I admit defeat and recognize that my long term bull case was wrong. The market proved me wrong because it broke down below $132 and now it looks like it will test the $126 level:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=43992;image)
The problem is that this test shouldn't occur, because just going down there will also prove wrong everyone believing lower interest rates and liquidity injections by the FED would revive the US economy and the stock market. This disappointment will probably make the SPY break the $126 level on the downside which will be further evidence that indeed, we're in a bear market.
Even more disturbing, for me, personally, is to acknowledge that almost all stocks, good or bad, fundamentally attractive or not, are going sharply down. This is telling me that what I've learned throughout 2007 about fundamental analysis isn't as valuable as I thought.
I'm not sure if you're aware or not, but I had a "philosophical" debate inside myself about which of two currents of opinion was right or more appropriate for me as a long term investor:
1 - The micro approach
This strategy is best defended by Peter Lynch and to some extent Warren Buffet. For them, a good business bought at an attractive price should be held for the long term, regardless of the general market, which should be ignored.
2 - The macro approach
This strategy is best defended by Jesse Livermore in Reminiscences of a Stock Operator, a 1921 book. Basically he says that one should be long stocks in a bull market and in cash or short stocks in a bear market. He made his investment decisions based on the trend of the general market, because, in his opinion, almost all stocks went up in a bull market and down in a bear market.
I used to be more of the Livermore camp, however, as time went by, the market gave some "false" bearish signals and I learned more about fundamental analysis, I went more to the micro camp.
This indecision and search for an inspiration or strategic guru is perhaps an indication of my youth, or shall I say, inexperience?
I've been studying the stock market since 1996, but I have to admit that I didn't knew much about individual stocks until the start of 2006. You may say, "David, you shouldn't be running this website, since even you acknowledge you don't have a lot of experience", which I could agree with, but I can say, to my defense (even though no attack was made), that at least I'm honest and many of the guys out there with similar services are dishonest or have even less experience than I do.
The results since inception in 2005, with the Main up 258% at yesterday's close versus 14% for the S&P 500, were great. But since the start of 2008, with the Main down -18.3% versus -11.2% for the S&P500 and -13.5% for the Russel 2000 are quite frustrating.
Suddenly it has become more important to preserve capital than to just keep holding everything, ignoring downside risk.
There were two pieces of evidences in the back of my mind that kept telling me my bullish case was wrong, but I preferred to ignore them:
1 - Sentiment analysis/contrary opinion
One of my strongest bull weapons was the general bearish sentiment. People were so bearish that they could only have sold stocks and they were holding cash, so the market could only go up, as the negatives were already discounted. Every poll on the US economy confirmed this view on sentiment, with the majority of people saying the economy was already in a recession and the future was dark.
However, a few days ago, I saw one poll that was very conflicting with this assessment of sentiment: when asked "what are you doing with your money now?", the vast majority responded "buying stocks". This corroborates what that guy based in Hong Kong, what's his name? I don't remember now, but he said: "sentiment is negative because of headlines, not because people are selling stocks". And, as written in one of my Contrarian opinion books, it is all about the potential of money in and money out. It doesn't matter what investors say, but if they're holding stocks or cash. If everybody has stocks the market should go down and if everybody has cash the market should go up.
2 - The US stock market should be bullish because China will still grow strongly for many years to come
I wrote about this on another thread. It is clear that China will be the largest economy in the World, and on a per capita basis the average Chinese is still 10 times poorer than the average American, so there would still be a lot to grow in China ... however, and this was a puzzling information, if one were to consider both economies on a PPP (Purchasing Power Parity) basis, China already is the largest economy in the World!
Of course, I still believe China and other emerging economies will still grow a lot over the long term, but the transformation from an exports lead economy to an internal demand lead economy won't be done without a lot of reform and probably some economic pain. The World is getting to a point of seeing it isn't all that good to export to the US, because the US is paying back with a depreciating asset (the US dollar).
So, two of my basic bullish factors can be dismissed by these two points, most people are still holding/buying stocks and China's economy may have a cyclical recession, because, indeed, it is already a very large economy without such a high growth potential and it has to reform itself to move from exports to internal demand.
Even though I'm admitting I was wrong in my long term bullish case for the stock market, I'm not going to just dump all stocks. Of the 14 stocks currently held by the Main Portfolio I plan to sell 5. I'll keep holding the other 9. I'll try to write the 14 individual analysis before the open to justify the decisions.
On a final note: I don't know how many subscribers 3 SOF premium service has now (it was just too painful to see people giving up - even though I understand), but probably we have about half of what we had six months ago. Obviously I'm not doing this for the money, since, also because of the dollar's huge fall, I could bring more money home doing any other job here in Portugal.
But I'll continue doing this job. It's about time for me to start facing and dealing with difficulties. It would be just too easy to give up.
I just want to say that you've been very friendly and supportive and I'm very thankful. It has been a pleasure :)
David,
your openness and honesty is what keeps me a member. I am glad you wrote this letter. I know you're going to continue to do great and I respect your decicion and to be honest I was considering canceling my membership also but this letter you have written has reassured me that you will once again bring this portfolio around.
once again thanks for being open and honest!
keep up the great work that you do.
David,I too respect your honesty and thank you for your efforts. Think about this. If an optimist like yourself is feeling this way, could we not be near a bottom? Having said this,I too agree that preservation of capital is paramount in these tough times. Maybe if Jim Cramer's show got cancelled due to lack of interest,that would be another sign.
