一个笨蛋的股指交易记录-------地狱级炒手

hefeiddd

February 2, 2008
I Will Teach You How To Get 10,000+ Bloglines SubscribersI just noticed that Bloglines has six “Quick Pick” selections under the category “Investor.” (Forbes mysteriously disappeared after I added it this way… odd.) One way to get 10,000+ Bloglines subscribers is obvious: catch the fancy of a staff member who helps select the “Quick Pick” feeds.

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• Internet/Media

| Time: 9:40 pm (utc+8) Comments (5)


And Then He Woke UpInner Life of Jerome Kerviel, Accidental Rogue, by Michael Lewis

“Jerome once thought of himself as having a way with the ladies but sex is the furthest thing from his mind. He’s ceasing to be French. He’s becoming American.
Now come these weird, false, fleeting sensations of total freedom. His ordinary mind cannot fully accept the reality of his situation and so it works overtime to generate fantasies. He fantasizes about dying before anyone finds out. He fantasizes that terrorists blow up Societe Generale before anyone finds out.
He walks home one night and there is something about the durability and grandeur of Paris. It gets him thinking. He is long $60 BILLION in equities. That’s more than the market value of the entire freaking bank. And no one knows! Maybe no one will ever know! Maybe he can just keep losing billions, in private.”

I can tell by certain word choices and phrasing that Michael Lewis reads my site regularly, but unlike me, he writes well and gets paid for it. :)
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• Trading

| Time: 10:50 am (utc+8) Comments (6)


Has Gold Peaked?Gold may have reached some kind of a peak this past week. (That’s almost poetry.) The Sequential hit 13 on Monday, which made everyone a little anxious, then an ugly bar formed on Friday, which kind of confirms that a top of sorts may be in. My top picks in China and India were more or less spot on… let’s see how lucky I get with gold. (Gratuitous disclaimer: picking tops is a fool’s game.)

Click to enlarge (Spot Gold, Daily)
You’ve got to buy the unpopular, the unloved… that doesn’t describe the opinion toward gold of late, does it? (What do the volumes on the gold ETF (GLD) look like these days?)
Contrarian Alert #1: How to Survive the New Gold Rush, Wall Street Journal, January 29, 2008; Page D1. This one is very cautionary, which is actually bullish for gold:

“… at current levels, investors may be paying a high price for that diversification. Though many investors consider gold a hedge against inflation, it hasn’t always lived up to that reputation. The metal’s price can be extremely volatile, and many gold investments come with significant tax consequences.
… gold doesn’t produce earnings or pay dividends, and its returns over the long haul often look less enticing. From 1969 to 2007, gold was more volatile than the Standard & Poor’s 500-stock index and produced substantially lower returns. What’s more, gold has failed to keep pace with inflation in recent decades. The average 1980 price of gold inflated to 2007 dollars would be $1,563 an ounce, well above today’s price.”

Contrarian Alert #2: Investors Rush to Gold, Wall Street Journal, January 31, 2008; Page A1. The bit I’ve excerpted below from this Page One article should give gold bulls pause (fools rush in where angels fear to tread):

“OppenheimerFunds has a $2.2 billion fund called the Gold and Special Minerals Fund that is 85% invested in gold-related stocks, notably mining companies … In 2005, his fund had less than $40 million in net inflows. In 2006, net inflows were above $250 million and in 2007, more than $600 million.”

And I bet you a dollar to a dime that this fund was seeing substantial outflows in the 1998-2001 period. That was the time to buy.

Click to enlarge (Spot Gold, Weekly and Daily, Volume-at-Price)
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• Metals

| Time: 10:20 am (utc+8) Comments (10)

February 1, 2008
Volume-at-Price for the Euro Stoxx 50 FuturesHere are the daily and weekly charts for the Euro Stoxx 50 futures (front month) from the beautiful volume-at-price perspective. The SocGen traders turned a $2 billion loss into a $7 billion loss by hitting the market so hard, mainly selling the Euro Stoxx 50, but they really had no choice — they had to get out as quickly and quietly as possible, every trader who has ever found himself “accidentally” stuck on the wrong side understands this in his bones.

“The Dow Jones EURO STOXX 50 (Price) Index is a capitalization-weighted index of 50 European blue-chip stocks from those countries participating in the EMU. The equities use free float shares in the index calculation. The index was developed with a base value of 1000 as of December 31, 1991. This index uses float shares.”

The Euro Stoxx 50 futures are by far the most actively traded equity index futures in Europe. The FTSE and the CAC are the next most active, but don’t really compare. Interestingly, the Swiss market futures are more active than the DAX, I believe. (Update: I’m wrong about this… see the comments section.)

Click to enlarge (Euro Stoxx 50, Daily)


Click to enlarge (Euro Stoxx 50, Weekly)
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• Trading

| Time: 4:01 pm (utc+8) Comments (7)


Unacknowledged Trading GeniusKerviel Felt Out of His League

“… if clawing your way up from the mailroom wins you a badge of honor in the U.S., not so within in the rigid class system that defines the upper ranks of French finance. Mr. Kerviel’s effort to impress his colleagues now appears to be a motivating factor behind his disastrous trading spree.
‘I cannot believe that my superiors did not realize the amount I was risking,’ Kerviel said in the interrogation. ‘It is impossible to generate such profit with small positions. That’s what leads me to say that while I was [in the black], my supervisors closed their eyes on the methods I was using and the volumes I was trading.’”

I call bullshit, Jerome. If you’ve got other SocGen traders killing themselves after being so harshly reprimanded for losing a lousy

hefeiddd

January 30, 2008
Weaving Fees into the Fabric of the FundFees on 401(k)s Rock Boomers Facing Flawed Disclosure, by Darrell Preston and Gary Matsumoto

“Since its introduction 30 years ago, the 401(k) has become the fastest-growing form of retirement savings plan for U.S. workers … From 1985 to 2006, the number of active 401(k) participants climbed fivefold to 50 million. Assets in the plans soared more than 19-fold to $2.97 trillion.
… most workers don’t know that fees, rebates and revenue-sharing agreements among employers, 401(k) administrators and mutual funds — many of them buried in the fine print or not disclosed at all — are slowing the growth of their nest eggs. The amount ceded to fees widens as investors lose the benefit of compounding returns during decades of working.
Legislation introduced in the U.S. Senate last year would aid consumers in making better sense of their 401(k)s. The proposal requires that investors get more information on fees. The new law would disclose revenue sharing and other relationships between parties with financial interests in the retirement plans.
Analyzing 401(k) plans to unearth hidden fees is daunting. One set of clues can be found in the annual returns 401(k) plans must file on Form 5500 with the Labor Department. This form requires information on some fees, although not all. Administrative costs, which aren’t noted on investors’ financial statements, must be listed in 5500 filings.
To find the fees in his company’s own 300-worker 401(k), Jeff Acheson reviewed more than 20 documents, including mutual fund prospectuses. Schneider Downs cut total fees half a percentage point to 0.75 percent from 1.25 percent, Acheson says. ‘They’re hidden in the legalese that you have to be able to interpret,’ he says. ‘It’s very challenging even for those that have some degree of background in the financial services business.’”

Disgusting, isn’t it? The world’s greatest skimming operation fleecing clueless working folks. Clear, comprehensive disclosure of all fees is a must.
Related: Multi-layered Feeder Fund and Fund-of-funds Structure
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• Investing

| Time: 10:37 am (utc+8) Comments (9)

January 29, 2008
Still Buying the UnlovedAt 91, Walter Schloss is still picking stocks (and borrowing his son’s copy of Value Line)

“Schloss screens for companies ideally trading at discounts to book value, with no or low debt, and managements that own enough company stock to make them want to do the right thing by shareholders. If he likes what he sees, he buys a little and calls the company for financial statements and proxies. He reads these documents, paying special attention to footnotes. One question he tries to answer from the numbers: Is management honest (meaning not overly greedy)? That matters to him more than smarts.
Schloss doesn’t profess to understand a company’s operations intimately and almost never talks to management. He doesn’t think much about timing–am I buying at the low? selling at the high?–or momentum. He doesn’t think about the economy.
It’s been two years since he bought Superior Industries (SUP), and the stock is down a third. But [he] is philosophical and confident this one is worth book at least. ‘How much can you lose?’ he asks.”

Well, you can lose everything, but I know what he’s saying. :)
– via controlledgreed.com –
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• Investing

| Time: 3:19 pm (utc+8) Comments (0)


Comrades in ARMsHere’s the 2008 home loan repayment schedule for our apartment in Beijing. As I’ve mentioned before, there are no fixed-rate home loans available in China. You can see that we borrowed RMB1,550,000 from ICBC for 15 years in October 2005, originally paying interest at 5.814%. I believe the loan will reset in February 2008 to 6.65% (I’m eyeballing it), which means the monthly payment will jump by RMB464.52 ($64.43). Comrades in ARMs, I feel your pain. :)

Click to enlarge
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• China
• Real_Estate

| Time: 11:56 am (utc+8) Comments (2)


Never Shop at Tabletools.comI just had a bad shopping experience at Tabletools.com that I’d like to share with my readers and the Google spider, thus creating a top-ranked search result for the terms Tabletools.com and awful shopping experience. (Piss off a respected blogger and watch what happens to the search results for your business.)
Tabletools.com recently sent me an email announcing a store-wide 40%-off sale including a coupon code. I visited the site yesterday, browsed around, and then ordered several things after making sure that they were “in stock.” I filled out the shipping address and credit card information forms, and placed the order successfully. The whole operation took maybe half an hour of my very valuable time.
Today I get an email from Tabletools.com saying that my order has been cancelled because nothing I ordered is in stock. What is this, some kind of cheap bait-and-switch thing? What an unprofessional outfit. I urge everyone never to shop at Tabletools.com.

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• Musings

| Time: 10:06 am (utc+8) Comments (14)


Informing Markets about Pending LossesFunniest thing I’ve read (so far) this morning (emphasis mine):

“… a French lawyer acting for 100 small shareholders said he had sued Société Générale over the way it had unwound Kerviel’s fraudulent share deals last week, Reuters reported.
The lawyer, Frederik-Karel Canoy, said the bank should have informed markets about its pending losses before embarking on a selling spree from Jan. 21 through Jan. 23 to unwind the

hefeiddd

January 26, 2008
Unpaid Product Placement: Dado CubesAnother toy that Toddler T and I enjoy playing with are his Dado Cubes. They’re cool, cheap, durable, made in the USA (or as Jimmy Swaggart would say, “New-nited States of America”), and are “Chairman Recommended.”

“Dado combines art and science as you explore architectural principles . . . proportion, balance, structure and color. A new twist on classic building blocks, Dado engages your imagination as the slits on each cube are interlocked to create an unlimited number of three-dimensional structures.”

Not an “unlimited” number of structures, but a lot. :)

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• Baby

| Time: 11:39 am (utc+8) Comments (0)

January 25, 2008
TGIF (XIV)



(Another in the TGIF series)
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• TGIF

| Time: 11:16 pm (utc+8) Comments (0)


December Trading Ideas Spreadsheet Now AvailableI’ve just sent out the spreadsheet (version 1.0) with the details of all the trading ideas generated by the Box in December. If you’re on the list and didn’t receive a copy, or you’re not on the list and would like to get a copy, just email me.
Brief summary:

• 34 Ideas in total
• 27 Shorts, 7 Longs
• 11 Ideas did not trigger
• 1 Triggered but not filled
• 22 Triggered and filled
• 6 Trades with Positive R (”winners”)
• 6 Trades stopped at breakeven (”scratches”)
• 10 Trades with Negative R (”losers”)
• Cumulative R for the month: +26.25

These figures will probably change a bit as I adjust entry and exit prices to reflect market realities that I expect list members will report to me. I want to make sure the trading record is as accurate and realistic as possible. Before you get excited about that +26R figure you should know that the Box is down around 9R so far in January. I’m a rotten salesman, I know. :)
UPDATE: Thanks to reader Jason M. for pointing out that the BLUD short on December 26, which resulted in a -1R loss, wasn’t properly accounted for — v 1.1 of the spreadsheet reflects this change. That was a material error for sure and Jason will get a free month of trade ideas for pointing it out.
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• The_Box

| Time: 4:57 pm (utc+8) Comments (24)


Il était de $73 milliards d’idiotOne Trader’s Loss at SocGen: $7.2 Billion

“Mr. Kerviel cost the bank $7.2 billion by allegedly making huge unauthorized trades that he hid for months … The losses are forcing Société Générale to seek $8.05 billion in fresh capital from shareholders … He was a low-level trader whose job was to make bets on how large European indexes would trade … His expertise was trading baskets of stocks such as the Euro Stoxx 50 [Expertise, de quoi?].
In the middle of last year he began placing huge unauthorized bets that European markets would continue to rise. At first, Mr. Kerviel fared well and he was winning toward the end of the year [Mais bien entendu]. People close to the bank said the combined positions were worth about $73 billion. [Yowza!]
Though Société Générale says it first learned of problems on his trading desk last Friday [Jan. 18] and uncovered what it termed ‘massive fraudulent directional positions’ last Saturday, it waited six days to go public with news of the losses. That allowed the bank to unwind its positions and avoid even greater losses.
Mr. Kerviel joined Société Générale’s investment banking unit in the summer of 2000 after graduating with an advanced degree in trading [Did he graduate with honors?] from the University of Lyon, in central France.
Last Saturday, Société Générale executives called Mr. Kerviel in for questioning…. The interrogation took a good part of the day because Mr. Kerviel had convinced himself that he had discovered a new way to trade equity securities [I LOVE IT! Une façon nouvelle, pour sûr :)]. For a while, he went in circles while justifying the trading strategy. Finally, on Saturday night, he broke down and admitted to the trades.”

Sad. We’ve all been there but precious few of us, OK absolutely no one ever, had $73 billion on the line.

Click to enlarge (Euro Stoxx 50 Index, Daily, One Year)
Societe Generale Reports EU4.9 Billion Trading Loss (Bloomberg)

“‘It’s not possible that our covering operations contributed to the market’s fall,’ said Philippe Collas, the head of asset management at the bank.”

Did he say that with a straight face?
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• Trading

| Time: 10:19 am (utc+8) Comments (31)

January 24, 2008
LINTA Short Finally CoveredFinally the short in LINTA, which was suggested back in the middle of December, would have covered yesterday above $14.22. Using my crude ABC stop method, the gain would be nearly 13 times the initial risk, which makes it a “home run” among ideas generated by the Box. (Sorry for the erroneous 14x annotation on the chart; I was eyeballing it.)
I will soon send to list members the spreadsheet for trades initiated in December. I am calling it “December Report, version 1.0,” and urge everyone to scrutinize it closely for errors. If I got a date wrong or a price wrong, please let me know. If you find a “material” error, and you’re the first to point it out, you’ll win a free month’s worth of trading ideas.
The Box, as far as I can figure it out, is coming up with price pattern-based ideas where the initial risk is at least half the expected reward. Each idea gives you an entry point, a stop-loss point, a target range, and stop management updates. The value lies in these specifics. You should decide whether or not to act on any idea after doing your own due diligence, of course.
I look forward to welcoming many of you free trialers as full-time subscribers in February!

Click to enlarge
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• The_Box

| Time: 2:59 pm (utc+8) Comments (4)


Lending Stalemate: Rates Drop But Standards TightenMortgage Rates Fall to Lowest Since 2004 on Fed Cut

“The average U.S. rate for a 30-year fixed mortgage declined to 5.31 percent today, the lowest since March 2004 when the Fed’s benchmark rate was 1 percent, according to Bankrate Inc., a research firm in North Palm Beach, Florida.”

