemorrhaging Customer Base
td ameritrade (AMTD) shares have slipped from an early october high near $20 to near $16 today, as traders express disgust over tda's recent policy of not allowing buys to go thru on certain stocks. it is widely believed that tda has heavy short positions in certain stocks (including SSSU and TDCP) and is attempting to manipulate prices downwards for their own benefit, to the disadvantage of their own customers. some flavour of the growing tempest can be seen here where traders are pulling out of tda en masse...
Saturday, November 04, 2006
Quant Verified Again
DRGV. yup, HOD dropped from .064 thurs to .060 friday. i think dip would've been even bigger if i hadn't posted abt it here and on a forum. quant picks are easily messed with is why i rarely post them. please note that my post on this (just previous) was at 4:24 a.m. friday, 'way before mkt open.
Friday, November 03, 2006
i don't like sharing picks, especially quant picks because quant is like a rare orchid- very sensitive to light. it's a stalking tool, a sniper thing. that said, looks like this one going down some today (friday nov 3 2006). don't know if it's shortable (might be a pink) but if this quant picture is true then is good for short early or for long once it bottoms...
Quotetracker Picked Up By TD Ameritrade
here's a tidbit to munch on... on Sept 29 2006 td ameritrade through its subsidiary T2 API Technologies, LLC acquired the medved quotetracker program.
hmmm- too soon to read the tea leaves but if recent experience with tda is any guide we should all be expecting quotetracker to go from free to astronomical in no time. the qt site still looks the same except for the tda watermark stains here and there, and LOL the fact that they've disabled all links to other brokers.
for those who didn't know, qt is a free streaming quotes and L2 program that you hook up to your broker's feed.
hmmm- too soon to read the tea leaves but if recent experience with tda is any guide we should all be expecting quotetracker to go from free to astronomical in no time. the qt site still looks the same except for the tda watermark stains here and there, and LOL the fact that they've disabled all links to other brokers.
for those who didn't know, qt is a free streaming quotes and L2 program that you hook up to your broker's feed.
Thursday, November 02, 2006
Td Ameritrade Saga Continued
ROFL, i'm slowly piecing this together and in a way it gets funnier by the minute...
it now appears that i'm one of a select group (LOL) of ppl who had something to do with the recent TDA debacle over sssu, even though i don't hold any sssu. let me explain... someone who'd been away from the marketmillionaires tdcp thread for awhile sent me a pm asking what the heck was going on with tdcp. i wrote him back with this...
while you were gone something interesting came up: we were trying to figure out how to stop our brokers from using our own shares to short us and stop them from loaning our shares to mm's to short us. so LOL
catfish says, "Hey, if you put a limit sell on your shares they can't do anything with 'em." so ppl did, with ridiculous limit sells like $75 etc. 
and then we forgot abt it. well, it looks like the news spread and it really killed td ameritrade's action. so td ameritrade decides to restrict buys based on supposedly "questionable practices" of tdcp- hahaha. so now you know the story. cracks me up!!
so okay, hehehe- what obviously happened was that this whole thing spread like wildfire all over the boards and folks started putting all their other stocks on limit sell because very soon after Scottrade, e-Trade and others started in with the same "buy restrictions- sell only" monkeybusiness as stupid Td Ameritrade. ain't the internet just wunnerful?!!
it now appears that i'm one of a select group (LOL) of ppl who had something to do with the recent TDA debacle over sssu, even though i don't hold any sssu. let me explain... someone who'd been away from the marketmillionaires tdcp thread for awhile sent me a pm asking what the heck was going on with tdcp. i wrote him back with this...
while you were gone something interesting came up: we were trying to figure out how to stop our brokers from using our own shares to short us and stop them from loaning our shares to mm's to short us. so LOL
catfish says, "Hey, if you put a limit sell on your shares they can't do anything with 'em." so ppl did, with ridiculous limit sells like $75 etc. and then we forgot abt it. well, it looks like the news spread and it really killed td ameritrade's action. so td ameritrade decides to restrict buys based on supposedly "questionable practices" of tdcp- hahaha. so now you know the story. cracks me up!!so okay, hehehe- what obviously happened was that this whole thing spread like wildfire all over the boards and folks started putting all their other stocks on limit sell because very soon after Scottrade, e-Trade and others started in with the same "buy restrictions- sell only" monkeybusiness as stupid Td Ameritrade. ain't the internet just wunnerful?!!
Monday, October 30, 2006
Dreams DO (sometimes) Come True
lousy filthy trash stinkbox td ameritrade may be about to get its due. in part, silver screen studios is suing td ameritrade because...
" Due to the conduct of TD Ameritrade and ETrade preventing investors from purchasing our shares and receiving a dividend they will be forced to cover, we will hold a board of directors meeting to set the dividend date on this weekend and make an announce on next week. Market makers and brokers will have 10 days to balance their positions in preparation for the dividend. "
link to full smartbrief.com story
like i said last week- i hope somebody sues the crap out of them! so dreams do sometimes come true- i blogged about it thursday and this came out friday!
" Due to the conduct of TD Ameritrade and ETrade preventing investors from purchasing our shares and receiving a dividend they will be forced to cover, we will hold a board of directors meeting to set the dividend date on this weekend and make an announce on next week. Market makers and brokers will have 10 days to balance their positions in preparation for the dividend. "
link to full smartbrief.com story
like i said last week- i hope somebody sues the crap out of them! so dreams do sometimes come true- i blogged about it thursday and this came out friday!