David,
thank you for your great letter and for your honesty. I think you have a great potential to become one of "Gurus" most admired in the financial analysis and stock investing world, so you are very right when you say that giving up would be too easy.
These times are bad, but you could demonstrate so many times with your picks that you obtained great results despite bad market.
for this reason I will continue to stay here and support you.
Don't worry for subscribers who "resigned": many others will come :-)
cheers from Italy.
p.s. this week end is very sad for me: I am leaving now for the Alps, going to White Mountain (Monte Bianco), where we will dispell the ashes of one of my best friend. An extraordinary people, who travelled all around the world, with a great humanity and an happiness to live that was so great. Thanks Michele to stay with us, I will always remember you.
David, integrity has never been an issue. Though I must say that David is still trying to come to terms with Long Term investor vs Short term speculator. Much of the success of 3SoF was result of speculating short term on microcap stocks. I dont want to say that it is the way to go now or have 3 year outlook b/c it is for David to decide. Also ppl may leave 3SoF for reasons other then performance, some may buy home ;) or whatever.
Anyway David is a great fund manager and I have full confidence that he will beat S&P not just by 30% but even more by end of this year. Just hang their.
Thanks for the openness, David, it is highly valued here! Many of us here are busy people having full-time jobs and familes. I personally, have little time to do my own investments, so your service has been an inspiration. I made some money here a while back, bought a car (well, paid for half a car's price), but then drained the profit with time. Now I am where I was 2 years ago. Roughly even. USD is badly down, etc. But I look at it this way, if I were to invest on my own or using some other service, I could be losing all of my money.
I like your flexibility, keep on going, man!
Applaud everyone! Many truths spoken here, especially..."David is a great fund manager and I have full confidence....." I totally agree! He has many years of experience and he will persevere and prevail.
Gas prices are killing everyone. It touches everyone. Govt. needs to do something to ease gas prices, but what? Hey, why not drill in Alaska for oil. I hear there is ampule, oh :o, I forgot, the environmentalists are afraid the moose and elk will trip over the pipe lines. Poor moosey. Besides it would take years to get production up and running. So, we remain slaves to oil. I think I will go for a bike ride.
Quote from: Houlahan on March 07, 2008, 01:03:49 PM
Govt. needs to do something to ease gas prices, but what?
How about stopping the Iraq war? It is not a coincidence that the price of oil and gas have tripled since the war started. So, as usual, the answer to cheaper everything is less government involvement--not more.
Oil will peak at some point,$110,$115,$125,I don't know.Does anyone know of an investment vehicle that in effect shorts the price of oil?
A way to stop the gas prices rising??
buddjas1 is right - stop policing the World, that's one.
Reduce the consumption!!
1) Why should a 100lbs lady climb into an F350?? She'd look so much nicer in a cure little car. Do not use your AC unless it is really hot! In Germany, many companies just open windows to let fresh air in, c'mon, Einstein could think without an AC in July in New Jersey, why can't the others?
2) Begin developing infrastructure! Public transport in the US is worse than in Kenya!
The problem is that the government will not do a thing, I agree with JKN. And the consumer can only do so much... It is sad, but without the help from the government, it is hard to fix an economy.
Oil will peak at some point,$110,$115,$125,I don't know.Does anyone know of an investment vehicle that in effect shorts the price of oil?
DUG
Quote from: berloga on March 07, 2008, 02:15:59 PM
It is sad, but without the help from the government, it is hard to fix an economy.
More bad goverment does not fix existing bad government.
Problem - Inflation
Solution - Eliminate the Federal Reserve and government central banking (i.e., fiat money) and allow free market, asset-backed, monetary system such as the gold standard.
Problem - Unemployment
Solution - Eliminate corporate taxation and minimum wage requriments.
Problem - Lack of Growth
Solution - Eliminate corporate taxation, investment profit taxation, minimum wage requirements.
The government causes all economic problems and only makes them worse by trying to fix them.
Looks like everyone's throwing in the towel. Must be just about time to buy :D
This market has been crazy...but mainly down. People are still selling into these rallies. Nice comeback in the last half hour...let's see if it holds.
I still have a hunch the Nasdaq will get down to about 2010-2020 and the S&P will drop to about 1220-1230...since we broke down out of the triangle a week ago. 1220 has huge support going back to the downturn in the summer of 2006. >:D
Quote from: buddjas1 on March 07, 2008, 02:48:33 PM
Quote from: berloga on March 07, 2008, 02:15:59 PM
It is sad, but without the help from the government, it is hard to fix an economy.
More bad goverment does not fix existing bad government.
Problem - Inflation
Solution - Eliminate the Federal Reserve and government central banking (i.e., fiat money) and allow free market, asset-backed, monetary system such as the gold standard.
Problem - Unemployment
Solution - Eliminate corporate taxation and minimum wage requriments.
Problem - Lack of Growth
Solution - Eliminate corporate taxation, investment profit taxation, minimum wage requirements.
The government causes all economic problems and only makes them worse by trying to fix them.
you have my vote for the presidency :)
Quote from: soxguy on March 07, 2008, 01:57:29 PM
Oil will peak at some point,$110,$115,$125,I don't know.Does anyone know of an investment vehicle that in effect shorts the price of oil?
you could short USO or buy puts. My brother was buying heavy puts on it today. I wouldn't though myself, I rarely ever agree with him and think he might well get hurt.