Is Bankrate the only company collecting interest rate information on mortgage loans nationwide? Why doesn’t Bloomberg devote someone to building such a database? I love historical price and interest rate and currency rate data (heck, I love all historical financial data). Who keeps the most complete historical record or mortgage loan rates? The Fed?
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• Investing

| Time: 2:23 pm (utc+8) Comments (0)


Oh Such a Hungry Yearning Burning Inside of MeHere’s a look at the 10-minute chart of the S&P futures over the last couple days *including* the after-hours trading sessions. You have to look at both the night and day (paging fellow Cole Porter fans) sessions to get a complete picture in many futures markets, including the S&Ps.

Click to enlarge (S&P 500 Index future)
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• Trading

| Time: 11:26 am (utc+8) Comments (16)

January 23, 2008
One Trading Idea for Wednesday, January 23The box came up with one long idea for Wednesday, January 23. Yesterday’s long would have triggered and filled, which is unfortunate because it immediately traded lower and looks like it will stop out given the Apple news. If it does stop out it will be the thirteenth loss on a long position this month — how’s that for a selling point! Aren’t you anxious to send me $20 a month for these great ideas! :-)
On a happier note, LINTA went to another all-time low and you should look to trail the buy-to-cover stop above 14.22. This trade has locked in nearly 13R which means that it alone would be able to wipe out *weeks* of bad trades.
I forgot to break the list of names into blocks of 500 yesterday so Google Mail identified me as a “spammer” and put the smackdown on my mail account. I expect them to lift it today, but if they don’t I will send the ideas from an alternate email address and everyone should receive them.
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• The_Box

| Time: 3:19 pm (utc+8) Comments (8)


All AAA Ratings are Faux Ratings NowAmbac, MBIA’s Lust for CDO Returns Undermined AAA Profitability, by Christine Richard
Good article which explains how muni bond insurers like MBIA and Ambac went astray.

“The crisis has been brewing for about six years, ever since the insurers discovered collateralized debt obligations … Insurers backed $127 billion of CDOs that relied at least partly on repayments on subprime home loans … Annual premiums on CDOs averaged 50 percent of the capital that the rating companies required the insurers to set aside, according to S&P. That compared with an average risk-adjusted profit ratio of 8 percent for insuring other types of structured- finance securities. What the insurers hadn’t bargained on was that the rating companies themselves, including S&P, had grossly underestimated the risk of CDOs.
… analysts failed to see that the mortgage market was becoming riskier. They relied instead on models to predict the performance of CDOs based on historical defaults, recovery rates and correlation risks for various credit ratings. They didn’t consider how piggyback loans, which are loans used to borrow a down payment, would perform when extended to people with a history of not paying their bills.”

Related:
Fine-tuning the Model to Reach the Desired Credit Rating
AMBAC Ack! MBIA DOA?
Patient Pershing’s Philanthropic Profit Pledge
Stock Du Jour (MCO) & Random Observations (August 15, 2007 — price charts don’t lie)
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• Investing
• Bonds

| Time: 11:23 am (utc+8) Comments (6)


Market Reaction to Emergency Rate CutI thought it would be useful to look at the very short-term (three minute) intraday charts of the US Dollar Index, 10-year Treasury Note future, S&P 500 future, and the Gold future, given the Fed’s emergency action:

“The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.
The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”

(Aside: I’m not thrilled with a lot of their language: “in view of a weakening of the economic outlook” … of a, of the — bureaucrats love prepositional phrases; “incoming information,” sounds lame; do contractions deepen? do markets soften? They need someone who can write clear, concise English. Greenspan did so much damage with his intentionally convoluted Greenspeak — maybe his true legacy?)

Click to enlarge (US Dollar Index)
The dollar was already trending lower into the Fed cut, but weakened quite a bit more on the news which makes sense.

Click to enlarge (10-year Treasury Note future)
The T-Note dropped initially on the news but then stabilized, holding onto its gains.

Click to enlarge (S&P 500 Index future)
The S&P popped on the news, traded lower for a brutal stop grab (those pit guys are the nastiest in the world) below the “news bar” low, then traded back up and formed a stable range.

Click to enlarge (Gold future)
Gold also popped (predictably) on the news and went back up to the Lucky 888 range.
A few comments from Billionaire Gross:

“It’s a sad testament to think the Fed has to cut interest rates eight days in front of a meeting to salvage the equity markets … The U.S. economy is in a rather sad state of affairs in that it depends on housing and stock prices to keep going … We need a fed funds level at 2.5 percent to 3 percent. The sooner the better … You would have to think the Treasury rally is almost over. It’s a safety-only type of vehicle. It certainly doesn’t provide an attractive return.'’

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• Trading

| Time: 10:22 am (utc+8) Comments (1)

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hefeiddd

January 22, 2008
One Trading Idea for Tuesday, January 22The box came up with one long idea, which I think has a snowball’s chance of triggering, for Tuesday, January 22. The software runs off end-of-day (last Friday) data and obviously doesn’t read the news. The good thing is that of the last three ideas it came up with, all longs, none of them triggered. The bad thing is the box also came up with a dozen longs so far in January that all triggered, filled and then stopped out for a -1R loss.
The LINTA short is still on from last month … this trade is taking forever to close with the stock down nearly 30% (~12R) from entry. Once the trailing stop is hit, I can send out the spreadsheet for the trades initiated in December. Thanks for your patience.
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• The_Box

| Time: 11:28 am (utc+8) Comments (0)


Quick Look at Various Futures ContractsHere’s a look at the intraday charts of various futures contracts … I grabbed the screenshots at around 9:20 AM (Tuesday) my time, which is 8:20 PM (Monday) New York time. Check out the Dow Industrials, S&P 500, Nasdaq 100, and 10-year Treasury Note below.

Click to enlarge (DJH8)


Click to enlarge (SPH8)


Click to enlarge (NDH8)


Click to enlarge (TYH8)


(Bond Futures table)


(Equity Index Futures table)
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• Trading

| Time: 9:56 am (utc+8) Comments (23)


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• GCCP

| Time: 10:22 pm (utc+8) Comments (4)

January 18, 2008
One Trading Idea for Friday, January 18The box came up with one long idea for Friday, January 18. Fortunately the last couple longs it has suggested didn’t trigger — we always look to buy *above* the previous bar — so it hasn’t taken too many hits of late. Given the terrible action recently, it’s odd that the long in XRAY, currently with a breakeven stop, hasn’t stopped out yet.
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• The_Box

| Time: 11:07 am (utc+8) Comments (6)


AMBAC Ack! MBIA DOA?MBIA, Ambac Tumble, Default Risk Soars After Losses

“New York-based Ambac dropped 52 percent and Armonk, New York-based MBIA fell 31 percent as Moody’s Investors Service and Standard & Poor’s increased their scrutiny of bond insurers. Credit-default swaps on both guarantors rose to records, signifying investors see a growing chance that the companies won’t be able to pay their debt.”

Click to enlarge (CDS Spreads for ABK and MBI)


Click to enlarge (Intraday Chart, ABK)


Click to enlarge (Intraday Chart, MBI)
Related: Patient Pershing’s Philanthropic Profit Pledge
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• Investing

| Time: 9:23 am (utc+8) Comments (6)

January 17, 2008
In Search of a Non-Nutty GoldbugThe beauty (and bane) of the Internet is that you can easily go back and see a time-stamped version of what various experts / analysts / pundits / bloggers were saying about something. I’m interested to know if there is *anyone* out there who was saying that gold was a buy during the early 1998 to late 2001 period. Here’s the rub: they didn’t say anything about gold being a buy *before* then or *after* then — they were only adamant about gold being a bargain in the $250 to $300 range, but no higher. Does such a person exist?

Click to enlarge (Gold, Spot price, Daily)
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• Metals

| Time: 10:34 am (utc+8) Comments (40)


One Trading Idea for Thursday, January 17The box came up with one long idea for Thursday, January 17. Just waiting on LINTA to close (currently trailing the stop above 15.49) and then I’ll send out the spreadsheet for December. The box was up around 25R for that month using the ABC stop method, which is nothing to sneeze at, though don’t ask about January’s performance (OK, it stinks so far).
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• The_Box

| Time: 10:08 am (utc+8) Comments (0)


Bombay’s SENSEX 30 Looks ToppyWord up to my one or two readers from the Indian subcontinent: your stock market looks toppy to me. You can see that the Sequential caught the last two intermediate tops back in ‘05 and ‘06, more or less. I wouldn’t be surprised to see this market go back to the 15,000 level if she cracks.

Click to enlarge (SENSEX 30 Index, Weekly)
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• Investing

| Time: 8:09 am (utc+8) Comments (2)

January 16, 2008
The Best Free Web-based Stock ChartsI scoured the internet for the best free web-based stock charts; here are the results ranked by my preference:

• Yahoo! Finance Charts (BETA) Super-fast Flash. Defaults to a one year line chart, but OHLC and Candlesticks also available. 13 technical studies available with customizable parameters. One click to change time intervals (1 day, 5 day, YTD, 1 month, 3 months, 6 months, 1 year, 2 years, 5 years, Max), which is very nice, and customizable time range also available, great! Defaults to log scaling, excellent, though linear scaling also available (who needs it?). Crosshairs or trackball for the cursor, nice. Able to compare performance of multiple symbols on a single chart, and Yahoo even suggests competitors and indexes for one click performance comparisons, very very nice.
  Draws a clean intraday 5-minute (5 day) and 1-minute (1 day) chart. Lovely.
  Only quibble is bars draw to the hard right edge of the chart. I recommend that Yahoo insert an X-bar gap on the right edge of the price chart to perfect them.
  These new flash-based charts from Yahoo are the best free stock charts on the web in my opinion. When I’m not sitting at the Bloomberg terminal or using Metastock at home, these are the charts I use.
• Quote.com Interactive Charts (BETA) Flash. Yahoo copycat? Defaults to line chart but five chart types and 13 technical studies with customizable parameters available. Canned time intervals from 1 day to “Max,” but sliding time-axis, like Google’s, is nice. Able to compare performance of multiple symbols on a single chart, very nice. Crosshairs don’t appear to work?
• Bloomberg Charts It’s Flash which means it’s quick. Only OHLC and Line chart types and only six technical studies available. Nine canned time ranges: 1 day, 1 week, 1 month, 6 months, 1 year, 3 years, 5 years, and year-to-date. No customizable time range available. Price doesn’t draw to the hard right edge, which is nice, but intraday charting horrible, and the one week chart is also more or less useless. Backed by Bloomberg data and the chart is clean and basic so I like it, but it sure ain’t Yahoo!
• BigCharts Interactive Chart A Java applet that allows you to draw lines on the chart (nice!). The three panes “Lower Indicators,” are fixed in place and there’s no way to get rid of them. Interesting indicators include P/E Ratio, Yield, TRIN, etc.
• Prophet JavaCharts Java applet. Able to detach or “pop-out” charting applet, very nice; blinking embedded ad, not nice. “Opening connection to server…” slow when chart needs to re-draw. Lots of studies available, but using this reminds me how superior the new Flash charts are.
• Google Finance Hate to say it because Google does so much right, but the charts at Google Finance suck. The only chart type available is the line/area chart and there are *no* technical studies available, not even a moving average. The “News Flags” are neat, but they should be defaulted “off” not “on.” Anyone at Google who wants to ask me how to improve the charting applet should know my hourly consultation rate is $850. :)
  

The following sites, listed alphabetically, draw static charts:

• BarCharts (dreaded pop-up ads? and hokey faux graph paper background make this one a last choice)
• BigCharts QuickCharts (around (and unchanged) for ages)
• ClearStation (when did E*Trade buy these guys? during the bubble?)
• iq |chart (blessedly ad-free)
• Prophet SnapCharts
• StockCharts.com (Default chart is cluttered with technical studies; volume and price panes are merged which looks awful)
• Yahoo! Basic Chart

What do you think are the best free web-based stock charts?


Related:
Why Google Finance Makes Me Sad, by Jeremy Zawodny
Google Finance, by Bill Bishop
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It’s Just a Matter of WaitingTrader Made Billions on Subprime, by Gregory Zuckerman
An A1 story on John Paulson, weeks after this profile from Bloomberg. Anyway, I didn’t remember that he once worked for the great Leon Levy. Other interesting bits:

“Merely holding a different opinion from the blundering herd wasn’t enough to produce huge profits. He also had to think up a technical way to bet against the housing and mortgage markets, given that, as he notes, ‘you can’t short houses’ … One trade was to short risky CDO slices. Another was to buy the credit-default swaps that complacent investors seemed to be pricing too low.
In the middle of 2006 investors gained a new way to bet for or against subprime mortgages. It was the ABX, an index that reflects the value of a basket of subprime mortgages made over six months. An index of those made in the first half of 2006 appeared in July 2006. The Paulson funds sold it short. In the fall of 2007, the ABX subprime-mortgage index crashed into the 20s. Credit-default swaps that the funds owned soared. And the debt slices the funds had bet would lose value, indeed fell — to nearly worthless.
Mr. Paulson benefited from an earlier housing slump 15 years ago, buying a New York apartment and a large home in the Hamptons on Long Island, both in foreclosure sales.”

Paulson was early but not too early and he stuck to his guns — an advantage enjoyed by the well-funded, i.e. remaining solvent longer than the market can remain irrational, you remember, that old crack from Keynes.
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January 22, 2008
One Trading Idea for Tuesday, January 22The box came up with one long idea, which I think has a snowball’s chance of triggering, for Tuesday, January 22. The software runs off end-of-day (last Friday) data and obviously doesn’t read the news. The good thing is that of the last three ideas it came up with, all longs, none of them triggered. The bad thing is the box also came up with a dozen longs so far in January that all triggered, filled and then stopped out for a -1R loss.
The LINTA short is still on from last month … this trade is taking forever to close with the stock down nearly 30% (~12R) from entry. Once the trailing stop is hit, I can send out the spreadsheet for the trades initiated in December. Thanks for your patience.
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Quick Look at Various Futures ContractsHere’s a look at the intraday charts of various futures contracts … I grabbed the screenshots at around 9:20 AM (Tuesday) my time, which is 8:20 PM (Monday) New York time. Check out the Dow Industrials, S&P 500, Nasdaq 100, and 10-year Treasury Note below.

Click to enlarge (DJH8)


Click to enlarge (SPH8)


Click to enlarge (NDH8)


Click to enlarge (TYH8)


(Bond Futures table)


(Equity Index Futures table)
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January 18, 2008
One Trading Idea for Friday, January 18The box came up with one long idea for Friday, January 18. Fortunately the last couple longs it has suggested didn’t trigger — we always look to buy *above* the previous bar — so it hasn’t taken too many hits of late. Given the terrible action recently, it’s odd that the long in XRAY, currently with a breakeven stop, hasn’t stopped out yet.
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• The_Box

| Time: 11:07 am (utc+8) Comments (6)


AMBAC Ack! MBIA DOA?MBIA, Ambac Tumble, Default Risk Soars After Losses

“New York-based Ambac dropped 52 percent and Armonk, New York-based MBIA fell 31 percent as Moody’s Investors Service and Standard & Poor’s increased their scrutiny of bond insurers. Credit-default swaps on both guarantors rose to records, signifying investors see a growing chance that the companies won’t be able to pay their debt.”

Click to enlarge (CDS Spreads for ABK and MBI)


Click to enlarge (Intraday Chart, ABK)


Click to enlarge (Intraday Chart, MBI)
Related:
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| Time: 9:23 am (utc+8) Comments (6)

January 17, 2008
In Search of a Non-Nutty GoldbugThe beauty (and bane) of the Internet is that you can easily go back and see a time-stamped version of what various experts / analysts / pundits / bloggers were saying about something. I’m interested to know if there is *anyone* out there who was saying that gold was a buy during the early 1998 to late 2001 period. Here’s the rub: they didn’t say anything about gold being a buy *before* then or *after* then — they were only adamant about gold being a bargain in the $250 to $300 range, but no higher. Does such a person exist?

