This blog will provide an outlet for me to discuss my views on the markets, politics and generally anything that I feel like.
Monday, November 12, 2007
Yuck...
My positions did/are doing rather poorly recently (but so are everyone elses), I made a small profit before getting stopped out on PRFT. UXG has been rather poor although I continue to hold (without my normal stop-loss, which admittedly could be a disaster waiting to happen). This is a longer-term idea really and I need to play it as such. The money story (inflation) isn't changing and junior miners are going to reap the rewards. And my FTK position was doing quite well up over 10% in little over a week before it got dropped on their earnings miss. I ended with a loss because my trailing stop got jumped when the stock dropped 18% on the earnings news in the premarket. In case you haven't seen it, please watch Ron Paul lambasting Bernanke on the government's monetary policy.
I happened to have on CNBC this morning as I was getting ready for work and I noticed Warren Buffett was on so I sat down to watch. The short piece was a discussion of Warren's thoughts on taxes. Warren discussed that in the prior year he had paid approximately 17% income tax. The 14 people polled in his office all had higher tax rates. Everyone of them and the average was in the mid 30%'s. One of the richest men in the world pays less relative tax than his damn secretary does. If you are a middle income American and that doesn't piss you off, you need to get your head checked out. People can blab all they want about how increasing taxes on the rich is not in the best interest of the nation because of the economy and jobs and blah blah blah, but he's not even paying the same relative amount. Where oh where is Steve Forbes and his flat tax when you need him. Lets be honest, that is ridiculous no matter how you slice it. But let me argue for my point a bit more...
I believe by my nature in utilitarianism (greatest good for the greatest number) just because I think this world is a mess and I am an idealist. The common arguments against utilitarianism are that it is costly to transfer wealth from the rich to the poor. The extra cost argument is generally two-fold. First, there is the administrative cost of collecting the tax and distributing it through programs and whatever so that it gets to the poor that need it. The other cost is the economic cost. The economic cost includes the productive efficiency of the rich (i.e if they are keeping less of their income due to taxes, they will not work as hard) as well as the job cost (i.e. if the rich aren't making as much money, they will higher fewer, generally poor, workers). The 'big trade off' here is between efficiency and fairness. Agreed? Good. Let's proceed...
So if we say we have 3 main variables to consider efficiency, fairness (duty to the poor in this case) and economic health. Now anyone who knows a lick about finance should remember the Efficient Frontier? The one that maximizes (the definition of efficiency) the risk/reward ratio for investments. Well I would stand to argue that their should then be an 'Efficient Frontier' that balances the economic and 'fairness' variables we discussed. Specifically, there is a point where the greatest good can be served without moving away from the 'Efficient Frontier'. I know the issue then becomes putting numbers on all of this but there are smart people out their with very complex computers that can run simulations of changes in GDP vs. changes in the tax structure (to promote fairness). It can be done.
O'Henry! Hank, the tank? Henry Paulson is full of it and he knows it. His policy is anything but a strong dollar policy. When you a forced to not just cut but cut beyond expectations, as he will be asked come next week, you are not endorsing a stronger dollar. You are damning the dollar to hell. Fed fund futures, although not perfect, do serve as a proxy for the feds actions next week; and they are indicating a 100% chance of a 25 basis point cut. Which means that the street is going to sell off if it gets only that. Watch. They know they own the fed. With the ex-Goldman hero/villain Paulsen, the street is sure to get what it needs. Do you think for one second that he is going to let his partners and friends at Goldman lose their jobs under his watch? Not a chance in hell. In my opinion (and I am guessing) the fed acts "proactively" and cuts another 50 basis points next week. Which begs the question...if things "aren't that bad" (as the fed likes to so rigorously contend) why 100 basis points in little over a month? I'm hoping to get a piece of a few names...UXG, GG, GFI, CVX prior to the meeting, but UXG and maybe CVX are the only likely ones.
There was an interesting article on Sears Holding (SHLD) in this weekend's Barrons. It discussed Lampert's one time street darling, Sears, recent issues...and its potential. As some of you know I'm a big believer in "betting the jockey not the horse". Lampert is as smart as they get, and if he's down, it won't be for long. The street marks Sears as a retailer. It is a conglomerate or one in the making. Anyone who has done their homework on Lampert knows he has grandiose plans for SHLD and they don't end with buying Sears. This is a great long-term price for SHLD.