Heavy volume on Capricho's DUG today.
Lower interest rates tend to weaken the dollar, and many analysts believe the weak dollar is the reason why oil set new inflation-adjusted records four times this week, and has risen 23 percent in less than a month.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. On Friday, the dollar set a new low against the euro Friday before rising. But most investors believe that despite occasional rebounds, the dollar is likely to continue falling as the Fed continues to cut rates.
"The swings in the dollar are still the most critical item," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill.
Concerns about a possible conflict between oil producers Venezuela and Colombia also supported oil prices Friday. Earlier this week, rebels attacked and shut down a a Colombian oil pipeline that transports 60,000 barrels of oil a day in retaliation for a Colombian raid into Ecuador. Venezuela threatened to slash trade and nationalize Colombian-owned businesses, and Venezuela and Ecuador have sent troops to their borders with Colombia.
Many analysts believe oil is overvalued, arguing that oil supplies are at high levels and the demand is falling. In its latest inventory report, the Energy Department said overall demand for oil dropped 3.4 percent over the last four weeks compared to the same period last year.
"We don't see oil demand accelerating while the price has its foot on the throat of consumers," said Tim Evans, an analyst at Citigroup Inc., in a research note.
But while analysts expect oil's underlying supply and demand fundamentals to eventually pull down its price, few are willing to predict when that will happen. Meanwhile, oil could continue rising to as high as $120 in the short term, according to some forecasts.
Goldman Sachs, a widely watched oil price prognosticator, said oil could average $110 a barrel by 2010, up from a previous forecast of $80, and said a price spike as high as $200 a barrel is possible, according to Dow Jones Newswires.
David, I really do not think it is the right time to go bear. Including March, DOW went down for 5 consecutive months. Such a down trend only happens once in the history. How much downside potential do we have then?
I still believe liquidty only affects short term, but we have been in this "bear" market for long enough.
submortage, credit crunch, blahblah. But look at the history, is this time really worse than any previous crisis (1987, 1990, 1997, 1998, 2001) ??
David,
Hang in there, now that you have admitted defeat the market will start to head up again, ha ha. Concerning your long term bull case was wrong, I beg to differ. I really don't have a view beyond mid 2009 so I guess it is not a real long long term view but I believe the process of establishing a stock market correction bottom has unfolded in text book fashion over the last couple of months. First, the high volume closing low on January 22, the subsequent rally and then the correction bottoming process to test that low on lower volume than the January 22 low. This is where I feel we are at now. I believe volume is always the key. I believe this bottoming process will be over by March 21st and that the subsequent rally will take the S&P 500 to the 1600s sometime in 2009. That is as far out as my crystal ball will show me. I was a buyer in todays market ( I also bought more PAL ) and will be again on select stocks over the next couple of weeks. Of the 4 stocks you recommended to sell I only own GSB & TBSI. (I own all the others in main portfolio except OPMR) I am going to hang onto both of those for now to see if the market agrees with my prediction. I am in relatively good shape on both of these. I sold my initial purchase of GSB on 10-19 for a nice profit and repurchased it again on 11-29 and still own those shares now, so I am kind of playing with house money and my cost basis for TBSI is only around 34.00. Sorry for the long message but I just wanted to give my two cents here. David thanks for all your hard work, I really appreciate it. For all that are hanging in with some exposure to the market good luck, we will know in the fullness of time. To all, good health and trading.
Poli
Hi David
You've been doing a great work , don't stop ...
If you have losing trades on the other hand you had many winning trades , don't let te market beat you down :)
I'm sure you we'll finish 2008 with more than 40% return .
I spent all the night yesterday looking at many Technical indicators and market's indexes charts .Guess what !! I found out that we'er all most reached a bottom by friday's close 8)
Next week could be the end of these losses and we'll be heading north for sure . Just hang on and keep your good work up ;)
Frankly, I've never got a loss with any of your trades , I always tried to get in at the right time ..
Be strong David and we'er gonna see green numbers soon ;)
I have been out of the market for some time and firmly believe that the US economy is so trashed that almost nothing will help it in the short term. It is very likely that Bernanke will lower rates by .75 points in order to give the housing market a boost, but this will be a day late and a dollar short. Consumers are not buying, jobs are being decimated, homeowners are upside down, inflation is here to stay, the US account deficit is unsustainable, and the dollar is and will continue to be in the toilet. I have lived through many prior recessions but never have I seen a perfect storm brewing for a mega downturn such as what we will experience this time around. It's no time to throw money in an equity driven market with the illusion that valuations will increase in this crushing environment.
Capricho,
Everything you say has merit and all indications appear you may be right, but I do not believe it will happen between now and mid 2009. We will all know in the fullness of time. If it unfolds as you think I will know shortly and will make adjustments accordingly. Where do you live, in the US?
poli
Quote from: capricho on March 08, 2008, 09:49:02 AM
I have been out of the market for some time and firmly believe that the US economy is so trashed that almost nothing will help it in the short term. It is very likely that Bernanke will lower rates by .75 points in order to give the housing market a boost, but this will be a day late and a dollar short. Consumers are not buying, jobs are being decimated, homeowners are upside down, inflation is here to stay, the US account deficit is unsustainable, and the dollar is and will continue to be in the toilet. I have lived through many prior recessions but never have I seen a perfect storm brewing for a mega downturn such as what we will experience this time around. It's no time to throw money in an equity driven market with the illusion that valuations will increase in this crushing environment.