Click to enlarge (Gold, Spot price, Daily)
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| Time: 10:34 am (utc+8) Comments (40)


One Trading Idea for Thursday, January 17The box came up with one long idea for Thursday, January 17. Just waiting on LINTA to close (currently trailing the stop above 15.49) and then I’ll send out the spreadsheet for December. The box was up around 25R for that month using the ABC stop method, which is nothing to sneeze at, though don’t ask about January’s performance (OK, it stinks so far).
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• The_Box

| Time: 10:08 am (utc+8) Comments (0)


Bombay’s SENSEX 30 Looks ToppyWord up to my one or two readers from the Indian subcontinent: your stock market looks toppy to me. You can see that the Sequential caught the last two intermediate tops back in ‘05 and ‘06, more or less. I wouldn’t be surprised to see this market go back to the 15,000 level if she cracks.

Click to enlarge (SENSEX 30 Index, Weekly)
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hefeiddd

ABC Stop Management in Current Pfizer LongI introduced the “Arbitrary But Consistent” (ABC) stop management method using the IWO short as an example. Believing in the power of repetition, I thought we should look at how the ABC method would handle the current long trade in Pfizer (PFE).
List members received this idea for Thursday, January 3rd. If you’d like to join the list, free until the end of January, just email me.

Long PFE above 23.03
Protective Stop below 22.69
Initial Risk ~0.34
Initial Risk Covered at 23.37 (move stop to breakeven if it reaches here)
Target: 24.41 to 24.66

Click to enlarge
Pfizer would have filled on Thursday and the moment the trade executed you should have put the protective stop in place, in this case below 22.69.
Read this post if you’re unfamiliar with stop and stop-limit orders. The worst mistake a trader can make is not having a protective stop order in place at all times on all his open positions. I am not a believer in “mental” stops, and I urge you to get in the habit of instantly placing a stop loss order the moment you open a trade.
Friday was a rough day for Pfizer and it looked like the trade would stop out for a loss, but it didn’t go low enough to trigger the stop.
The next Monday things turned around and PFE traded higher, forming an “up” bar, but didn’t hit the 1x initial risk level of 23.37. Since it didn’t trade to that level, you would have stayed with the original stop at 22.69. Remember that once the initial risk is covered, I suggest you move your protective stop to breakeven. This is an old habit from my daytrading days, and I think it’s a good thing to do with these swing trades as well.
Tuesday was another “up” day with price hitting not just the 1x level, but the 2x level as well. I define an “up” bar as a bar whose high is higher than the previous bar’s high and whose low is equal to or higher than the previous bar’s low. Once the 2x level at 23.71 was hit, we could begin to trail the stop below the low of that “up” bar.
On Wednesday another “up” bar formed so we’d trail the stop below the low of Wednesday’s bar. Again on Thursday we saw an “up” bar form, so the stop would be trailed below Thursday’s low.
Finally, last Friday we saw an “inside” bar form. An “inside” bar is one where the high is lower than the previous bar’s high, and the low is higher than the previous bar’s low. The range of the bar is completely within or “inside” the previous bar’s range: thus the name, “inside” bar. We only trail the stop below the low of “up” bars, so the stop will remain below Thursday’s low at 23.61.
The target we’re looking for is 24.41. One alternative to the ABC method is to move your stop to breakeven after the initial risk is covered, but then wait until the target is hit before you begin trailing your stop. When I get a chance to review all past trades, I’ll be able to say whether this is a superior method to ABC. Stay tuned.
If you have any questions, please leave a comment and I’ll answer them.
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| Time: 10:26 am (utc+8) Comments (2)

January 12, 2008
Unpaid Product Placement: WedgitsI haven’t recommended a product in awhile, but Toddler T recently turned three, which reminded about one of my, er I mean his, favorite toys: Wedgits. They’re diamond-shaped plastic pieces that you can use to build some pretty cool structures. If I were pretentious I’d talk about how they “invite complex thinking and experimentation; refine spatial orientation, perceptual skills, and dexterity; and promote understanding of geometric concepts.” Frankly, T’s favorite part is kicking his creations across the room.

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January 11, 2008
Reviewing Currently Open TradesThe box could not find a single idea in the very large universe of securities that it scans, so I thought it was a good opportunity to review the positions which are currently open. I have not included the two trades that opened yesterday (Thursday) since they are too “fresh.” If you’d like to join the list of people receiving these trade ideas, free until the end of this month, email me.
There are three open trades from December yet to close, and three from January. I’ve annotated the charts and presented them in chronological order. If you have any questions, please leave a comment and I’ll answer them.






Related: Posts explaining the ABC Stop Method
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• The_Box

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Shanghai Gold FuturesChina Gold Futures Gain on Debut as World Price Soars

“Gold for June delivery, the most active contract, rose as much as 21 yuan, or 10 percent, to 230.99 yuan a gram, or the equivalent of $988 an ounce, in Shanghai. That’s almost $100 more than the $891.70 peak reached by the world gold price today.
Gold for June delivery in Shanghai settled at 224.74 yuan a gram ($962 an ounce). The world price of gold was at $889.47 an ounce at the same time. Bullion for June delivery on the Comex division of the New York Mercantile Exchange traded at $905.20.
Each gold futures contract traded in Shanghai will represent 1 kilogram of the metal, with the minimum margin requirement set at 9 percent, the exchange said Dec. 29. The contracts are allowed to fluctuate by 10 percent from the 209.99 yuan a gram reference price today. Maximum price fluctuations will be limited to 5 percent from the previous settlement price after the debut.”

Here’s a look at the intraday (5 min.) chart of the gold futures contract traded in Shanghai. That $100 premium doesn’t look like it lasted too long, did it? But some sort of premium will always exist, right?

Click to enlarge
1 ounce = 28.3495231 grams
1 Chinese yuan = 0.13769 U.S. dollars (currently)
so
217.68 Chinese yuan (last price) = 29.9723592 U.S. dollars
29.9723592 U.S. dollars x 28.3495231 grams = US$849.70 per ounce
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January 10, 2008
Two Trading Ideas for Thursday, January 10The box found two long ideas for Thursday, January 10. Yesterday we suffered another whipsaw loss and January is shaping up to be a tough month. The box often gets things generally right (it’s amazing how many times it’s “off” by just a day or two… “close only counts in horseshoes and hand grenades,” alas), but the exact way to execute the ideas is the tricky bit.
ABOUT THE DECEMBER REPORT: I know people want to review the numbers in detail for the box ideas from December, and I promise to send out the spreadsheet with all the particulars as soon as the three open trades from last month close out: I’m trailing an ABC stop down down down in both LINTA and LLTC (about 10R in gains locked in so far) and waiting patiently for the SM long to stop out for a loss. Thanks for your understanding.
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• The_Box

| Time: 11:43 am (utc+8) Comments (5)

January 9, 2008
Stop and Stop-Limit OrdersI almost always use a stop-limit order to enter a position and always, always, always have a stop order in place to exit a trade if it goes bad.

• A “Stop” order becomes a market order when the chosen stop price is “triggered”
• A “Stop-Limit” order becomes a limit order when the chosen stop price is “triggered”
• Stop and Stop-Limit orders are “triggered” when a trade prints at, or through, the user’s stop price

And keep this firmly in mind:

“In a volatile market, there can be no guarantee that the executed order will be near the specified price. That is, the market price may be moving so rapidly that it moves through the specified price. The broker’s only obligation in that case is to execute the stop order at the best price available.”

Click to enlarge
Interactive Brokers offers some pretty sophisticated Stop Trigger Methods that you should be aware of if you’re a client.
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• The_Box

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One Trading Idea for Wednesday, January 9The box came up with one lonely short idea for Wednesday, January 9. After yesterday’s terrible action, with multiple whipsaw stop-outs, we could use a break. Incidentally, the long set-up for the vaunted GOOG didn’t trigger — thank god because the stock fell $17.57 (-2.71%). :)
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• The_Box

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hefeiddd

Arbitrary But Consistent (ABC) Stop Management (Part VI)This is the final installment explaining the ABC Stop Management method, which I’m sure you’re all thrilled to hear. IWO traded above the previous down bar high at 79.80, so your stop would have triggered and the short would have been covered. Later price reversed and tanked once again, hitting the original target of 77.45, but we wouldn’t have been there to enjoy it unfortunately.
Stop management is difficult and I had to come up with something decent for record keeping purposes, thus the “Arbitrary But Consistent” method. I expect everyone will manage the trades differently and there is no one correct way, but the ABC method is one thing worth considering — it caught over five times (5x) the initial risk in this IWO trade, which is nothing to sneeze at.

Click to enlarge
Arbitrary But Consistent (ABC) Stop Management (Part V)
Arbitrary But Consistent (ABC) Stop Management (Part IV)
Arbitrary But Consistent (ABC) Stop Management (Part III)
Arbitrary But Consistent (ABC) Stop Management (Part II)
Arbitrary But Consistent (ABC) Stop Management
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January 8, 2008
US Sectors Relative Percent Change Over the Last YearNice graphic that shows the tasty sectors: banks, real estate, diversified financials; you know, all the ones I love and that have been handing investors (including me) their asses. Timing is everything (and thank god I own a lot of Energies).

(Source: CSFB)
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| Time: 11:12 am (utc+8) Comments (19)


Ten Trading Ideas for Tuesday, January 8The box came up with ten (!) long ideas — the vaunted Google is one of them — for Tuesday, January 8. If you want to see the details for all these ideas, including the vaunted GOOG, just email me to join the list.
Argh, if all of these puppies trigger I’m going to have my work cut out tracking them.
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• The_Box

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Who Needs a Smart Stop When You’re a Lucky Dummy?Following up on yesterday’s post about aggressively trailing a stop in Logitech, it all turned out to be unnecessary. LOGI gapped down and traded lower forming a down bar on the daily, while hitting our target of 32.57. For record keeping purposes, I will use the ABC Stop method and trail the stop to above the high of this down bar at 33.44.
Assuming you risked $500 on this trade, you would have locked in around $2500 in gains (5x initial risk) at this new stop level. One good trade like this makes up for a lot of clinkers.

Click to enlarge
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Arbitrary But Consistent (ABC) Stop Management (Part V)IWO fell again forming another down bar on the daily. Following the ABC Stop Management method, this means that we move our stop down to above the high of the daily down bar at 79.80. Recall that the high target for this trade, sent to list members back on December 27, was 77.45. We’re darn close to that level and I expect the trade will stop out soon.
Assuming you risked $500 on this trade, at this new stop level you would have locked in around $2400 in gains which could pay for ten consecutive years worth of trading ideas from me, lol. I truly hope some of you guys enjoying the free trial period caught it.

Click to enlarge
Arbitrary But Consistent (ABC) Stop Management (Part IV)
Arbitrary But Consistent (ABC) Stop Management (Part III)
Arbitrary But Consistent (ABC) Stop Management (Part II)
Arbitrary But Consistent (ABC) Stop Management
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• The_Box

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January 7, 2008
Obama.com More Than Doubles in Four Trading DaysChecking up at Tradesports on the Barack Obama as Democratic Presidential Nominee contract, I was surprised to see that he’s trading over 60. It’s kind of a reverse of the old Howard Dean contract chart I posted back in January 2004 after the Iowa caucus.
(You’ll be amused to note that I was looking for Crude to move all the way up to $38.50 back then.)

Click to enlarge
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A Half-assed Idea about How to Aggressively Trail a StopCommenter Bob asks the very good question of how to handle stop management when a stock moves quickly and dramatically in our favor. Logitech is the position that sparked the question, and here’s the original idea sent to list members for last Wednesday:

Short LOGI below 36.57
Protective Stop above 37.20
Initial Risk = 0.63 (1.72%)
Initial Risk covered at ~35.94 (if prices reaches this level, move stop to breakeven)
Target: 32.57 to 32.04

As you can see from the chart below, the trade would have triggered and filled on Wednesday. It also traded down to 1x our initial risk which is the level that makes us move our initial protective stop down to breakeven. The stock traded sideways on Thursday and didn’t hit the lowered stop around 36.57.

Click to enlarge
On Friday all hell broke loose as the stock tanked to over 4x our initial risk in a single session. Following the guidance of the ABC (”Arbitrary But Consistent”) Stop Management method, since 2x our initial risk is covered, we start to trail the stop above the high of the daily “down” bars. But is that aggressive enough considering the distance this dog collapsed in one day? For record-keeping purposes, I will follow the ABC method, but let’s consider another possible stop-trailing method using Market Profile.
Market Profile, or volume (and time) at price, is a handy way to see at what price (and time) the bulk of the trading volume happened. See that bulge in the graph below just below 34.53? You could say to yourself, if I’m going to trail this stop down aggressively and I’m looking for a spot to put it, somewhere a bit above 34.50 might not be a bad idea. You’d be locking in over 3x your initial risk and might feel better about things. What do you guys think?

Click to enlarge
Understanding the MKTP function (PDF)
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January 5, 2008
Property Development Wasn’t a Priority with the CommunistsThat precious subject line above and the excerpt below are both from this week’s interview with Scott Blasdell in Barron’s:

“When subprime troubles began looming, banks everywhere started to tighten their lending across all real-estate sectors. So where you could get 90% loan-to-value in 2006, later in 2007, it was closer to 65% — and the spreads are also wider. As a result, prices, which were driven up dramatically in the U.S. and also in Europe and Asia, look set to fall … if you’re thinking maximum downside in the U.S., I see a possible 15%-20% correction in property prices, which translates into a 30% correction in REIT prices. We’ve already experienced about a 20% correction in stock prices so far, so we are getting there.”

Note that among the total returns for selected Vanguard funds in calendar-year 2007, the REIT Index fund performed worst, down 16.46%.
(If you’re wondering how I’m able to read Barron’s without paying for it, read this post.)
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hefeiddd

Arbitrary But Consistent (ABC) Stop Management (Part IV)Another ugly day in the market which means another pretty day for the IWO short. Price has now fallen six times (6x) the initial risk and has formed another “down” bar on the daily. I suggest moving the stop to above the high of this down bar at 80.73.
Assuming you risked $500 on this trade, you’d now be sitting on about $2700 of paper gains, and would have locked in around $2080 of that gain using this new stop level. This trade, like other recent short ideas (LINTA, LLTC, etc.), has turned into a big winner and I hope some of the many hundreds of people enjoying the free trial period caught it.

Click to enlarge
Arbitrary But Consistent (ABC) Stop Management (Part III)
Arbitrary But Consistent (ABC) Stop Management (Part II)
Arbitrary But Consistent (ABC) Stop Management
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January 4, 2008
TGIF (XIII)



(Another in the TGIF series)
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• TGIF

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Arbitrary But Consistent (ABC) Stop Management (Part III)Here’s the third installment explaining the Arbitrary But Consistent (ABC) Stop Management method. The IWO short fell again yesterday, practically reaching the 4x initial risk level and formed another “down” bar on the daily. I suggest moving the stop to above the high of this down bar at 83.03.
Assuming you risked $500 on this trade, you’d now be sitting on about $1720 of paper gains, and would have locked in around $1160 of that gain using this new stop level. There is no such thing as “strategic” stop placement, there are just better and worse guesses about how price will behave. One person’s idea of “where they ought to be” is often no more valid than the next person’s idea. The best we can do is take trades where our initial risk is small in relation to our expected gain.