The FOREX Market
the FOREX market is the currency exchange market. you buy and sell currency of different countries. it is extremely volatile, it is extremely tricky, and you can lose a lot of money fast.
now the bright side. you can trade FOREX 24 hrs a day, from sunday afternoon until friday afternoon. you can make a lot of money, but because things happen so fast, you absolutely must have a plan and follow it. and it has to be a GOOD plan, obviously. yes, you could use technical analysis as a plan. and i have to admit that here, in FOREX, t/a has a special advantage over quant: raw speed. if you haven't bothered to quant the currency pair you're trading, t/a can give you that quick snapshot you need to make a decision. if you're very good, you'll be right at least about half the time, which is profitable if you limit your loss to less than your gain.
on the other hand, if you quant the pair and do updates every few minutes, you should find your success rate jumping to about 80% or more. for you quant aficionados, i do provide a set of reporting algorithms in my tutorial. for everybody else, here are some general rules to follow when trading FOREX...
on the other hand, if you quant the pair and do updates every few minutes, you should find your success rate jumping to about 80% or more. for you quant aficionados, i do provide a set of reporting algorithms in my tutorial. for everybody else, here are some general rules to follow when trading FOREX...
- your FOREX broker has a page that lists all the upcoming scheduled government news releases. STUDY THEM and about 30 minutes before they come out, GET OUT of the related currencies. you never know- the pr may cause the price to go 'way up or 'way down and it's real hard to predict. NOTE: by "related currencies" i mean any currency related to the one issued by the government who's issuing the pr. you'll have to study to figure this out. for example, a USA pr will often have a dramatic effect not only on the USD, but also the opposite effect on the EUR (euro); or, the USD and the CAD (Canadian dollar) often travel in lockstep with each other. again, study and know- but mainly get outta the way!!!!
- never trust common t/a patterns (indicating strong price change) for more than a minute or two, and maybe not at all. these turn into fakeouts- i dunno, maybe half the time. as covered earlier, too many people are using t/a. so the big banks and governments (yeah, govt's trade the market too) know exactly what everybody's gonna do before they do it and they clobber ya!
- my personal rule, most of the time, is never use trailing stops, either for stop loss or for limit stop. the fine print in your deal with your FOREX broker tells you why: "in extremely volatile conditions, trailing stops may not be honoured". and they mean it! i've got burned on this once and learned my lesson. so always use hard stops and limit stops.
- if you can afford it, do not set your stop loss based on what you can afford to lose. set it based on what you realistically believe the pair "could" move to. if you can't afford this, you might want to reconsider the trade and find something better because all you're doing is gambling.
- never gamble on a trade. quant it, or use t/a. do not go with just your hunch.
Thursday, October 26, 2006
How Your Broker Screws You
i was just about to go to bed when i decided this just had to be blogged. i hang out at a stock forum and for days the significance of a certain small firestorm had eluded me. the light just went on. apparently, TDAmeritrade is restricting the purchase of certain stocks, including TDCP. you can sell, but you can't buy. i don't use TDAmeritrade because its fees are 'way overpriced, so i don't have a direct interest in the controversy. but i do have an indirectly powerful interest since i hold some TDCP.
the key question for me came up tonight on the tdcp thread when somebody asked if what TD Ameritrade was doing was legal. not being a lawyer but delighting in legal puzzles, i decided that it's probably illegal and i hope like hell somebody sues the crap out of them. TD Ameritrade's explanation so far is that they restrict purchase of "questionable" stocks or companies with "questionable practices". well, if you know anything about TDCP, that just doesn't fit.
what does fit, however, is something i mentioned earlier in this blog- your broker can short stocks against your interest and can loan stocks to market makers to short against your interest. if there's strong buy pressure on the stock (as is the case now with TDCP about to have its stockholders' meeting on oct. 28th, and a demo of its technology with Oklahoma University), then any brokers or market makers holding heavy short positions are about to get screwed big time.
so if you're really big like TD Ameritrade, why not use your market muscle to deny all your clients the right to buy TDCP? and for added fun, why not scare them all into selling with the "questionable practices" red herring? that way, you get some shares to sell when things do break loose. in addition, you drive the pps down.
now, besides my opinion about TD Ameritrade's practices on TDCP being illegal, i consider that it's also a violation of their fiduciary obligation to place their clients' interests above their own. bottom line, if you're with TD Ameritrade or anybody else who suspiciously restricts buys, i say dump the suckers and find another broker.
the key question for me came up tonight on the tdcp thread when somebody asked if what TD Ameritrade was doing was legal. not being a lawyer but delighting in legal puzzles, i decided that it's probably illegal and i hope like hell somebody sues the crap out of them. TD Ameritrade's explanation so far is that they restrict purchase of "questionable" stocks or companies with "questionable practices". well, if you know anything about TDCP, that just doesn't fit.
what does fit, however, is something i mentioned earlier in this blog- your broker can short stocks against your interest and can loan stocks to market makers to short against your interest. if there's strong buy pressure on the stock (as is the case now with TDCP about to have its stockholders' meeting on oct. 28th, and a demo of its technology with Oklahoma University), then any brokers or market makers holding heavy short positions are about to get screwed big time.
so if you're really big like TD Ameritrade, why not use your market muscle to deny all your clients the right to buy TDCP? and for added fun, why not scare them all into selling with the "questionable practices" red herring? that way, you get some shares to sell when things do break loose. in addition, you drive the pps down.
now, besides my opinion about TD Ameritrade's practices on TDCP being illegal, i consider that it's also a violation of their fiduciary obligation to place their clients' interests above their own. bottom line, if you're with TD Ameritrade or anybody else who suspiciously restricts buys, i say dump the suckers and find another broker.
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