I don't think it's that bad. We just went through and unsustainable housing boom or what I like to call housing inflation for the past 10 years. Too many people thought they could make money by hoarding land and building homes for a large profit. It worked for a while...but now these land "whores" are suffering. I think this is a good thing as the excess sorts it self out. These land "whores", seeing that it is not as good of an investment, will sell the land at a more reasonable price allowing more and more people the ability to buy and use the land in a more productive way. Sure many workers in the housing industry...such as builders...realtors and mortgage brokers will lose their jobs...but this is no different than the internet bubble that broke in 2001. February 2007 had 63,000 jobs shed...but in April 2001 223,000 jobs were lost. Maybe this is just the start of job losses...we'll have to wait and see.
I remember a year ago when the subprime mess first started...David sold all his stocks...but later changed his mind...rightfully so since the market recovered thoughout 2007. Basically his fundamental thinking was ahead of the credit mess. There were more signs of trouble toward the end of the year as the charts were starting to roll-over. Unfortunately we didn't take this signal in time to completely get out. I still think David's fundamental analysis about the exponentially growing global consumer class is right. It may just take some time for the market to adjust to this thinking. You have to remember financials are the ones having problems and they are also the ones running the markets. When this credit situation starts to improve we should start to see things turning up too. How long will it take??? That is the question.
Quote from: poli on March 08, 2008, 10:30:41 AM
Capricho,
Everything you say has merit and all indications appear you may be right, but I do not believe it will happen between now and mid 2009. We will all know in the fullness of time. If it unfolds as you think I will know shortly and will make adjustments accordingly. Where do you live, in the US?
poli
Yes, in California, on the coast just outside Silicon Valley.
There will be an estimated 15 million US homeowners this year who will have their houses worth less than their mortgages. The federal government can only do so much but drastic action on the scale of a New Deal intervention will be required to prevent a stampede of more forclosures, which will likely make US real estate worth even less. As more forclosures will certainly occur, lenders' balance sheets will only get worse, making it more difficult to lend more money. It is interesting that despite Bernanke's half point rate cut at the end of January mortgage loan rates have not come down. Banks are obviously using this spread to hoard cash, but in doing so they are offering no real incentive for buyers to get new loans--especially when real estate valuations are continuing to drop and lenders' standards have tightened. Homeowners, who are or who will be upside down and who cannot refinance to lower rates, will continue to use credit cards more and more to make everyday purchases. With jobs being eviscerated and with questionable ability to retire their revolving debt with obscene usury rates of 19%, US consumers will be increasingly defaulting on their credit cards, fueling yet a worsening liquidity crisis surely to come. And all of this is happening while inflation is threatening the consumer, while the dollar is being trounced, and while China is starting divest in greenbacks. It's a scary scenario that seems to be feeding upon itself in an unstoppable downward spiral. Bush's rebate incentive to jump start the economy is a joke and it will certainly not yield any tangible results other than to entice some foolish consumers to buy a new tv made in China.
Look at this way. A year or two back you were in the market looking to buy your first house. You see house prices gone real crazy and some very helpful mortgage ppl and banks telling you this is the best time to buy. Then you had two choices:
1. Buy house at crazy prices even though you could not really afford one.
2. Donot buy.
Now if the house prices are coming to some reasonable level then why all the doom and gloom. Why to support the inflated housing bubble at the expense of those who chose to live within their means. Fed's poor-sighted decision of lowering interest rates and flooding the market with money, only to see it going into commodities, energy and precious metals. The market will be in trouble unless it is given a free course to correct the credit induced excesses 'itself'.
I dont think their are 15 million underwater mortgages, I could be wrong but bet on Wall St to paint the picture so bleak that you as US Tax Payer pay your half or more pay check to pay for someone's else stupidity. This is incredibly big moral hazard to support those who chose to live beyond their means vs those who chose not to.
I dont know if it will work quite as well in this bear environment, but would love to see some FIRE trading again, like when the fire portfolio was everyone throwing out ideas and David running with the best of them. Those were my biggest monthly gains. Dunno, just hoping for a way to regain some of the money I lost this year. People on this thread are still hoping for 30% return, I will be relieved just to break even again :-)
I second toky on that. Aside from the long term investment, I'd like to see some hot action with quick returns. Still believe in David's approach to hand pick only companies with sound fundamentals and perform an in-depth analysis, but at the same time, quick-trade to relieve pressure of the long-long-long wait.
Guys like me, with low investment figure, would prefer to risk a portion of their capital to the quick, market independent trades.
I agree with both of you tokyo and berloga.
because from others doing tech analysis on the market they are projecting that SPX could down to around the 10k level and still be on an uptrend market.
but going any lower on the market means going lower on our positions too and that is starting to hurt.
we need some swing trading to releive the presure from the main and mine. ;D
I keep asking David for another GOAM type trade, there's gotta be somethere out there.
here's a contrarian view, not that I necessarily agree with, just fyi
Economists See US Avoiding Recession
Tuesday March 11, 7:36 am ET
By Alex Veiga, AP Business Writer
Economic Forecast Sees Prolonged Housing Woes but No Recession in 2008
LOS ANGELES (AP) -- The U.S. economy will suffer as the slumping housing market eats away at job creation and consumer spending, but the nation should avoid slipping into a recession this year, according to a new economic report.