Click to enlarge
Arbitrary But Consistent (ABC) Stop Management (Part II)
Arbitrary But Consistent (ABC) Stop Management
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• The_Box

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CMBS BBB- Spread: Now Over 1000 Basis PointsI was looking over the measures of short-term liquidity, and things look like they are improving, even for asset-backed paper. But then I drew up this chart of the Commercial Mortgage-backed Securities BBB- spread and was distressed to see that there’s still no relief here. I don’t think many people anticipated that the crisis would be this severe, or perhaps, as usual, I’m hopelessly naive and out of touch.

Click to enlarge (CMBS BBB- Spread over the 10-year Treasury)
All posts which mention CMBS
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Five Trading Ideas for Friday, January 4The box came up with five ideas, all longs, for Friday, January 4. A friend told me I shouldn’t say if the ideas are all longs or all shorts since this in itself seems to be valuable information. I don’t know, I’m so used to giving everything away I didn’t think twice about it.
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• The_Box

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January 3, 2008
Checking Up on Crude Earl & the Yeller MetalCommodities Surge, Led by Oil at $100, Record Gold

“Crude oil reached a record $100 a barrel and spot gold climbed to $860.10 an ounce… ‘Anything priced in dollars has to move higher to make up for the declining dollar.’”

I recall a cocky jerk, back on November 1, you know, one of those nobody bloggers, saying Crude Will Hit $100 No Problemo. Sure, it traded down below $86 in the meantime, but who’s gonna call him on that?

Click to enlarge (Hourly Crude)
That same smartass was looking for gold to hit $888. Doesn’t matter that he top-ticked a high with that call — the major trend will no doubt bail him out in the end, as it does most idiot guessers who happen to be on the right side of things.

Click to enlarge (Daily Gold)
Related: The Wind at One’s Back: Long Crude, Short Dollars
Sticking Firmly with a Totally Arbitrary Price Target for Crude
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• Energies
• Metals

| Time: 12:29 pm (utc+8) Comments (4)


Four Trading Ideas for Thursday, January 3The box came up with four ideas, all longs, for Thursday, January 3. I actually don’t like it when the box spits out this many ideas since I have to track them all, making me work for my supper — wait, no one is paying me yet, what am I thinking?
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• The_Box

| Time: 11:38 am (utc+8) Comments (2)


Arbitrary But Consistent (ABC) Stop Management (Part II)Following up on the original Arbitrary But Consistent (ABC) Stop Management post, we can see that the IWO short has now fallen to 3x the initial risk amount and another “down” bar has formed on the daily. I suggest moving the stop to above the high of this down bar at 84.05.
Assuming you risked $500 on this trade, you’d now be sitting on about $1500 of paper gains, and would have locked in around $750 of that gain using this new stop level. Of course you are free to apply a sophisticated, scientific, and rigorously-tested stop method instead. :-)

Click to enlarge
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• The_Box

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January 2, 2008
A Theater of ThreatsDreams: Night School, by Jay Dixit

“A dream researcher at the University of Turku, in Finland, Antti Revonsuo believes that dreams are a sort of nighttime theater in which our brains screen realistic scenarios. This virtual reality simulates emergency situations and provides an arena for safe training. As Revonsuo puts it, ‘The primary function of negative dreams is rehearsal for similar real events, so that threat recognition and avoidance happens faster and more automatically in comparable real situations.’ Revonsuo believes that by providing rehearsal, dreaming helps us recognize dangers more quickly and respond more efficiently. We don’t need to be aware of this rehearsal, just as you don’t have to recall exactly where you practiced your tennis serve in order to reap the rewards.
Sleep provides practice. People given brainteasers before bed dream about the answers. Math students are all too familiar with dreams about algebra problems. Anyone who’s ever played too much Tetris knows you can start having Tetris dreams.”

Oh god, don’t remind me of the dreaded Tetris dreams. The threat theory makes sense but of course dreaming doesn’t serve a single purpose. One dream I still remember from high school: a girl I had a crush on gave birth to a handgun. What was that a rehearsal for, Antti?
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hefeiddd

Arbitrary But Consistent (ABC) Stop ManagementI thought I’d use Thursday’s box pick to explain my Arbitrary But Consistent (ABC) Stop Management method. This is the method I am applying to all the ideas the box came up with in December to see how it performed. There’s nothing rigorous or scientific about it — I’m too dumb and lazy to come up with something like that (plus I suspect there is no ideal method).

Short IWO below 85.94
Protective Stop above 87.18
Initial Risk is ~1.24 (1.44%)
Initial Risk Covered at 84.70 (if it trades to this level, move the stop to breakeven)
Target: 76.43 to 77.45

Click to enlarge
You can see that IWO covered the initial risk on the same day the trade was entered — Thursday. Once the 1x Initial Risk level is hit, I suggest moving the protective stop to breakeven. On Friday IWO basically went nowhere, but at least it didn’t hit the tightened stop. The following Monday IWO gapped down and traded down to the 2x Initial Risk level. Now that the 2x level has been hit, the stop will begin trailing above the high of down bars only — a down bar is a bar that makes an equal or lower high and a lower low than the previous bar.
So when trading resumes on Wednesday morning, the stop will be above 84.23 and will continue to trail assuming the next bar is a down bar and the position isn’t stopped out. I know this is hard to understand if you haven’t traded before (and maybe even if you have), so please leave a comment if you’re confused or have any questions.
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• The_Box

| Time: 3:03 pm (utc+8) Comments (11)

December 31, 2007
Box a Blank for MondayThere are no trading ideas for today, but there are seven open positions, all box ideas, that I’m monitoring. I expect those trades to be closed out in the next week or so (win or lose) and then I can issue the report for December’s results. At the moment the results look… OK. I applied my ABC (”arbitrary but consistent”) stop management system to tabulate the results so far: moving the stop to breakeven once initial risk is covered, and then trailing the stop once twice the initial risk is covered.
Anyway, happy new year to my faithful readers; I thank you for sticking around.
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• The_Box

| Time: 6:11 pm (utc+8) Comments (9)


Chinese Yuan Charts for 2007Here’s the daily chart for the Chinese Yuan (spot) in 2007:

Click to enlarge
And here’s the daily chart for the 12-month non-deliverable forward contract for the Chinese Yuan in 2007:

Click to enlarge
The CNY appreciated around 6.6% against the USD in 2007 and I expect it will appreciate at about the same rate in 2008. (NDF traders are expecting slightly more.)
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• China
• Currencies

| Time: 2:23 pm (utc+8) Comments (4)


A Fondness for FinancialsFrom this week’s interview with Richard Pzena in Barron’s:

“Whenever investors become hypersensitive to the next piece of information, value opportunities arise. You have to have a strong stomach to do this. I always joke about it, but the most common question we get from clients in any market environment is ‘don’t you read the paper? How could you possibly do this, given what is going on?’ And the response is, these shares don’t trade at these valuations unless this kind of stuff is going on. If this proves to be fatal to Citi or Fannie or Freddie, we’ll get killed. If it proves not to be fatal, as we suspect, then over the long term we’re going to make a lot of money.”

I agree, but it’s tough when the prices you pay, which you think are a bargain, then fall another 25% to 50%.
(If you’re wondering how I’m able to read Barron’s without paying for it, read this post.)
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• Investing

| Time: 11:27 am (utc+8) Comments (11)

December 28, 2007
My Shaving Supplies and RoutineTraderEyal gave me a kick in the butt by encouraging me to get a badger brush and some old-style shaving cream — something I’ve been wanting to do for years but have inexplicably been putting off.
On Eyal’s recommendation I got Vulfix’s best badger brush #406 ($50).

I got Cyril Salter’s almond-flavored shaving cream, which smells wonderful. ($19) You only need a tiny dab of the stuff to make mountains of foam, and I’m afraid it’ll go bad (can it go bad?) before I use it up — the tub is 250 ml or 6.7 oz.

I also got Musgo Real after-shave balm. ($23) It smells kind of “common,” but it’s very soothing.

I still use my old Mach 5 (aka “Fusion”) from Gillette; I’m not ready to go super hardcore yet with a straight razor or Dad’s old double-edged safety razor. Plus I have stockpiled enough Mach 5 blades to last at least three years.

I have very sensitive skin and try to shave only two days a week (Wednesday and Sunday). Even though I work among “suits,” I can get away with this schedule because they know I don’t need to be in the office; I’m there as a favor.
Before I shave I sit in the steamroom at my club for about ten minutes (55 degrees centigrade) and I lather up using the badger brush in there for around two or three minutes. Then I go straight to the sink and shave. I usually do three latherings, in part because the cream smells so good. Then I shower. After showering, I put on the Musgo Real after-shave balsam without drying my face with a towel (I never dry my face with a towel). They say you can use this balsam as a pre-shave lotion too, but I haven’t tried that.
Last thing I do is go and blow-dry my Mach 5 to make sure that it’s perfectly dry before packing it away.
What is your shaving routine like?
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• Personal

| Time: 3:58 pm (utc+8) Comments (33)


Four Trading Ideas for Friday, December 28The box came up with four ideas, all shorts, for Friday, December 28. Two of these are shorts of major commodity ETFs which is interesting to me in light of the Bhutto assassination.
Originally I planned to stop taking names after the first 200 or 300 people joined, but quickly had to drop that idea as the interest was overwhelming.
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• The_Box

| Time: 10:43 am (utc+8) Comments (4)


Credit-Default Swap Spread for Pakistan’s Sovereign BondHere’s a chart of the credit-default swap spread for the five-year government bond in Pakistan. You can see that the market has been especially nervous about Pakistan going back to around the middle of this year (spiked up massively last July). Interestingly, the spread did not widen to the levels seen following the assassination attempt on Benazir Bhutto in October. The peak for this spread was 550 back on November 23, 2007.

Click to enlarge
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• Bonds

| Time: 10:28 am (utc+8) Comments (0)

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hefeiddd

Why Is VeriSign Pegged at $38?VeriSign was the long idea for Tuesday, December 18:

Long VRSN above 37.01
Protective Stop below 36.10
1x initial risk at ~ 37.94
Target: 42.34 to 43.77

I’m interested in the $38 level because that’s just above 1x initial risk (the level where I’d move my stop up to breakeven), but VRSN seems stuck at $38 — it’s bizarre. Does anyone who reads the news (I don’t) know what’s going on? Who is this massive seller sitting there with an offer at $38? Who is guiding the good ship VeriSign into year-end?

Click to enlarge (VRSN, 10-min. chart)
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• The_Box

| Time: 11:08 am (utc+8) Comments (11)

December 26, 2007
One Idea for Wednesday; Update on Friday’s Idea: PPDIThe box found another short for Wednesday, December 26. If you’d like to join the list of folks receiving these daily ideas, just email me. I’ll send out today’s idea around 5 AM (ET).
I thought it would be useful to look at the idea for last Friday, PPDI.

Long PPDI above 40.38
Protective Stop below 39.77
1x initial risk covered at ~ 40.99
Target: 42.91 to 43.35

Now the stock had a crazy open on Friday but quickly traded back down to the zone where we’d be interested in buying (just above 40.38). It then proceeded to trade lower and came darn close to hitting the protective stop loss order just below 39.77, but didn’t.
During Monday’s abbreviated trading session it opened strong and shot right up to not only the 1x initial risk level, but also the 2x initial risk level. You can see from the chart that it’s still below the target range.

Click to enlarge (PPDI, 5-minute chart)
I’m still struggling with how to manage these open swing trades, i.e. how to adjust the stop. Reader “peter” was kind enough to send me a copy of Ryan Jones’s book on money management, The Trading Game, which I’ve begun to read. I hope with the help of my readers and the hundreds of people receiving the ideas that we can come up with an intelligent and consistent way to manage these trades.
The box gives no trade management advice, it just generates trade ideas, and as anyone who has traded knows: trading ideas are a dime a dozen but money management is everything.
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• The_Box

| Time: 11:10 am (utc+8) Comments (17)

December 24, 2007
Phone Conversation with the Wife

Me: What time will you come home?
The Wife: Bill has a conference call.
Me: (Pause)
The Wife: Bill is driving back to Beijing.
Me: OK, but what time will you come home?
The Wife: We’re having lunch here.
Me: (Pause)
The Wife: We should be finished with lunch around 1:30.
Me: OK, but what time will you come home?
The Wife: We will leave here after lunch.
Me: (Pause)
The Wife: (Pause)
Me: OK, but what time will you arrive home?
The Wife: Maybe by 3:00?
Me: OK, I’ll see you at 3:00.
The Wife: Yes, maybe.

15 happy years together and counting. :-)
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• Personal

| Time: 11:47 am (utc+8) Comments (12)


Two Trading Ideas for Monday, December 24The box came up with two ideas, one short and one long, for Monday, December 24. It’s a pre-holiday trading session so we’ll see if either one of these trigger and fill during the shortened trading day.
Please email me to join the list if you’re interested in getting these daily ideas.
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• The_Box

| Time: 10:57 am (utc+8) Comments (0)

December 23, 2007
Sterilizing MisperceptionsA couple interesting things from Arjun Divecha in this week’s Barron’s. First, on the Chindia “misperception” –

“India has benefited hugely from this misperception of “Chindia.” By linking China and India together, people think that India is in the same league as China when, in fact, it is not. Let me give you a few numbers: In global zinc consumption, China consumed 29%, India consumed 3.8%; aluminum, China consumed 25%, India consumed 2.6%; oil, China consumed 9% of global oil, and India consumed 3% of global oil. These countries are not compatible. They are not even in the same league. India has got a whole lot of capital that it would not have gotten if people had thought of it separately. India is where China was 15 years ago in terms of per capita consumption. It is a great growth story, but equating it with China has meant a lot of global liquidity has flowed to it and helped India’s performance. It has made Indian stocks quite expensive, and that’s why it is our least favorite country. The economic story is terrific, the valuation story is not.”

Second, on the possibility (ha! why hedge?) of a bubble in China:

“China we don’t like, either. Although, I want to caution you on China because China could be in the beginning stages of a fairly large bubble. I’m not predicting it. I’m just saying it’s a possibility. There is a huge flood of money coming into the country as exports lead to massive amounts of capital inflows…so large the central government has not been able to sterilize them … The money supply has been growing at the 15% to 17%, about in line with GDP growth. But now it has suddenly stepped up to 25% or 30%, and in the last few months inflation has gone up to 6.9% in China.
That in and of itself could be a problem, but that is not what I’m focused on. I am focused on short-term interest rates at 3½%. If you are a saver in China, you are getting 3½% from the bank while inflation is at 6.9%. You can’t take money out of the country. So what are your options? Real estate and the stock market. That is why the stock market has gone up so much this year. This trend isn’t changing any time in a hurry.”

Related: Losing Less Money on Chinese Bank Deposits — Yippee!
(This is my last issue of Barron’s since I’ve canceled both it and wsj.com anticipating Rupert’s making them both free soon.)
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• China
• Trading and Investing

| Time: 3:20 pm (utc+8) Comments (9)

December 22, 2007
Gratuitous Cute Chick Pic — December 21, 2007



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• Personal

| Time: 9:11 pm (utc+8) Comments (1)


Constant Distress in Consumer DiscretionaryJust thought I’d point out the disaster area known as Consumer Discretionary. Boy is that an ugly relative performance chart. (It’s always good to review the component stocks that make up a sector.)

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• Investing

| Time: 7:33 pm (utc+8) Comments (2)

December 21, 2007
Losing Less Money on Chinese Bank Deposits — Yippee!China Raises Rates to Nine-Year High on Inflation

“The one-year deposit rate will rise by 0.27 percentage point to 4.14 percent. Consumer prices rose 6.9 percent in November … House prices in 70 major cities jumped 10.5 percent in November from a year earlier. The CSI 300 Index has climbed 147 percent this year.”