I opened a position in PRFT today for a trade. The technicals were improving and I got it at a discount to yesterday's nice rally. I'm also looking at VIVO for a possible trade in the next few days. We'll see...time reveals all.
An interesting end to an interesting week, with the Dow tanking 366 points on Friday. With a handful of earnings disappointments, another series of freakouts related to the sub-prime fallout, this time relating to SIV's, and news this weekend that the G-7 again failed to accomplish anything, the risks remain and the market's weakness is likely to continue in the next week up to the fed meeting. I expect Wall Street to encourage the Fed (read 'more bad news') to cut again and maybe even cut with 'high impact' (50 basis points). The banks need to paint a bleak picture in order to appropriately fuel future growth through liquidity. And as Barry says, the fed has already shown that the are "Wall Street's bitch". Again, at the end of the day, more money will fuel higher asset prices. Barron's noted recently that the ridiculous growth of derivatives and leverage are only serving to multiply the risks. Its a bit of a house of cards, but no one is quite sure how it might fall. The author of the piece Alan Abelson noted that the fed's, "actions were strategically flawed in failing to address the 'moral-hazard dilemma that continues to underpin asset-dependent economies.'" Basically they are reinforcing the problem and not working to alleviate it.
Last week the ratio of gas prices to crude prices fell to close to a six year low. Assuming that oil maintains some strength here which in my opinion is likely given geopolitical risks and continued supply worries, gas prices should rally here. As you may know I continue to favor commodities. I currently have no open positions, I'm hoping some gold, silver, oil or gas stocks sell off with the general market prior to the Fed's upcoming meeting. One stock that I like is already been selling off on some recent drilling results. UXG is still technically weak and I'll look for some improvements before entering.
I had mentioned at the original 50 basis point cut in September how I believe it was a bailout. Barry Ritholz had a reference to a nice article about how the Fed was acting to save Wall Street's head honchos. In Barry's word's the fed is "Wall Street's bitch".
Well I closed out of my SLW and GFI positions both for 20% gains. I think gold could stick here but there is a downward bias short-term. Tomorrow I will close my BC and CSX trades as they have both contributed a 5 or 6 percentage points and will likely undergo some weakness in the short term. I'm currently changing brokerages from Tradestation, which I love, to Scottrade. The Tradestation platform is wonderful (I will come back) just way to expensive relative to the size of my account. I'm waiting for the metals and maybe oil to sell-off before reloading for the next leg up. I'm also hoping that the homebuilders continue their nonsensical rally so I can get short. That's easy money folks...home inventory is high, sales are low, builders can't sell, won't make profits and the stocks will tank. Bring on the rally!
Barry Ritholz who I read daily had links to some other well reknowned financial bloggers so I have some new regular reading material. Couple interesting articles I found today...
Article on Corporate Governance at Countrywide. It certainly leads one to believe that this debacle is probably not over.
Article arguing Barry Ritholz's critique of the Fed's inflation measures. I actually think that both Brad and Barry are saying the same thing really. Inflation exists but the Fed must figure out a way to downplay it some so as to lead the public to believe that continued rate cutting is acceptable in the face of any inflationary concerns. You can't say we are going to cut rates because inflation is not existent if you don't have data to support it so they say there is weak core-inflation, cut rates and everyone is happy. Except Barry maybe :), although I'm sure his commodity trades he has recommended are doing quite nice so I doubt he's that unhappy.
My current thoughts on the fed... I think the fed will cut again at the end of this month. I'm hoping gold can keep support at or near the current levels. I'd hate to get stopped out of my positions in GFI and SLW knowing the fed is going to cut and that the rally in gold is going to continue (a Barron's article this weekend said gold would likely trade to $1,000 in short order). But after 25%+ gains in each, I need to protect the gains. In a perfect world, I would get stopped out w/ my gains and would find a re-entry point on some short-term weakness prior to the fed meeting and get back in prior to the next leg up to $800? $850, $1,000!? But who knows. It's a guessing game so I just play by my own rules. If I have a solid plan and solid buy/sell rules I'll do fine. Long SLW, GFI, BC, CSX.
New home sales data is out...and apparently the news is "hideous"...are we at all surprised? Nope. It's just supply and demand economics, not brain surgery.