ADVERTISEMENT
A recession could still happen though, if the credit crisis that has stifled the housing market deepens, preventing consumers from buying big-ticket items like cars and businesses from spending on equipment, according to the quarterly Anderson Forecast by the University of California at Los Angeles.
"We don't see that happening," said Edward Leamer, director and co-author of the forecast released Tuesday. "This is a tough call, but I will be very surprised if this thing actually precipitates into recession."
The forecast anticipates job growth remaining sluggish in 2008, with the U.S. unemployment rate rising to 5.5 percent by the end of the year. The February rate was 4.8 percent.
The forecast expects the economy to post gross domestic product growth of about 1.5 percent this year, rising to about 3 percent growth in 2009. GDP grew 2.2 percent in 2007, the weakest showing in five years.
The no-recession forecast runs counter to the outlook among many economists and financial pundits, who contend the economy has already started to shrink amid rising unemployment, job losses, record oil prices, and the lingering effects of the housing and credit crises.
The U.S. lost 63,000 payroll jobs last month, the second consecutive month of job losses. The last time the U.S. posted a two-month drop in payroll jobs was in 2003, when employers were still struggling through the aftermath of the 2001 recession.
Leamer said the nation may be experiencing negative economic growth in the current quarter. Economists generally look for at least two consecutive quarters of negative growth before they make a recession determination.
The biggest risk of recession comes from the credit crisis that emerged last year as home values began to tumble and the number of mortgage defaults and foreclosures soared, the economist said.
Major financial institutions were racked by credit losses as the value of securities backed by mortgages sank, causing the traditional outlet through which banks borrow money to seize up.
The credit woes have deepened the housing slump, making it harder for would-be homeowners to borrow money and for homeowners to refinance. But consumer spending, while weakened, hasn't declined severely due to credit problems, Leamer notes.
"Americans are not as wealthy as they thought they were, and that's going to factor into consumer spending going forward, but it doesn't cause a recession because consumers all realize their lack of wealth at different points in time," he said.
Another potential factor in a recession would be widespread job losses. Leamer, who has maintained a no-recession forecast in recent quarters, said that's not likely.
"So far the labor markets are slowing but not collapsing," he said.
The forecast calls for the nation's housing doldrums to continue "for a long time," Leamer said.
He expects housing starts, which fell from a high of 2.3 million units in January 2006 to 1 million units this January, to bottom out in the summer.
Quote from: Garoh on March 08, 2008, 06:01:08 AM
Hi David
You've been doing a great work , don't stop ...
If you have losing trades on the other hand you had many winning trades , don't let te market beat you down :)
I'm sure you we'll finish 2008 with more than 40% return .
I spent all the night yesterday looking at many Technical indicators and market's indexes charts .Guess what !! I found out that we'er all most reached a bottom by friday's close 8)
Next week could be the end of these losses and we'll be heading north for sure . Just hang on and keep your good work up ;)
Frankly, I've never got a loss with any of your trades , I always tried to get in at the right time ..
Be strong David and we'er gonna see green numbers soon ;)
Here we go a strong move
Quote from: BigSully1 on March 07, 2008, 04:37:51 PM
Quote from: soxguy on March 07, 2008, 01:57:29 PM
Oil will peak at some point,$110,$115,$125,I don't know.Does anyone know of an investment vehicle that in effect shorts the price of oil?
you could short USO or buy puts. My brother was buying heavy puts on it today. I wouldn't though myself, I rarely ever agree with him and think he might well get hurt.
Heavy volume on Capricho's DUG today.
Maybe my brother will be right;
CHICAGO, March 11 (Reuters) - Option investors on Tuesday appeared to be betting on a decline in the price of oil in an exchange traded fund linked to the commodity even as U.S. crude oil prices surged to another record.
On the New York Mercantile Exchange, April crude CLJ8 settled at a record $108.75 a barrel, up 0.79 percent, trading from $106.61 to a new intraday high of $109.72, exceeding Monday's $108.21 peak.
NYMEX crude has settled at a record above $100 eight times since Feb. 19 and option traders may be positioning protectively for a slowdown in this momentum reflected by the spike in put volume in the United States Oil Fund USO.A, a fund designed to track the price of crude oil.
According to option analytics firm Trade Alert, a total of 52,000 puts compared with 9,138 calls changed hands in the ETF, three times the normal volume.
"There is weekly inventory data due out tomorrow, which could affect oil prices," said independent options trader Frederic Ruffy. "Some players might be looking to protect profits by purchasing puts on the USO ahead of the news."
Ahead of the U.S. Energy Information Administration's weekly U.S. inventory data due on Wednesday, an expanded Reuters poll of analysts forecast a crude inventory build of 1.7 million barrels.
"Also, there is talk that, since stocks have been under pressure, gold and oil have become asset bubbles," Ruffy said. "If optimism returns to the equity market, it could lead to money flows out of some key commodities markets and trigger a decline in the price of oil."
Unlike most other ETFs and mutual funds, the USO is a commodity pool that invests in oil futures on the New York Mercantile Exchange, options on oil futures, and forward contracts. It does not hold shares of individual companies.
."The idea underlying the fund was to give investors a way to get exposure to crude oil prices through an exchange-traded fund," Ruffy said.
"Investors expecting oil to move higher in price can buy shares of the ETF. On the other hand, if traders expect oil prices to fall, they might sell shares short," he said.
The fund on Tuesday closed at $86.34, up 71 cents after posting a 52-week high of $86.34.