Gotta love it when the negative real returns on bank deposits narrow a tad. And thank god that our apartment, which I conservatively estimate is worth around $200,000, is priced at nearly three quarters of a million dollars. Don’t even get me started on the stock market here, lol.
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• China

| Time: 5:07 pm (utc+8) Comments (2)

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hefeiddd

December 21, 2007
Holiday Cheer as AKAM Covers Initial RiskAkamai, Wednesday’s long idea, closed higher again on Thursday, and has traded beyond the critical 1x initial risk level. Once a trade moves in my favor by one time (times? grammar alert!) the initial risk, I usually start thinking hard about how to manage (raise) the stop. Going to breakeven provides the greatest comfort, that’s what I experienced as a day trader, but swing trading may be different, I don’t know.

Click to enlarge (AKAM, 10-minute chart)
I do know that people who say you should use a volatility-based stop, or move to a larger time frame, or reduce your position size are often barking up the wrong tree. Trading is maybe 10% mechanical (technique) and around 80 to 90% mental (maintaining a good psychological state). Using chart-based stops and making sure your initial risk is as small as possible is the way to go, in my humble opinion. People who say otherwise are either automatons or don’t know what they’re talking about (usually the latter).
Anyway, here’s Friday’s idea, already emailed to the several hundred people on the list. If you’d like to join, just drop me a line. Sorry about the annotation error: 1x initial risk will be covered at 40.99, not 39.77 obviously (the trouble with copy and paste). You can’t beat facing 61 cents of initial risk on a $40 stock (~1.5%) off of the daily chart.

Click to enlarge (Friday’s idea, available to list members only)
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• The_Box

| Time: 4:57 pm (utc+8) Comments (20)


Fine-tuning the Model to Reach the Desired Credit RatingRating Subprime Investment Grade Made `Joke’ of Credit Experts, by Kathleen M. Howley

“Investment banks sold $1.2 trillion of securities backed by high-interest subprime mortgages in 2005 and 2006. None of this could have happened without the participation of the three biggest arbiters of credit — Moody’s Investors Service, S&P and Fitch Ratings [ed. Oligopoly, anyone?].
About 80 percent of the securities carried AAA ratings, the same designation given to U.S. Treasury bonds … ‘Issuers got guidance from rating companies on how to shape their subprime securities to win the ratings.’
‘Our attitude used to be: We’re not here to be your friend. We’re here to look at credit quality. But that began to change.’”

Echoes of Andersen and Enron, except this is a much bigger disaster. We know what happens when auditors, and now credit rating agencies, get cozy with clients.
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• Bonds

| Time: 12:28 pm (utc+8) Comments (7)


Theory on Recent Mass MurdersI believe the recent spate of mass murders (Omaha, Colorado Springs, etc.) can be directly blamed on the canned holiday music now being piped into elevators, shopping malls, and other public spaces. Even here in Beijing, on the short elevator ride up to my office, I’m assaulted by “Jingle Bells,” “Silent Night,” and “O Little Town of Bethlehem,” which fill me — a normally cheerful, friendly, and optimistic guy — with violent rage.
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• Personal

| Time: 11:53 am (utc+8) Comments (12)

December 20, 2007
Playing It Tight or Loose with Akamai?Here’s an intraday chart of AKAM, which was the long tech stock idea for Wednesday. A lot of people are writing me to say that they’re using tighter stops than the one I suggest, kind of combining day trading techniques with the swing trading ideas.
I guess it’s OK as long as you understand that the tighter your stops — the less “breathing room” you give the trade — the more stop-outs you’ll suffer. If you’d like to share how you improve the execution and risk management of these trading ideas, please leave a comment. I’m all ears!

Click to enlarge (AKAM, 10-minute chart)
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• The_Box

| Time: 11:51 am (utc+8) Comments (18)


The Once-in-a-lifetime, Low-risk, Incredibly High-reward ScenarioBass Shorted `God I Hope You’re Wrong’ Wall Street, by Mark Pittman

“Bass and Fournier focused on single-name mortgage bond derivatives to be more certain that their bets were right. Both bought only securities rated BBB and BBB-, rather than AAA rated securities, expecting them to pay off more quickly.
Bass says he raised about $110 million and used the leveraging effect of derivatives to sell short about $1.2 billion of subprime securities. Two-thirds of it was based on BBB rated mortgage instruments. The remaining third of Bass’s investment involved securities rated one grade lower, BBB-.
An index designed to be a proxy for the lowest investment-grade subprime mortgage bonds sold in the second half of 2005, the ABX-HE-BBB- 06-01, traded as high as 102.19 cents on the dollar when it started in January 2006 and today trades at about 30 cents on the dollar.”

I think a lot of people probably saw what was coming, but they weren’t able to raise $110 million fast, like Bass. It takes money to make money, baby.
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• Investing
• Bonds

| Time: 11:36 am (utc+8) Comments (2)


One Trading Idea for Thursday, December 20The box came up with one idea, long a “managed care” company, for Thursday, December 20. I’d be happy if it came up with just one or two ideas a day, otherwise tracking things gets a little overwhelming.
I’ll send the idea out this afternoon (my time), so if you email me to join the list before 5 AM (eastern time), you should get Thursday’s idea.
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• The_Box

| Time: 8:09 am (utc+8) Comments (7)

December 19, 2007
$500 Billion Injection Narrows TED Spread SlightlyMoney Market Rates Tumble; Central Banks Inject Funds

“The ECB loaned 348.6 billion euros ($501.5 billion) for two weeks at 4.21 percent today … The TED spread, or difference between what the U.S. government and banks pay for three-month loans, narrowed for a fifth day to 189 basis points, indicating an increased willingness among banks to lend. The spread was 35 basis points at the start of the year.”

I finally found the symbol for the TED spread, it’s .TEDSP [Index]

Click to enlarge (Monthly TED Spread back to 1985)
Related: SLIQ is Pretty Slick
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• Investing
• Bonds

| Time: 12:13 pm (utc+8) Comments (3)


Wheat at around $10 a BushelHere’s a look at the daily wheat futures chart going back seven months or so. Price has doubled in a very short time.

Click to enlarge
Related: Breakfast of Champion Trend Followers
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• Agriculture

| Time: 11:55 am (utc+8) Comments (0)


Two Trading Ideas for Wednesday, December 19The box came up with two ideas, both longs, a tech stock and a biotech stock, for Wednesday, December 19. It’s interesting that the box rarely seems to find both shorts and longs on any one day.
I’ll send the idea out this afternoon (my time), so if you email me to join the list before 5 AM (eastern time), you should get Wednesday’s idea.
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• The_Box

| Time: 10:39 am (utc+8) Comments (4)

December 18, 2007
Where Hedge Fund Guys Get Their Best Investment IdeasSubprime Securities Market Began as `Group of 5′ Over (non-Kosher) Chinese

“The ABX-HE index started trading on Jan. 19, 2006. At 8 a.m. on the first day, John Kane of Sorin Capital started phoning dealers. Kane, then 27, was a trader at Sorin, which runs hedge funds that invest in mortgages and other securities.
His auto mechanic, in describing the debt burden he was carrying to own a home, had planted the idea in Kane’s mind that the housing market might be in trouble. Kane thought it through, ran an analysis on available data, and decided to wager against, or ’short,’ subprime. To do that, he turned to the portion of the ABX index dealing with the lowest investment-grade subprime securities.”

For some inexplicable reason I’m reminded of the scene in The Big Lebowski where Tony (the driver) talks with the Dude:

The Dude sits in the back of a limo holding a White Russian, listening to the chauffeur, a man of about the same age from whose livery cap a ponytail emerges.
DRIVER
–So he says, “My son can’t hold a job, my daughter’s married to a f*ckin’ loser, and I got a rash on my ass so bad I can’t hardly siddown. But you know me. I can’t complain.”
THROUGH RASPING LAUGHTER:
DUDE
F*ckin’ A, man. I got a rash. F*ckin’ A, man. I gotta tell ya Tony.
He takes a sip of a freshly-mixed White Russian, which leaves milk on his mustache.
I was feeling really sh*tty earlier in the day, I’d lost a little money, I was down in the dumps.
TONY
Aw, forget about it.
DUDE
Yeah, man! F*ck it! I can’t be worrying about that sh*t. Life goes on!

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• Investing
• Bonds

| Time: 12:07 pm (utc+8) Comments (2)

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hefeiddd

December 18, 2007
Update on Box Ideas MAN and MSCCWe’ve already talked about the idea from last Monday, MAN — it dropped hard again today and is very rapidly approaching the upper bound of Target #1. I thank the folks who made comments on how best to manage this open position.

Click to enlarge (MAN Daily)
Microsemi (MSCC) was an idea sent out for last Tuesday:

Short MSCC below 23.64
Protective Stop above 24.12
Target #1: 20.53 to 20.93
Target #2: 18.53 to 18.90
Target #3: 14.71 to 15.00

Click to enlarge (MSCC Daily)
For no good reason, in some ways I find this a more exciting trade than MAN. The initial risk was around 50 cents and it’s already nearly 250 cents in the green (~5x initial risk). Top target of 20.93 is within spitting distance. I hope some of my many readers caught this big winner.
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• Trading and Investing

| Time: 11:34 am (utc+8) Comments (4)


One Trading Idea for Tuesday, December 18The box came up with one idea, long a tech stock (gasp), for Tuesday, December 18. It’ll probably work out as well as last week’s long in Symantec (a true clinker). :-)
I’ll send the idea out this afternoon (my time), so if you email me to join the list in the next six hours or so, you should get Tuesday’s idea. I’m adding about 100 names a day to the list so if you don’t receive the idea, just email me again to confirm that you’re on there.
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• Trading and Investing

| Time: 10:23 am (utc+8) Comments (8)

December 17, 2007
One Trading Idea for Monday, December 17The box came up with one idea, a short, for Monday, December 17. I’ve already sent the idea out, so if you email me to join the list you’ll begin receiving ideas on Tuesday. Again, if you joined the list long ago and haven’t received any ideas, then email me again. An overwhelming number of people are interested in receiving these ideas, which caught me by surprise, so I apologize if your mail got lost in the the crush.
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• Trading and Investing

| Time: 2:57 pm (utc+8) Comments (6)


Selected Stories (16-Dec-2007 23:05:55)Here are a few of the most read stories on the Bloomberg in the last day with selected excerpts (and my comments, if any, in italics).
As of 16-Dec-2007 at 23:05:55 (EST):

• Centro Shares Slump After Profit Forecast Cut

  “‘We never expected nor could reasonably anticipate that the sources of funding that have historically been available to us and many other companies would shut for business,’ Chairman Brian Healey said in the statement.”
  

  Eerily similar statement to Garrett Thornburgh’s back in August.
• Greenspan Favors Government Bailout for Homeowners

  “It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it’ll drag this process out indefinitely.”
  

  You can’t make this stuff up. So long, Ayn Rand! Warm up the helicopter, Ben!
• Wheat Price Rises Above $10 for First Time on Supply Concerns

  “Chicago wheat futures jumped by the exchange-imposed daily limit to $10.095 a bushel … Soybeans advanced to $11.9225 a bushel, the highest in 34 years, and corn rose to $4.4325 a bushel, a nine-month peak.”
  

  How much does a box of Wheaties cost these days? :-)
• Bears Capitulate as Treasuries Thwart Chart Watchers

  “Technical analysis is based on the theory that a chart of the price of any asset or index contains clues about future movements … ‘The trendline is not the issue, it’s the symptom of the issue,’ said Kosar.”
  

  Huh? I made fun of Kosar and his 25-cent ruler in my post last April, Why Technical Analysts Don’t Deserve To Be Taken Seriously
  

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• Bloomberg

| Time: 2:40 pm (utc+8) Comments (4)


Competition and the Death of a Middle-class MediocrityPast Its Prime: TV ad buyers re-think mass-market model
Isn’t this a great graphic for trend followers and culture watchers?

When I grew up in rural New York State, we got one channel: NBC (WKTV-Utica). Cable came to town in 1982 (I think) and then we had eleven (?) channels to choose from. I think hundreds of channels are now available in the small village where I lived, but I don’t know because I stopped watching TV in my teens.
The elite power that the big three broadcasters had to enforce a kind-of middle-class mediocrity is gone. And what do we have in its place? Rupert Murdoch’s vast fortune was built on giving the people what they want: white trash bleating, berating and beating each other (think Springer, Cops, etc.), World’s Scariest Car Chases, so-called “news” with constant terror and disaster alerts keeping the little people on edge — this is what Boobus Americanus always wanted but never got from the old elite.
Think of the fat, rich, old white guys (like Bill Paley) sitting in their huge offices in New York paternalistically “protecting” the public… bye Bill!
One amusing thing is that PBS, the “high-brow” broadcaster, is largely taxpayer-funded. Alistair Cooke sitting in his wood-paneled library, next to that roaring fire… wasn’t that set all paid for by Exxon (if I remember correctly)?
Anyway, I’m rambling… nice chart though, no?
– via Kedrosky –
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• Personal

| Time: 11:39 am (utc+8) Comments (8)

December 16, 2007
Update and Review of a Black Box TradeI thought it would be good to update and review one of the box trades from last week, and talk about various ways to manage the fear and greed of this open trade. You’ll recall my post last Sunday with this box pick:

Short MAN below 64.10
Protective Stop above 65.13
Target #1: 54.44 to 55.20
Target #2: 51.86 to 52.58
Target #3: 44.22 to 44.83

(IF YOU’D LIKE TO RECEIVE THESE DAILY TRADING IDEAS, PLEASE EMAIL ME TO JOIN THE LIST.)

A short entry should have been taken last Monday below 64.10 and a protective stop instantly put in place above 65.13. Assuming that you were risking around $500 on the trade, you would have shorted 500 shares.
On Tuesday the stock traded lower and closed at 62.13, which was close to 2x your initial risk. If you were the skittish type, you’d move your protective stop to breakeven by this point. On Wednesday MAN closed lower at 60.95, almost exactly 3x your initial risk. On Thursday the stock closed at 60.38 and on Friday at 59.45, over 4x your initial risk.
The highest target the box is looking for is 55.20, which is over 7% below Friday’s close (quite a drop).
An open short of 500 shares would be sitting on around $2300 of gains here, and you wouldn’t want to give that all up if price reverses and goes back up. I’m open to suggestions about what to do here (please leave a comment), but here’s one idea:
I think it might be smart to lock in around $500 in gains by covering 100 shares here and moving the protective stop on the remaining 400 shares down to around breakeven at $64 (if you hadn’t done that already). You can wait patiently for 55.20 with the knowledge that you took around $500 out and won’t get hurt on the remaining 400 shares if price reverses and trades back up through $64.
Letting it ride (greed) and intelligent stop management (fear) is an art that I certainly have never mastered.
What do you guys think?
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• Trading and Investing

| Time: 3:43 pm (utc+8) Comments (23)

December 14, 2007
TGIF (XII)



(Another in the TGIF series)
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• TGIF

| Time: 10:50 pm (utc+8) Comments (9)


SLIQ is Pretty SlickLibor Fails to Drop From 7-Year High; Crunch Persists

“The actions by the central banks were just a placebo, a tranquilizer that doesn’t solve the problem of the mistrust among banks on one hand and the potential for more losses in credit on the other.”

Bloomberg has a slick function called SLIQ (Short-term Liquidity) which lets you plot various short-term (O/N, 7-day, 15-day, 30-day) interest rates in different regions (America, Japan, Europe, Australia, etc.) over any period. You can see how that 30-day asset-backed commercial paper spreads have re-exploded in December.