In the options market, much of the focus was on April USO puts, allowing investors to sell the underlying fund's shares at a given price and time by mid-April.
Of note were the April puts with strike prices of $83, $84 and $87, as well as front month March $85 and $86 strikes,
"Traders are aggressively buying puts exceeding the open interest in several contract strikes," said Chris Mckhann, analyst at Web information site optionmonster.com in Chicago. "They are clearly positioning for a pull back in crude oil prices over the next 38 days or sooner." (Reporting by Doris Frankel; Editing by Leslie Adler)
Don't know why DUG was down almost 9% today. Oil didn't do much. Maybe a big spike in oil is anticipated tomorrow. We'll see. Maybe the momentum in DUG is still to the down side. It's not far from the 52week low.
How about shorting some of these mortgage investment companies.
These guys keep bringing the market down and are dropping like flies lately. The latest victim: Carlyle Capital. >:D
Carlyle Expects Banks to Seize Assets
Thursday March 13, 2:11 am ET
By Joseph Altman, AP Business Writer
Carlyle Capital Expects Banks to Seize Some $16M in Assets After No Agreement on Refinancing
NEW YORK (AP) -- Carlyle Capital Corp. said late Wednesday it expects its creditors to seize all of the fund's remaining assets after unsuccessful negotiations to prevent its liquidation.
The London-based fund shook financial markets last week after missing margin calls from banks on its $21.7 billion portfolio of residential-mortgage-backed bonds. Carlyle's troubles have amplified fears that billions of dollars of depressed mortgage-backed securities will flood the market, reducing their value even further.
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More than $5 billion of Carlyle's securities have already been sold, but the fund tried to negotiate with the banks to prevent the liquidation of the remaining $16 billion.
"Although it has been working diligently with its lenders, the company has not been able to reach a mutually beneficial agreement to stabilize its financing," Carlyle said in a news release.
More than a year ago, the fund leveraged its $670 million equity 32 times to finance a $21.7 billion portfolio of AAA-rated residential mortgage-backed securities issued by Freddie Mac and Fannie Mae. It borrowed money from at least a dozen banks and firms, including Bank of America Corp., Citigroup Inc. and Merrill Lynch & Co.
Carlyle posted the securities as collateral under repurchase agreements, so if the value of the securities fall, the lender has the right to ask for more collateral -- a margin call -- to secure the loan. If the borrower does not meet the margin call, the lender may sell the security.
The value of mortgage-backed securities plummeted as U.S. home prices fell and foreclosures surged, prompting the banks to ask Carlyle for more than $400 million in additional capital. The fund was unable to come up with the money, prompting lenders to start foreclosing on the securities.
As of Wednesday, Carlyle said it has defaulted on about $16.6 billion of its debt, and the rest is expected to go into default soon.
Carlyle Capital Corp. is one of 55 funds managed by the Washington, D.C.-based Carlyle Group, one of the largest private equity firms in the world with $76 billion in assets.
Carlyle Group "participated actively" in the fund's negotiations with its lenders to refinance its portfolio and was prepared to provide substantial additional capital if sustainable terms could be achieved, the fund's statement said.
But hopes for refinancing fell apart after some lenders said the value of the collateral had declined further, which would result in additional margin calls Thursday of about $97.5 million.
Carlyle Capital is registered in the United Kingdom but managed by New York-based executives. It was the first Carlyle Group fund to go public, at $19 a share in July on the Euronext exchange in Amsterdam.
Trading of the fund's shares was suspended last week after tumbling more than 50 percent to $5 apiece on the news that the fund wasn't able to meet the margin calls.
The shares continued to fall after regulators lifted the trading halt Tuesday. The shares closed Wednesday at $2.80.
Hi All and expecially to David,
I still own GSB, did not sell when you said to sell.
Do you think is reasonable selling now at 2$ or trying to keep and hope it comes back?
I remember you was pretty confident on GSB business, so aht is changed in just one week?
Any other still owning GSB?
Suggestions?
Thanks, ciao
Andrea
Quote from: soxguy on March 11, 2008, 08:42:37 PM
Don't know why DUG was down almost 9% today. Oil didn't do much. Maybe a big spike in oil is anticipated tomorrow. We'll see. Maybe the momentum in DUG is still to the down side. It's not far from the 52week low.
Why would one short oil, one of the few bullish things around? And, in reality, oil is scarce and someday it will inevitably end. How much will a barrel of oil cost 100 years into the future? Maybe 100 times more than what it is now, or $10,000.
My take is the oil market has decoupled from the economic environment and its outlook. It isn't rising because worldwide demand is expected to be very strong, but because supply is falling even as the price rises, because oil is a physical good made over millions of years by the Earth. The Earth can't make oil the same way the FED makes US dollars.
Quote from: terainvestment on March 13, 2008, 06:44:33 AM
Hi All and expecially to David,
I still own GSB, did not sell when you said to sell.
Do you think is reasonable selling now at 2$ or trying to keep and hope it comes back?
I remember you was pretty confident on GSB business, so aht is changed in just one week?
Any other still owning GSB?
Suggestions?
Thanks, ciao
Andrea
GSB had a brutal sell off Andrea, it's a pity you're still holding. I still believe GSB's industry will continue to grow into the future (Wide Area File Sharing, Continuous Data Protection, Secure Servers, etc) but suddenly I saw clouds over its specific business model. Their revenues don't seem to be recurrent, they sell a software package to large size companies and that seems to be it ... and how many large companies are there to sell?