Click to enlarge
You can also see that short-term rates in Europe have jumped dramatically in December. End of year liquidity squeeze or something more ominous?

Click to enlarge
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• Trading and Investing

| Time: 11:47 am (utc+8) Comments (5)


Brand Name Education for FreeFree Yale College Courses Debut Online
The URL for Open Yale Courses is: http://open.yale.edu/courses/

• Astronomy 160: Frontiers and Controversies in Astrophysics, with Professor Charles Bailyn
• English 310: Modern Poetry, with Professor Langdon Hammer
• Philosophy 176: Death, with Professor Shelly Kagan
• Physics 200: Fundamentals of Physics, with Professor Ramamurti Shankar
• Political Science 114: Introduction to Political Philosophy, with Professor Steven Smith
• Psychology 110: Introduction to Psychology, with Professor Paul Bloom
• Religious Studies 145: Introduction to the Old Testament, with Professor Christine Hayes

I’m already taking the Modern Poetry class and plan to take all seven courses.
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• Personal

| Time: 10:05 am (utc+8) Comments (5)


One Trading Idea for Friday, December 14The box came up with one idea, a short, for Friday, December 14. Yesterday’s pick was a real clinker — a same-day stop-out. If you would like the receive these daily ideas, just drop me an email and I’ll add you to the list. If you wrote in the last few days and don’t receive today’s pick sometime today, then you should email me again. I’ve had to add hundreds of names to the list and some people may have been lost in the shuffle; sorry about that.
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• Trading and Investing

| Time: 8:19 am (utc+8) Comments (4)

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hefeiddd

Strains in Financial MarketsHere’s a 5-minute chart of the S&P futures… you can see the typical “Fed day” range of 40+ points. Getting caught on the wrong side of that kind of move can be devastating.

Click to enlarge
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• Trading and Investing

| Time: 11:29 am (utc+8) Comments (0)


At Least Five New Trading Ideas for Wednesday, December 12The black box came up with at least five new trading ideas, all shorts, for Wednesday, December 12. If you’d like to receive these daily ideas, just email me to join the list. I will get the picks to you before Wednesday morning’s opening bell, and hopefully much sooner.
A day like today where the major indexes are down two to three percent will make those shorts taken on prior days “look good” (a falling tide sinks all boats), but things can turn on a dime and risk management makes or breaks trades (and traders). Stay sharp.
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• Trading and Investing

| Time: 8:53 am (utc+8) Comments (2)

December 11, 2007
China’s Lending Rates — 5+ YearHere’s a look at long-term lending rates in China since 1996 (anything over five years is long-term here). The worldwide boom in energy, metals, and other commodity prices can mainly be attributed to the economic boom in China — stimulated by super-low long-term rates in the 2002 - 2004 period, yes? When crude was $10.35 a barrel in 1998, long-term rates here were 10.35%. :-)
When we bought out apartment here in 2005, the home loan was 6.12%. Home loans reset annually so our loan has moved up to 6.84% and will reset to 7.83% at the end of this year. No such thing as a fixed-rate 30-year home loan here!

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• China

| Time: 8:58 pm (utc+8) Comments (9)


Federal Funds Implied Probability (12/11 FOMC)These probabilities are calculated using Fed Funds options and futures data: 67.8% chance for a move to 4.25; 30.1% chance for a move to 4.00.

Click to enlarge (Source: Bloomberg)
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• Trading and Investing

| Time: 2:38 pm (utc+8) Comments (4)


China’s Reserve Ratio — Ten Year ViewChina Tells Banks to Raise Reserves to Cool Economy

“Lenders must put aside 14.5 percent of deposits as reserves, starting Dec. 25, up from the previous 13.5 percent, the People’s Bank of China said today on its Web site. The ratio is the highest since at least 1987 when the data began and the increase is twice as much as the nine others this year.”

Here’s a look at the reserve ratio over the last ten years.

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• China

| Time: 8:47 am (utc+8) Comments (4)


One Trading Idea for Tuesday, December 11The black box kicked out one idea for tomorrow, another short. If you’d like to receive these daily ideas, just email me to join the list. I’ll probably stop taking new names after 200 or maybe 300 people join, so be quick.
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• Trading and Investing

| Time: 8:21 am (utc+8) Comments (6)

December 9, 2007
Four Trading Ideas for Monday, December 10I am doing a very expensive one-month trial of a piece of trading software and thought it best if we look at its ideas together. At the end of the month we should know if it’s worth the money. If anyone makes money off any ideas this month, please throw me a bone to help defray the cost of the trial. Remember that these are just black-box-generated ideas; trade at your own risk!

Short CEPH below 76.25
Protective Stop above 78.05
Target #1: 72.52 to 71.82
Target #2: 70.51 to 71.19
Target #3: 67.36 to 68.01
Target #4: 60.99 to 61.58
Short ORCL below 21.06
Protective Stop above 21.54
Target #1: 18.97 to 18.59
Target #2: 17.44 to 17.80
Target #3: 15.04 to 15.35
Target #4: 11.92 to 12.16
Short HPQ below 51.68
Protective Stop above 52.67
Target #1: 47.79 to 47.19
Target #2: 46.04 to 46.63
Target #3: 43.29 to 43.85
Target #4: 37.70 to 38.18
Short UTX below 77.42
Protective Stop above 78.40
Target #1: 72.14 to 71.16
Target #2: 68.29 to 69.23
Target #3: 62.37 to 63.23
Target #4: 54.57 to 55.32

UPDATE: Found two more ideas. In future these ideas will be emailed directly to you, not posted, so if you’d like to join the list just email me.

Short ROP below 64.77
Protective Stop above 65.83
Target #1: 59.35 to 58.28
Target #2: 54.15 to 55.14
Target #3: 49.05 to 49.95
Target #4: 40.81 to 41.56
Short MAN below 64.10
Protective Stop above 65.13
Target #1: 54.44 to 55.20
Target #2: 51.86 to 52.58
Target #3: 44.22 to 44.83

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• Trading and Investing

| Time: 12:27 pm (utc+8) Comments (19)

December 8, 2007
Gratuitous Cute Chick Pic — December 7, 2007



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• GCCP

| Time: 3:35 pm (utc+8) Comments (4)

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hefeiddd

December 5, 2007
SPY Fifth Wave Decline Price TargetsChecking up on SPY after it recently completed Wave 4 and has begun its Wave 5 decline. It should drop to at least $138 - $139 and may fall all the way to $132 - $133. I’m not an expert on idiot waves, but when I squint at the chart this is what I see.

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• Trading and Investing

| Time: 1:40 pm (utc+8) Comments (13)

December 4, 2007
Three Month Treasury-EuroDollar (TED) SpreadAs of November 30th… the chart is already out of date. :-) Once I figure out how to get this chart on the Bloomberg, I’ll update the post.

Meanwhile, here’s Gary Stern, president of the Minneapolis Federal Reserve Bank, in a November 26 interview:

“‘I’ve not made up my mind what to do yet,’ said Stern, one of the members of the FOMC. ‘Why would I? There’s two weeks to go. We’ll see what we learn.’”

You have to wonder what planet these bureaucrats are living on.
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• Trading and Investing

| Time: 2:34 pm (utc+8) Comments (10)


Euphemism Watch: Automatic Liquidation EventFlorida School Fund Rocked by $8 Billion Pullout

“The Florida pool, which was the largest of its kind in the U.S. at $27 billion before the recent spate of withdrawals, has invested $2 billion in SIVs and other subprime-tainted debt, state records show. Connecticut, Maine, Montana and King County, Washington, are among other governments holding similar investments, in smaller quantities.
The Florida pool’s $900 million of defaulted asset-backed commercial paper now amounts to almost 5 percent of its holdings. The paper, which carried top ratings from S&P, Moody’s Investors Service and Fitch Ratings as recently as August, was downgraded after declines in the value of collateral affected by the subprime mortgage slump.”

Wall Street once again able to foist junk on gullible and probably greedy investors … local and state government-run funds must be the easiest “marks.” Does anyone know the definitive article or book written on the Orange County (not Florida, ha!), California debacle? I’d love to read it.
Florida Says Unfreezing Fund Would Spark `Fire Sale’

“‘We’re fiduciaries, we’re investment professionals, we know what we’re doing,’ State Board of Administration executive director Coleman Stipanovich said Nov. 29.”

Hee-haw!
Why is the BBA LIBOR standard important?

Click to enlarge (1-month USD LIBOR)
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• Trading and Investing

| Time: 11:08 am (utc+8) Comments (9)

December 3, 2007
Mortgage Interest Rate Reset ScheduleJust read a report put out last Friday from CSFB on the financial sector… pretty grim reading.

“… current ABX indices are now consistent with potential mark-to-market losses in sub-prime/CDOs of US$240bn. If we very aggressively assume that the US investment banks will take half these losses, then that would justify an equivalent aggregate market-cap loss of US$240bn (assuming a normalized 2-times book multiple). However, their market cap has already declined some US$274bn from peak (and the OECD estimates that all banks globally hold 25% of CDO paper) making the sell-off look excessive. This said, the risk remains that these signs of value could disappear if there were CDO asset fire-sale, perhaps caused by more severe ratings actions. Until we have more clarity on this, it would be premature to strategically build on our position here.”

Speaking of more severe ratings actions…

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• Trading and Investing

| Time: 10:59 am (utc+8) Comments (11)

December 1, 2007
Gratuitous Cute Chick Pic — November 30, 2007



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• GCCP

| Time: 9:42 pm (utc+8) Comments (9)


wp_footer Exploits ContinueThe troubles with the evil wp_footer exploit continue. My friend Roy alerted me to the fact that wp_footer had reappeared and was once again creating spam links in my footer. Those spam links went to Scott Rosenberg’s site, Wordyard. I contacted Scott and he told me he knew his site had been hijacked to host these spam pages and he was busy cleaning it up. He helpfully told me that “wp_footer” was being called by some rogue code in the “default-filters” file which can be found in the folder “wp-includes.”

Click to enlarge
Scott also pointed out that I should delete another rogue file, “class-mail,” also found within the folder, “wp-includes.”
Let’s see if this solves the problem.
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• Internet/Media

| Time: 2:44 pm (utc+8) Comments (4)

November 30, 2007
Dumb Borrowers to Get “Help” from Hedge Fund HonchoPaulson Housing Bets Make $2.7 Billion

“Paulson earned an estimated $1.14 billion in performance fees for the nine months ended on Sept. 28. Fees on Paulson’s other eight funds bring his total to $2.69 billion.
Paulson … donated $15 million to the Institute for Foreclosure Legal Assistance, a new nonprofit formed that month by the Center for Responsible Lending, a borrowers’ advocacy organization in Durham, North Carolina.
‘Given the success of our funds, we feel it is important to help those who have suffered the most as a result of predatory subprime lending practices,'’ Paulson wrote to investors after the third quarter.’”

He donated around one half of one percent of this year’s profits, I love it. Is that help or good public relations? You can’t save people from themselves.
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• Trading and Investing

| Time: 5:44 pm (utc+8) Comments (8)


Learned HelplessnessThe Secret to Raising Smart Kids, by Carol Dweck (rhymes with dreck)

“We found that intelligence praise encouraged a fixed mind-set more often than did pats on the back for effort. Those congratulated for their intelligence, for example, shied away from a challenging assignment—they wanted an easy one instead—far more often than the kids applauded for their effort. (Most of those lauded for their hard work wanted the difficult problem set from which they would learn.) When we gave everyone hard problems anyway, those praised for being smart became discouraged, doubting their ability. And their scores, even on an easier problem set we gave them afterward, declined as compared with their previous results on equivalent problems. In contrast, students praised for their effort did not lose confidence when faced with the harder questions, and their performance improved markedly on the easier problems that followed.”

Yeah, the kids who had their back patted for effort didn’t “lose confidence,” but they still couldn’t solve the difficult problems that followed.
(Aside: Did taxpayers underwrite this “six-module ‘Brainology’ interactive computer program”? You can bet they’ll pay for it!)
There are problems with this besides the awful jargon, “fixed mind-set” and “growth mind-set.” Obviously you want to encourage every kid to work hard to solve problems, but… demonstrating my “fixed mind-set,” I think there are four types of people:

• Smart & Hard-working
• Smart & Lazy
• Dumb & Hard-working
• Dumb & Lazy

The dumb, hard-working kids can do as well or better than the smart, lazy kids but they’ll never touch the smart, hard-working kids, no matter how much you pat them on the back.
The real question is what motivates a smart person to be hard-working as well? Can you teach somebody to be hard-working?

“… great accomplishment, and even what we call genius, is typically the result of years of passion and dedication and not something that flows naturally from a gift.”

Wrong. Great accomplishment is almost always the result of passion, dedication, and a gift. Just ask Tiger Woods.
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• Personal

| Time: 1:17 pm (utc+8) Comments (16)


The Techniques of HospitalityMy Short March Through China, by Gary Rosen

“It is Hong Kong’s good fortune to possess, in addition to its corporatist elite, a vibrant civil society, the rule of law, and a free press; China has no such safety valves for the discontent of its people, no resilience in its politics. The echo chamber of today’s Chinese regime—with its slogans and show trials, its claims of expertise and openness, its pretense of oversight and accountability—cannot do the work of pluralist democracy. As James Madison knew, an extended republic, even a ‘people’s’ republic, requires institutional checks and balances if it is not to devolve into a tyranny—or to remain one.”

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• China

| Time: 12:32 pm (utc+8) Comments (22)

November 29, 2007
On Fairies and FarriersThree questions I ask myself as the pretty boys check me out on the street, staring at my midsection:

• Is he admiring my fairly flat tummy? or
• Is he judging the size of my “package”? or
• Is he enamored of my fabulous farrier’s belt?

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• Personal

| Time: 3:12 pm (utc+8) Comments (9)

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November 29, 2007
Patient Pershing’s Philanthropic Profit PledgeMBIA, Ambac Bear Ackman to Donate Profit to Charity

“Ackman said he personally stands to gain about $500 million if MBIA’s holding company failed and that amount would be donated to charity. The fund itself stands to make “multiple billions of dollars'’ if the holding companies of MBIA and Ambac were to fail, he said.”

Good things sometimes come to those who wait and wait and wait and wait.

Click to enlarge (Ambac (ABK), Monthly)
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• Trading and Investing

| Time: 12:16 pm (utc+8) Comments (3)

November 28, 2007
Sample Beijing Apartment Sale and Rental PricesHere’s a flyer for October from Century 21’s branch office in my development here in Beijing. The top section lists apartments for sale and the bottom section lists apartments for rent. You can see that the smallest apartment listed for sale, one room at 59 square meters (635 square feet), is selling for 1,150,000 yuan (US$155,466). That’s 19,491 yuan per square meter (US$244.82 per square foot). The largest apartment listed is four rooms at 206 square meters (2,217 square feet) for 5,150,000 yuan (US$696,218). That’s 25,000 yuan per square meter (US$314.04 per square foot).
The rental prices range from 3,200 yuan (US$432) to 11,000 yuan (US$1,487) per month, with most listings for two to three bedroom apartments falling in the 5,500 to 6,500 yuan (US$743 to US$878) range.
I think the average monthly income in Beijing is around US$300 to US$500, so even renting, let alone owning, one of these apartments is a wild dream for the great vast majority (the “average” person). China’s new middle class gets lost in the averages, but they definitely exist and are anxious to start consuming like Americans — houses, cars, big-screen TVs, private education, winter vacations on the beach, you name it.