GSB has other business parts which are recurrent, but for example, its direct to consumer business, the Cute FTP software, lost most of its revenues in the 3rd quarter, I don't know if it was because of a competitor.
Randy Poole leaving for retirement was also a factor in my selling decision ... anyway, the stock now trades at less than 10 times 2007 earnings, so it looks very cheap. If the business just keeps growing the stock will go back up. However, the chart says there are bad things coming ... like lower sales and losses. It's hard to know what to believe, the perceptions which would occur if there were normal business conditions, or the current perceptions, which basically say there's going to be a very deep recession in the US economy.
I'm sorry for not giving a definitive answer, I'm also in doubt and I'm not happy that I sold higher ... I should have sold above $6, at least that.
Good luck.
Quote from: stocky on March 09, 2008, 08:52:07 PM
I dont think their are 15 million underwater mortgages,
read and enjoy:
http://money.cnn.com/2008/03/14/news/economy/krugman_subprime.fortune/index.htm?postversion=2008031705
Quote from: capricho on March 17, 2008, 10:12:43 PM
Quote from: stocky on March 09, 2008, 08:52:07 PM
I dont think their are 15 million underwater mortgages,
read and enjoy:
http://money.cnn.com/2008/03/14/news/economy/krugman_subprime.fortune/index.htm?postversion=2008031705
Interesting read.
I've never understood why...in general...housing prices should ever go up more than the inflation rate. Well I could see prices going up a little more than the inflation rate...say 4 to 5% a year to adjust for population growth. Some locations in this country were going up 30-50% a year....truly unsustainable.
I'm so upset with myself for not shorting the investment banks sooner. The personal debt is huge in this country. Now the creditors don't have the liquidity to access capital...as the assest values continue to drop. So no more credit for the consumer. The stimulus package is a joke. Giving people $300-$600 dollars to feed their addiction to spend...what does that solve. Plus most of these people in huge debt will probably just pay down debt or pay bills with the money. The government should have used the money...like stated in the article... to create jobs...either through infrastructure projects or funding for new technologies...I'd vote for alternative energy.
I want to look at shorting commercial real estate now. They haven't been hit too hard yet. I know David doesn't live in the U.S. and see all the strip malls and retail stores in this country. It's ridiculous...I don't see how the retailers survive with the unbelievable amount of stores lined up along the streets in this country. How can the people that own these properties make it if the retailers have problems in the coming months?? I've also seen a lot of vacant properties. I've had these convictions for years...I still believe in the global growth story...but since the American economy is still 70% consumer related....it's time to follow my conviction until the situation changes.
Quote from: poli on March 08, 2008, 03:17:26 AM
David,
Hang in there, now that you have admitted defeat the market will start to head up again, ha ha. Concerning your long term bull case was wrong, I beg to differ. I really don't have a view beyond mid 2009 so I guess it is not a real long long term view but I believe the process of establishing a stock market correction bottom has unfolded in text book fashion over the last couple of months. First, the high volume closing low on January 22, the subsequent rally and then the correction bottoming process to test that low on lower volume than the January 22 low. This is where I feel we are at now. I believe volume is always the key. I believe this bottoming process will be over by March 21st and that the subsequent rally will take the S&P 500 to the 1600s sometime in 2009. That is as far out as my crystal ball will show me. I was a buyer in todays market ( I also bought more PAL ) and will be again on select stocks over the next couple of weeks. Of the 4 stocks you recommended to sell I only own GSB & TBSI. (I own all the others in main portfolio except OPMR) I am going to hang onto both of those for now to see if the market agrees with my prediction. I am in relatively good shape on both of these. I sold my initial purchase of GSB on 10-19 for a nice profit and repurchased it again on 11-29 and still own those shares now, so I am kind of playing with house money and my cost basis for TBSI is only around 34.00. Sorry for the long message but I just wanted to give my two cents here. David thanks for all your hard work, I really appreciate it. For all that are hanging in with some exposure to the market good luck, we will know in the fullness of time. To all, good health and trading.
Poli
I Believe it will be volatile from here on out but the market has performed about like I thought it would from this last post. The bottom is in and we will see the S&P at all time high in the 1600"s by end of 2nd quarter of 2009. A 30% gain from the lows. Hows that for laying it on the line...HAHA. I did sell GSB, CHME & DROOY from the mains portfolio, and GRS from my other stocks since the last post. I bought my 4th serving of PAL today as well as other select stocks over the last 2 weeks. David hope you have a great long weekend. I am waiting to see what your new thoughts are of the current market and perdiction of where it is headed. To all good trading and health. Have a happy Easter weekend...
Poli
David; With all the negative sentiment throughout the market place I did find this article in Barrons that actually agree's with my thoughts. I keep hearing where is the money coming from to fuel the next leg up and the figures stated here that have flowed in money market accounts is substantial. I for one have over $300,000 still in a money market account out of $800,000 to invest. Just some more food for thought. We will know in the fullnes of time. To all good trading and health.
Poli
Are you ready for Dow 20,000? (todays issue of Barrons)
March 22, 2008
By JONATHAN R. LAING
Despite the Bear Stearns bailout and the Fed's rate cut, a sense of foreboding is still abroad on Wall and Main Streets. Few investors feel good with an economic slowdown gathering force, the dollar in the dumps and contagion threatening to hit financial sectors previously unscathed or not even suspected of being at risk.