Click to enlarge
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• China

| Time: 3:41 pm (utc+8) Comments (17)

November 27, 2007
10-year Treasury Note Overshoots — Expect a PauseFor the last month or so folks have been looking for the yield on the ten-year note to get down to 3.971% — it flew through there yesterday (Monday). The flight to safety has been pretty dramatic and I expect things to calm down for a bit here. My usual caveat applies: I’m probably wrong.

Click to enlarge (Ten-year US Treasury Note Yield, Daily)
If you prefer to think in terms of price instead of yield (I never do, yield is much more intuitive to me), here’s the daily chart of the 10-year T-note futures (December contract).

Click to enlarge (Ten-year US Treasury Note Futures, December contract, Daily)
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• Trading and Investing

| Time: 12:07 pm (utc+8) Comments (3)


Delegated Decision DisasterPrem Watsa has never been more bearish, by Derek DeCloet

“The Fairfax chairman said [that structured] products were always flawed because they shifted the risk away from the person making the lending decision - which encouraged auto finance or mortgage companies to give loans to almost anyone, since they would not have to bear the losses on defaults.
‘If I’m an investor, why would I ever buy something where the credit decision has been delegated?’ he asked.”

I remember when I took out a student loan (long ago), I asked the banker if they held the loan and she said, no, we sell it immediately to Sallie Mae. I said, so you have no risk and collect an origination fee, that’s a pretty sweet deal, and she said, ain’t life grand!
-via Controlled Greed -
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• Trading and Investing

| Time: 10:55 am (utc+8) Comments (2)


Pickled Garlic 糖蒜Unlocking the Benefits of Garlic

“… eating garlic appears to boost our natural supply of hydrogen sulfide … which acts as an antioxidant and transmits cellular signals that relax blood vessels and increase blood flow. The concentration of garlic extract used in the latest study was equivalent to an adult eating about two medium-sized cloves per day. In such countries as Italy, Korea and China, where a garlic-rich diet seems to be protective against disease, per capita consumption is as high as eight to 12 cloves per day.”

I eat a bulb of pickled garlic (糖蒜) every day (probably eight to twelve cloves), which is a habit I picked up from living in northern China. Eating raw garlic will give you killer breath and sweat, but the pickled stuff doesn’t. I’m not sure if the pickling reduces or eliminates the benefits of eating garlic, but I’m betting it doesn’t.
(As everyone knows, dairy products are the root of most B.O.)
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• Personal

| Time: 10:36 am (utc+8) Comments (2)

November 26, 2007
Chinese Yuan 12 Month Non-deliverable ForwardHere’s a chart that shows the ever-widening spread between the spot market and the 12-month non-deliverable forward contract for the Chinese Yuan. Something’s gotta give.

(CNY NDF vs Spot Spread)


Click to enlarge (CNY 12 month NDF, Weekly)
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• Trading and Investing

| Time: 10:22 pm (utc+8) Comments (15)


Three Random ObservationsHad these three thoughts:

• Exclusive and expensive aren’t the same thing. (On the way to the gym)
• Italian soccer is more entertaining than Italian opera. (At the gym)
• China’s money supply growth must be huge because for the zillionth time when I took money out of the ATM I got twenty freshly printed, consecutively numbered 100 yuan bills that were all stuck together. (Coming back from the gym)

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• Personal

| Time: 2:53 pm (utc+8) Comments (8)


Long View: Copper, Corn, Oil, US Stocks and Wheat — Priced in GoldI don’t know how useful or meaningful these charts are, but they’re fun to look at anyway. Gold bugs tend to be lunatics, and like most lunatics, they are often interesting and thoughtful drinking buddies.

Copper Price / Gold Price


Corn Price / Gold Price


Oil Price / Gold Price


US Stock Prices / Gold Price


Wheat Price / Gold Price
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• Energies
• Metals
• Agriculture

| Time: 11:04 am (utc+8) Comments (2)

November 25, 2007
Bucking Euro Trend a Bad BetIn the week’s Barron’s, Charles Gave calls the Euro “grotesquely overvalued” and says he is looking for it to return to $1.05 to $1.10 in “the next couple of years.” His guess is as good as the next guy’s. It might be wise to wait for the trend to reverse before targeting $1.05 to $1.10.

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• Trading and Investing

| Time: 6:19 pm (utc+8) Comments (5)

November 24, 2007
Spam Links Mysteriously Appear in FooterI’d like to thank reader “Donk” for pointing out the hidden spam links cluttering my footer. Somehow it gets inserted at the highlighted section of code - php wp_footer(); - see enlarged screenshot below.

Click to enlarge
I just deleted that line of code which didn’t mess anything up and gets rid of the spam. Does anyone have any insight into how this happened?
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• Internet/Media

| Time: 3:15 pm (utc+8) Comments (14)

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hefeiddd

Looking for Sustained and Substantial Yuan AppreciationChina’s Yuan Rises Past 7.40 Per Dollar Before Trichet Visits

“Forwards contracts show traders are the most bullish on yuan gains since the end of the dollar link, betting the currency will reach 6.7790 in 12 months, a gain of 9.2 percent from the current spot rate. The U.S. dollar reached a record low versus the euro today.”

Good thing my long-term assets are mainly yuan-denominated while my long-term liabilities are mainly dollar-denominated.

Related: Renminbi Revaluation Redux, April 17, 2007
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• Trading and Investing

| Time: 10:08 pm (utc+8) Comments (10)

November 22, 2007
Drop Your Pfandbriefs and Take CoverEurope Suspends Mortgage Bond Trading Between Banks

“‘In light of the current market situation and in order to avoid undue over-acceleration in the widening of spreads,’ the committee of banks and borrowers ‘recommends that inter-bank market making be suspended,’ the European Covered Bond Council said in an e-mailed press statement.”

That’s the way to keep spreads from widening: shut down the market. ;-)
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• Trading and Investing

| Time: 2:51 pm (utc+8) Comments (3)


The Wind at One’s Back: Long Crude, Short DollarsEven if your trade timing stinks, if you have the wind (a.k.a. the larger time frame trend) at your back, you should be OK. Here are the hourly Crude and weekly Dollar charts:

Click to enlarge (Crude, Hourly)


Click to enlarge (US Dollar Index, Weekly)
Related:
Sticking Firmly with a Totally Arbitrary Price Target for Crude
Crude Will Hit $100 No Problemo
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• Trading and Investing

| Time: 11:53 am (utc+8) Comments (1)

November 21, 2007
Most Read Credit Crisis Stories (20-Nov-07)Eight stories from the “Most Read” today … read ‘em and weep.

• Freddie Posts Loss, May Cut Dividend; Shares Plunge

  “Freddie Mac had $1.2 billion in provisions for credit losses and reduced the value of assets by $3.6 billion … A slump in the value of mortgages reduced core capital by two-thirds to $600 million more than Freddie Mac’s regulatory requirements, prompting the company to seek more money … Freddie Mac’s $713.1 billion portfolio as of September included $105 billion of securities backed by subprime mortgages.”
  

• At Subprime Event Too Early to Tell Who’ll Survive

  “‘These events tend to become deeper and play out longer than most people initially expect. This is one of the slowest-moving train wrecks we’ve seen,’ says Michael Mayo, an analyst who covers securities firms at Deutsche Bank AG in New York.”
  

• Fed Pares Growth Forecast, Calls October Cut `Close’

  “‘Participants generally viewed financial markets as still fragile and were concerned that an adverse shock — such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses — could further dent investor confidence and significantly increase the downside risks to the economy,’ the minutes said.”
  

  Further dent? Body slam unfortunately is not a term you see in Fed minutes.
• Credit Market Collapse Claims Victims as Lawyers Exit

  “While structured finance practices have been hit the hardest, mergers and acquisitions and private equity practices also face a slowdown … ‘the market has caved in.’”
  

• Citigroup, Bank Credit Swaps Rise on Subprime Concern

  “… analysts predict that writedowns by banks and securities firms, already $50 billion worldwide, will continue to grow.”
  

• Federated Investors Bails Out Cash Fund After Losses

  “Enhanced cash funds, which hold about $850 billion in assets in the U.S., are sold to wealthy investors and institutions as an alternative to money-market funds, offering higher yields by buying riskier assets such as mortgage-backed securities.”
  

• Corporate Bond Risk Increases as Freddie Mac Posts Record Loss

  “Countrywide’s ’survival strategy has depended on access to the secondary markets through’ Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, analyst Howard Shapiro wrote in a research note. ‘That strategy is less viable in an atmosphere where’ Fannie and Freddie are ‘capital constrained and may need to shrink.’”
  

• Northern Rock May Not Get Extended Aid; Bids Reviewed

  “The government expects ‘the costs and risks associated with Northern Rock to be borne to the greatest extent possible by the current and future private sector providers of capital,’ the Treasury said.”
  

  The “greatest extent possible” may turn out to be very little indeed.
  

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CMBS BBB- Spread: Code Red Critical EmergencyIt’s been awhile since I posted the Commercial Mortgage Backed Security BBB- spread chart, mainly because I’ve been busy living in denial. This is a terrifying chart — the credit crisis is huge and is still raging.
Countrywide in the single digits, Fannie and Freddie blowing up, E*trade approaching zero, nearly all of the regional banks and other financial stocks I’ve bought will likely slash their dividends (I bought them for the dividends) — everything I thought was a bargain I’ve been dead wrong about.
Live and Lose and Learn.

Click to enlarge (CMBS BBB- Spread over the 10-year Treasury)
Related: All posts mentioning the CMBS BBB- Spread
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• Trading and Investing

| Time: 11:00 am (utc+8) Comments (12)


Monthly View of Freddie and FannieYou can see from the long-term charts that Freddie (FRE) and Fannie (FNM) went nowhere for many years (around a decade!) before this recent collapse. Chartists, at least the ones who keep it simple, shouldn’t be mocked.

Click to enlarge (FRE Monthly)


Click to enlarge (FNM Monthly)
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• Trading and Investing

| Time: 10:40 am (utc+8) Comments (4)

November 20, 2007
Banking on Gullibility and InertiaAnother 7,000 word piece from Michael Lewis, The Evolution of an Investor. How much do you think Conde Nast pays Lewis to write this kind of thing?

“His job, as he now defines it, is to tell investors that the smartest thing they can do is nothing. He acts as a brake on, rather than an accelerator for, their emotions. For that, he takes between one-half of a percent and 1 percent annually, which is more than they’d pay if they simply bought index funds on their own. ‘I tell them, ‘Look, if you can control your own emotions and you want to go to Vanguard, you should do it.’ And every now and then, someone asks the question, ‘Why do I need you, Blaine? What are you doing?’ And I say, ‘Howard, be careful or I’m going to send you back to Smith Barney.’ And they laugh. But they know exactly what I mean.’”

50 to 100 bps a year for keeping his investors in index funds — maybe the sweetest racket of all.
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• Trading and Investing

| Time: 5:36 pm (utc+8) Comments (6)


Menu for Xiabu Xiabu (呷哺呷哺)Xiabu Xiabu is a popular chain of hotpot restaurants in Beijing. Like most Chinese websites, Xiabu Xiabu’s is extremely annoying (flash, terrible navigation, embedded music, etc.) and lacks certain critical information, like the menu:

Click to enlarge
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The Law of Historical MemoryMonuments and memory, by Louis Bickford

“The original text … proclaimed the ‘eternal friendship between the German Democratic Republic and the Soviet Union.’ After German reunification in 1990, designers added a transparent piece of plastic on which they inscribed a new narrative, while the old can still be seen under the cover.”

Creative approach, I like it. I expect that during my lifetime a certain someone’s portrait will be removed from the front of a certain large gate across from a certain enormous square in the center of the city where I now live.
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hefeiddd

Citigroup Recommends Overweighting CitigroupCitigroup Downgraded to `Sell’ at Goldman Sachs
This line made me chuckle (with some pain since I’m a long-time C shareholder):

“… Citigroup recommended that investors buy U.S. bank stocks. New York-based analyst Tobias Levkovich raised his rating on the companies to ‘overweight’ from ‘market weight’ because of ‘compelling valuation, depressed earnings revision data and awful investor sentiment.’”

Here are the daily, 120-minute, and dividend yield charts for Citigroup (C):

Click to enlarge (C Daily)

Click to enlarge (C 120-minute)

Click to enlarge (C dividend yield)
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| Time: 11:20 am (utc+8) Comments (4)

November 19, 2007
A China Scholar Stuck in the PastNew book on China raises a storm, by Richard Bernstein

“The questions have always been: How much should the United States publicly criticize China for its numerous, egregious human rights violations and how much does the human rights goal have to be accommodated to China’s power and importance?”

Wrong. The question has always been: How much should the United States publicly criticize China for its numerous, egregious human rights violations and how much should we expect that the human rights goal will naturally be achieved by strong and rapid economic growth and the resulting emergence of a large, educated, sophisticated middle class who will create a civil society on their own?

“… some China scholars criticize Mann for concentrating so much on political reform that he has failed to appreciate the enormous beneficial changes that have occurred in China over the past decade, where a middle class of perhaps 200 million to 300 million people has come into existence enjoying a degree of personal autonomy that would have been unthinkable 15 or so years ago.”

Correct. As someone who was living in China in 1990 (my junior year abroad in college) and who lives here today, I can say that the differences between then and now are breathtaking, and nearly all for the better (aside from the catastrophic destruction of the natural environment).
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| Time: 5:34 pm (utc+8) Comments (0)


Absolutely Fabulous, DarlingI bought a new sport coat from Ralph Lauren. It’s black velvet with a Mandarin collar, and has a red silk lining and silver buttons. The closest thing I can find online is this Heritage Velvet Sport Coat.

“Strike the perfect balance of elegance and casual with the subtle sheen and rich color of our velvet sport coat.”

I know it looks smashing because I’ve already had two men hit on me this morning.

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| Time: 3:56 pm (utc+8) Comments (17)


Car Insurance Bill in BeijingHere’s the bill for a year’s worth of car insurance in Beijing. This is to insure a 2005 Nissan Tiida. The top invoice is for the mandatory insurance (945 yuan = $126) and the bottom invoice is for the added insurance (theft, smashed glass, bumping up protection, etc.) (3017.19 yuan = $402.29).
Grand total: 3,962.19 yuan or $528.29. What do you pay for a year’s worth of car insurance?

Click to enlarge
Related:
Oil Change Bill in Beijing
Heating Bill in Beijing
Bill from Visit to Pediatrician in Beijing
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| Time: 10:54 am (utc+8) Comments (22)


Oil Change Bill in BeijingHere’s the bill from having the car’s oil changed. I know only suckers have their cars serviced at the dealer, but I don’t know any local mechanics so I pay a premium to have it done at the dealer where I trust (hope?) that the materials are genuine and the labor competent. Sacrificing accuracy for convenience, I’m using 7.5 as the exchange rate.
Labor: 108 yuan ($14.40 ($16 hourly rate))
Oil Filter: 28 yuan ($3.73)
Oil (5W-30, 4 liters): 260 yuan ($34.67) — seems high!
Brake light bulb replacement: 10 yuan ($1.33)
Grand total: 406 yuan ($54.13)
(They also wash and wax the car and clean its interior.)
What do you pay to have your oil changed? (Remember to tell us where you’re located.)

Click to enlarge
Related:
Heating Bill in Beijing
Bill from Visit to Pediatrician in Beijing
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| Time: 10:37 am (utc+8) Comments (12)


It’s the Editor that Creates Value, not SpellcheckAmusing typo from this W$J article, Alex Rodriguez Gets A Surprise Assist From Fan in Omaha:

“Discussions between Mr. Rodriguez and Yankee executives occurred over a frenetic three-week period that included a worried phone call the third basement placed to Mr. Buffett late last week.”

I learned something new though:

“According to the regulations [of baseball’s Collective Bargaining Agreement], the agent of record is the only person besides the player himself who can negotiate on the player’s behalf.”

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November 17, 2007
Diamonds and Perles: A Stealth Foreign Policy Question?CNN Plays Softball, Opts to End Debate With ‘Diamonds-or-Pearls’ Question
Far from being a softball, the question to Hillary, “Do you prefer diamonds or pearls?” may have been a cleverly concealed foreign policy question. Larry Diamond and Richard Perle are two of the neoconservatives behind our disastrous foreign policy of late. Her terrible and telling reply was: “Now, I know I’m sometimes accused of not being able to make a choice. I want both.” The correct answer from Hillary should have been “neither!”
UPDATE: Larry Diamond apparently opposed the war, so there is a contrast with Perle. Anyway, enough of my half-cocked forays into conspiracy theory, lol.
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| Time: 3:40 pm (utc+8) Comments (5)


Gratuitous Cute Chick Pic — November 16, 2007



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FedEx and Copper: Telling the Same StoryFedEx’s chart is telling us the exact same story as copper’s: the global economy peaked in May 2006, went sideways for about a year, and reversed trend (down) since the subprime stuff hit the fan back in August. FedEx, similar to Dr. Copper, is a bellwether for gauging the state of the global economy and it’s saying that things don’t look particularly good at the moment.

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November 16, 2007
Love Your WorkListened to this kind of disappointing interview with Matthew Diffee — is it me or does the NPR guy sound uptight? Anyway, I’ve been a fan ever since I saw Diffee’s cartoon, Leon’s Auto Salvage and Center for Interpretive Dance. (I guess Charles Barsotti will always be my favorite New Yorker cartoonist.)

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Send Me Your Stilted, Your Plodding, Your Muddled EmailsThe Death of E-Mail, by Chad Lorenz

“… I realized that my agility with e-mail no longer marked me as a tech-savvy young adult. It made me a lame old fogey.”

I’m a lame old fogey too. I have a Twitter account; never use it, never will… I’m just not into the hyperactive thing. I’m on Facebook; never visit it except to deny “friend” requests, lol. Have a Tumblr account (microblogging); never use it (I have a macroblog after all). I refuse to get a Blackberry (despite repeated threats and no cost to me). Just leave me the heck alone already.
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| Time: 11:17 am (utc+8) Comments (8)


Shanghai CopperHere’s a weekly look at the Copper contract that trades on the Shanghai Futures Exchange. Copper peaked the week ending May 19, 2006 at 83,770 and has been going sideways more or less for the last year and a half.

Click to enlarge
Related: Dr. Copper and the Band of Burglarizing Vandals
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November 15, 2007
The Smart Way to Lose Your AssI will attend an all-day Bloomberg seminar early next month, mainly for the dining etiquette and wine tasting workshops, but I just noticed that one of the courses offered is “The Smart Way to Reach for Yield — Mortgage Backed Securities.” I got a cheap laugh out of that one.
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| Time: 3:17 pm (utc+8) Comments (3)


Timing, Texture, TemperatureScouring Shanghai for the perfect dumpling, by Daisann McLane

“I searched hard for something to dislike about Din Tai Fung’s xiao long bao. But everything about the dumpling eating ritual here reflected an obsessiveness with detail that one normally associates with the Japanese table. The ratio of dough to meat to soup was spot on. The ingredients tasted fresh, and the minced pork was good quality, with not a trace of gristle or bone. The service was cheerfully efficient (afterward I was handed a questionnaire that asked me to rate the smile of my server). The bamboo container was lined with white cotton, and the ginger, a traditional side accompaniment, had been slivered into fine threads and laid out on little white saucers like combed angel hair.”

Interesting point about the Japanese-like obsessiveness… Taiwan was a Japanese colony for several decades of course, so clearly something rubbed off. (We eat at Din Tai Fung about once a week.)
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| Time: 11:56 am (utc+8) Comments (3)


Furthering the Interests of FascismU.S. bridge players’ protest and punishment sparks international debate, by Stephanie Strom

“The U.S. Bridge Federation has proposed a settlement [that] calls for a one-year suspension from federation events, including the World Bridge Olympiad next year in Beijing; a one-year probation after that suspension; 200 hours of community service ‘that furthers the interests of organized bridge’; and an apology drafted by the federation’s lawyer. It would also require them to write a statement telling ‘who broached the idea of displaying the sign, when the idea was adopted, etc.’”

Sick and sad, but par for the course these days. Stay short the US dollar, diversify out of US assets, buy a home abroad, and stop paying your dues to the USBF.
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| Time: 11:44 am (utc+8) Comments (8)


Two Dozen High Yielding Financial StocksHere are a couple dozen financial stocks with high dividend yields (based upon estimated year-ahead dividends per share) according to the November 16th edition of Value Line. I’m not sure why WM, and many other high yielding financial stocks, isn’t listed? This is a mystery since it shows a 9.2% yield in the index pages, yet it isn’t listed in this screen. Hmmm. (UPDATE: Ah, I see it now, VL is anticipating that WM will slash their dividend in half, ouch.)

• CapitalSource - 15.0%
• Capital Trust - 9.9%
• Amer. Cap. Strategies - 9.6%
• Allied Capital Corp. - 9.2%
• Gladstone Capital - 9.1%
• First Horizon National - 7.6%
• National City Corp. - 7.3%
• AllianceBernstein Hldg. - 6.8%
• Popular Inc. - 6.8%
• Huntington Bancshares - 6.5%
• Citigroup - 6.2%
• Capitol Fed. Fin’l - 6.1%
• Regions Financial - 6.0%
• Fifth Third Bancorp - 5.9%
• FirstMerit Corp. - 5.9%
• Wachovia - 5.9%
• Old National Bancorp - 5.8%
• Comerica Inc. - 5.7%
• New York Community - 5.7%
• Bank of America - 5.6%
• KeyCorp - 5.4%
• BB&T Corp. - 5.3%
• US Bancorp - 5.2%
• Whitney Holding - 5.0%

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| Time: 10:59 am (utc+8) Comments (19)


There is a Great Deal of Human Nature in PeopleJim Grant wrote about David Winters in his latest column, which led me to read the Wintergreen Annual and Semi-Annual Reports, which led me to ask: would you give your money to someone who signs his name like this?


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| Time: 10:12 am (utc+8) Comments (9)

November 14, 2007
Better Late Than NeverMurdoch Sees End to Journal Web Fees

“‘… we expect to make [wsj.com] free, and instead of having one million [subscribers], having at least 10 million to 15 million [visitors] in every corner of the earth, keeping up-to-date minute by minute with all business and economic news from around the world,’ Mr. Murdoch told Australian shareholders at a meeting in Adelaide.”

If the Wall Street Journal online had been free from day one, both Cramer’s baby, thestreet.com, and marketwatch.com never could have been built. Dow Jones paid half a billion dollars for MarketWatch, just to watch it die — what a waste. Anyone care to quantify the opportunity cost of the terrible decision by DJ management to make wsj.com a subscriber-only site?
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| Time: 10:36 am (utc+8) Comments (7)


Off the Charts: Washington Mutual’s Dividend YieldHere’s a longer term look at Washington Mutual’s dividend yield. I’ve been widely reviled for having recommended WM in the mid-$30s, where I thought it was a bargain and represented good value. Assuming they don’t cut the dividend, Washington Mutual yielding over 10% is, cue Crazy Eddie, an INSANE bargain.

Click to enlarge (WM Dividend Yield)
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hefeiddd

November 13, 2007
Piggybacking the Hong Kong Monetary AuthorityThe Hong Kong dollar is pegged to trade five cents either side of HK$7.80 so the lower limit is HK$7.75. As you can see from the chart, since late October the Hong Kong Monetary Authority (HKMA) has been busy selling billions of Hong Kong dollars to defend the peg. If you believed the intervention would be successful (which makes sense because they have around HK$400 billion in reserves), it would have been smart to join the HKMA in getting long US dollars (short HK dollars) looking for a return to 7.80.

Click to enlarge
This article, Currency Controls Return as Central Banks Fight Gains, talks about the “supplemental” or “indirect” measures (my favorite was “creating a bureaucratic thicket to curb speculation”) that are being taken around the world to deal with local currency appreciation (i.e. the dollar’s decline).
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Kept Bottles 存酒I went to a local restaurant last night for some beer and dumplings (jiaozi). Been ages since I’ve done this — I usually go to overpriced, pretentious places with my Chuppie friends. Anyway, here is a picture of the bottles of baijiu, a powerful (and awful) booze, kept by the restaurant for “regulars” (you can’t see their names on the bottles, but they’re there). Charming, no?

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| Time: 10:11 am (utc+8) Comments (2)


E*Run on the E*TradeE*Trade Shares Fall; Analyst Says Bankruptcy Possible

“We take exception to the sensationalism based on unfounded speculation.'’

Did that line make anyone else chuckle?
Last time I looked at E*Trade it was $25.

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November 12, 2007
Looking at the Top in the H-share MarketThe Hang Seng China Enterprises Index (or H-share Index) topped recently after doubling since the beginning of this year, and nearly quadrupling since the start of 2006. When parabolic markets like this one peak, the fall can be mighty swift.
My usual caveat: I could be dead wrong and this market could turn around and go up, up, up. You can’t game animal spirits.

Click to enlarge (Daily)


Click to enlarge (Weekly)
Related:
Don’t Confuse the H-share and A-share Markets
China’s Stock Markets Have Topped
Ways To Take a Leveraged Short Position on China
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(Unpaid) Product Placement — WMF’s Hip Flask 2 in 1Isn’t she a beauty? Whipping it out together with my Bling! Zippo lighter, I have to admit I’m quite the man. 70 ml capacity isn’t much, but it’s enough to stiffen the miserably weak drinks you get served in this town.


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November 11, 2007
Gratuitous Cute Chick Pic — November 9, 2007



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Surviving at the Top of the Greasy PoleLiked this line from John Burdett’s first novel, Bangkok 8:

“The Colonel owns the military bearing, strong jaw and frank unblinking eyes of a truly accomplished crook.”

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November 9, 2007
TGIF (X)



(Another in the TGIF series)
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Taxation, Nationalization, ExpropriationThis bit from the ProShares prospectus for the FXP made me chuckle:

“… investments in China are subject to … the risk that the Chinese government may decide not to continue to support the economic reform programs implemented in 1978 and possibly return to the completely centrally planned economy that existed prior to 1978, and the risk of confiscatory taxation, and nationalization or expropriation of assets.”

Fat chance!
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Don’t Confuse the H-share and A-share MarketsProShares launched their UltraShort FTSE/Xinhua China 25 ETF (FXP), but remember that the FXI tracks selected H-shares, not Mainland China’s A-share market. Make sure you read pages 115 and 116 of the prospectus (PDF).

“The FTSE/Xinhua China 25 Index (FXI) is comprised of 25 of the largest and most liquid Chinese stocks listed at the Hong Kong Stock Exchange (HKEX). This free float adjusted Index caps the weight of any of constituent stock at 10 percent to ensure broad representation of the Chinese economy. As of June 30, 2007, the FTSE/Xinhua China 25 Index included companies with capitalizations between $2 billion and $64 billion. The average capitalization of the companies comprising the Index was approximately $13 billion.”

Here’s a look at the weekly CSI 300 Index (the Index I use to monitor the Mainland A-share market).

Click to enlarge
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hefeiddd

Dr. Copper and the Band of Burglarizing VandalsEverybody and his grandma has been yacking about the “triple top” below 380 in Copper, and yeah, I see it, I see it. My advanced technical skills tell me that this market is now going “sideways” and I predict that prices will either go UP or DOWN from here. Take two ingots and call me in the morning.
Semi-random aside: During our recent trip to America I read in my hometown newspaper that the mayor had called a special meeting to deal with a rash of burglaries — the copper pipe in dozens of summer homes had been ripped out (and off). I thought to myself: this didn’t happen when the good doctor occasionally spiked to a buck forty in the past; at what price per pound does copper begin to justify breaking into houses? Paging Levitt!

Click to enlarge
Related: Another Great Disconnect: Southern Copper Still Going North, February 6, 2007
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Sticking Firmly with a Totally Arbitrary Price Target for CrudeStill stubbornly looking for crude to get to $100 (or very near). As my childhood buddy, Dink, is fond of saying: “Close only counts in horseshoes and hand grenades, boy!”

Click to enlarge
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| Time: 10:13 am (utc+8) Comments (4)

November 8, 2007
Conversations with WomenJust from this morning … it’s like this every day; now you know why I’m bald.
Me: Let’s have dinner tomorrow night.
The Wife: The guys are here from Schenectady.
Me: So tomorrow’s no good?
The Wife: I’ve had meetings all week long.
Me: How about the day after tomorrow? [a Saturday]
The Wife: I’m going to Shanghai on Sunday.
Me: So no time is good this week?
The Wife: Tomorrow night is fine; haven’t you been listening to me?
…….
Cookie: I need some money for vegetables.
Me: How much?
Cookie: Prices have gone up so much this year!
Me: Yes, how much do you need?
Cookie: Asparagus is no longer in season.
Me: Yes, how much do you need?
Cookie: It’s a good thing you don’t like lotus root!
Me: Yes, how much do you need?
Cookie: A little more than usual.
Me: Will 100 do?
Cookie: Yes, haven’t you been listening to me?
……….
Me: How long did T nap?
Nanny: He went to bed at the usual time.
Me: Yes, but how long did he sleep?
Nanny: He slept very soundly.
Me: Yes, for how long?
Nanny: He got up at the usual time.
Me: OK, but how long did he sleep?
Nanny: I just told you; haven’t you been listening to me?
……….
The crazy thing is, I’d love to have a daughter. ;-)
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Heating Bill In BeijingAnother slice of life post. Here’s our heating bill for the 2007-08 season. They turn on the heat on November 15th and turn it off on March 15th. There’s no way to regulate it and you pay a flat fee (US$3.22 per square meter) based on the size of your apartment. Using the current exchange rate of around 7.45, the total comes to US$663.40 for four months of heat. How does this compare with your winter heating bill?

Click to enlarge
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Personal QuestionsAn excerpt from a chat with a friend.

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China’s Stock Markets Have ToppedYes, I’m a card-carrying member of the Top Pickers Club (1-800-TOP-PICK, alternate number: 1-800-IM-BROKE), but I’m pretty darn sure that the Chinese stock markets have peaked. I’d like to go on the record as saying that the high reached on October 19th (5891.72 in the CSI 300) was IT, and we won’t see prices above that level for a very long time (months if not years).
Then again, I’m probably dead wrong. ;-)

Click to enlarge
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November 7, 2007
Lucky 888 — Short-term Target for GoldCalling for $888 in gold isn’t especially daring, but I’ve been looking for it to go there for several weeks now — sorry I didn’t post the charts sooner. “8″ is a lucky Chinese number because the sound for “8″ in Cantonese sounds like “fa,” or fortune. This is why my cell phone number here has five 8’s in it — I’m as superstitious as the next illiterate.

Click to enlarge
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Stan Certainly is the ManMichael Lewis wrote a semi-funny piece on November 6, O’Neal’s Agony, or, in the Bunker With Stan. He credited the Bespoke guys (October 25) for “first bringing [O’Neal’s scores] to public attention,” which was nice (nicer if he linked to them). I wonder if Jeff Matthews got the idea for his October 31 post, Chipping and Putting While Merrill Burns, from the Bespoke post as well. If he did, he wasn’t gracious enough to say so — a breach of netiquette. The financial blogosphere is a very small world; be careful to give credit where it’s due.
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