This in mind, we contacted James Finucane, a 67-year-old stock strategist who now works as a consultant in West Lafayette, Ind., home of Purdue University ("modest cost of living, a great brew pub and incomparable high-school hoops," he gushes). Among his talents: pool hustling. He was the 1961 National Student Unions pool champ, representing Notre Dame.
He also has been great at calling stock-market lows, including that reached in the week after the October 1987 crash. "Lows have always been easier for me to call than tops. I was premature in seeing the 2000 stock market high, for instance," notes Finucane, who long labored in Chicago at Stifel, Nicolaus.
Finucane argues that financial crises invariably yield spectacular buy points, and that we're at one now.
To him, we're now at yet another extraordinary low, especially with the unprecedented actions taken by the Fed of late to offer liquidity to investment banks and to commercial banks stuck with mortgage-backed securities of uncertain value. In fact, he foresees an explosive rally, with the Dow rocketing to 18,000 to 20,000 within a year from its current 12,361. The climb, he says, might begin imminently or take a few months of backing and filling before the market takes off.
Finucane argues that financial crises invariably yield spectacular buy points, especially when they reach crescendos. He points to calamities such as the 1970 Penn Central bankruptcy, the 1984 failure of Continental Bank, the 1994 Mexican peso devaluation and the 1998 collapse of the Long Term Capital Management hedge fund. Each time, important lows were made either simultaneously or within a month of the crisis.
He concedes that the latest crisis, which began last summer with the subprime-mortgage meltdown, has been "like a forest fire," spreading throughout the debt market, sometimes jumping fire walls to spring up in unforeseen areas. Yet he's now confident that the "panic lows" in the Dow, posted on Jan. 22 and 23, when it sank as low as 11,508, will hold. To him, the Bear Stearns bailout was a crescendo event.
Certainly, the news is hardly encouraging these days, with scary economic and market headlines like those for Alan Greenspan's recent assertion that the current financial crisis is the worst faced by the U.S. since World War II. A nasty recession impends or is already here. But crisis lows are always accompanied by hair-raising rhetoric and dire economic forecasts.
Finucane has long kept score, carefully cataloging predictions made at past economic inflection points. He points out, for example, that Greenspan contemporaneously described the Long Term Capital collapse in 1998 as the worst crisis he'd seen in his lifetime. Time magazine wasn't being intentionally ironic when it called the ad hoc government group cobbled together to grapple with the 1994 Mexican peso crisis the Committee to Save the World. Financier George Soros was just as downbeat after the 1987 stock-market crash as he is today, each time predicting a depression.
Why is Finucane bullish? For one thing, he observes that "governments and central banks have a clear incentive to promote growth, so to bet on a prolonged slump is to bet against the government, markets and human nature." He also takes comfort in a host of technical factors, including liquidity. Money-market cash, for example, has soared to $3.45 trillion, versus $2.2 trillion at the market low in March 2003. And U.S. domestic equity funds have seen a record nine consecutive months of net outflows, a skein that probably will hit 10 months when the Investment Company Institute releases its February numbers. The previous record was eight months, following the 1987 stock-market crash. The Conference Board Consumer Expectations Index is at a 17-year low. The Reuters-University of Michigan Consumer Confidence Survey is at its worst level since 1992. The American Association of Individual Investors finds small investors more bearish than they've been since 1990. And on and on.
What make these statistics all the more telling is that, by Finucane's reckoning, investors in 2003 had suffered more pain and yet were less fearful. By March 2003, for example, they'd endured 36 months of mostly falling prices, including 90% wipeouts in some top tech names. Retail sales had buckled in the run-up to the invasion of Iraq. United Airlines had filed for bankruptcy protection the previous December, the month in which McDonald's reported its first quarterly loss in 37 years. Industrial production was punk. Many forecasters warned of a double-dip recession close on the heels of the 2000-2001 recession.
In Finucane's estimation, months of stock liquidation and cash buildup, horrible sentiment and a bailout that could alter investor psychology have lit the fuse for an explosive rally. It will be ignited by one of those mercurial shifts in mood from abject fear to tentative confidence and, finally, wanton greed. "The setup is perfect," he asserts, using a pool-hall term. And he's confident that investors won't end up behind the eight ball.
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Hi David,
I was thinking to investon SIX for medium-long term, I made some DD and found out some problems.
As per chart here attached, you see that SIX in the last ten years has been profitable only on 1998 and in that year stock price was 40$.
Then, SIX continue to lose money, at the link below you can find the income statement that shows continue losses until today
http://quicktake.morningstar.com/StockNet/income10.aspx?Country=USA&Symbol=SIX
This caused a continue decrease on shareholder equity, that became negative in the last year.
At this link, you can find this issue:
http://quicktake.morningstar.com/StockNet/balance10.aspx?Country=USA&Symbol=SIX
In the next 18months, I read that SIX will have to repay the debt (over 2 Bln/$) or, at least, re-finance it.
Given that SIX continues to lose money year over year and also the last earning release was pretty bad, don't you think there is a serious risk of Chapter 11 and bankruptcy?
Can you please give an hard insight on this stock we own and trying to understand if it's a good turnaround or not?
Pertaining to my last few posts, so far so good. Not a bad week for the markets for all the bad news we have had each day. With that in mind shouldn't we be going down down down??? I'm confused....We will all know in the fullness of time. To all good trading and health.
Poli