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Daniel Moser

 
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  • Whitney Tilson Explains Why He's Buying BP Shares [View article]
    The BP situation points out exactly how sad the state of American politics is in, in its present form. The idiots in office don't seem to realize that bankrupting a 160 billion dollar company does 0 positive for the gulf, or mutual funds/pension funds that hold BP stock for their retirement accounts. Notice how Obama didn't have much to say about the whole situation until political pundits coupled with the general media started to get on his ass for being sloppy. And of course what does any corrupt American politician do??? Rather than promote tentative solutions (which they had 0 insights on because they are far more interested in practicing Chicago style politics with energy policy), they came out making irresponsible statements simply bashing BP for political gain. I know, as a colleague has already told me...I should expect nothing different.

    But it is just sad. In my view BP could have handled this situation over time. Maybe I should say the energy sector could handle it with innovation and seat of the pants engineering. However, at this point...the politicians seem intent upon destroying BP. So I find myself agreeing with comments made above that the realized costs from this accident could have been handled...at this point I am not too sure they will be allowed to handle it by Czar Obama and his thugs.

    And by no means am I defending BP. But the politicians should have a greater sense of personal responsibility before they speak to the public. And before someone thinks I am completely insensitive to the people's lives who will likely harmed by this accident. It really sucks. But destroying BP with irresponsible speeches and political dogma will not make anything better.

    And even worse...how about the lawyers who are getting ready to make millions upon millions and millions more....while their fisherman clients get a check for 1500 bucks from some settlement after 5-10 years of waiting.
    Jun 9 09:17 PM | 9 Likes Like |Link to Comment
  • Could This Strategy Be The Holy Grail Of Investing? [View article]
    This is pretty much like pulling a paper sack over someone's head at noon while asking them if they are convinced it is suddenly night...

    The example that you posted was June 2014 @ $161 costing $13 or 8%. This particular PUT currently has a delta of -0.36 which means, for the non-option people, for a $1 change in the value of the SPY, the value of this PUT will change in the opposite direction by approximately 36 cents. In other words the 8% number that was quoted as the "cost of fully hedging" is grossly incorrect.

    I have to assume by suggesting that the cost of this hedge is 8% via simple division, that the underlying portfolio of long positions used for the core portfolio is worth approximately the same as 1 share of the S&P 500. If this is true...then in order to be "fully hedged" you must buy 2.77 (that is 1/0.36) of these PUT options which actually translates into something closer to a cost of hedging closer to 22.4% (that is 2.77 x $13/161 = 0.2237).

    If it is not true, then the only other option to be "fully hedged" is that the underlying core portfolio is equal to 36 shares of the SPY which would make the simple math = (13/(161 x .36)) which is also equal to 22.4%. The point being that your cost of hedging is grossly understated at 8% - if the intention was to be fully hedged against the broad market swings.

    "The full hedge is achieved by buying a number of SPDR S&P 500 (SPY) LEAPS put options that will fully protect the portfolio on an annual basis. By fully protect, I mean that if S&P falls by 10%, those puts will increase in value by 10% to fully cover the loss."

    "To earn back the cost of the hedge, each week we will sell short weekly puts against our long puts. Over a full calendar year, the hedge should pay for itself."

    Let's call this what it is...buying PUT spreads with different expirations/strike prices against a portfolio of single stock selections...and your math doesn't work.

    For instance...the current price for June 2014 PUT @ 161 = 12.
    The current price for the July 2013 PUT @ 151 is 0.84. This means you would have to sell the Jul13, Aug13, (prompt month equivalent) PUT each month 14.2 times in a row in order to pay for the cost of the June 2014 PUT - which is going to be quite a task considering June 2014 is 12 months away.

    The two additional problems this whole scheme has is that once you buy the put spread using June 2014 @ 161 and July 2013 @ 151, your net delta is -.23 which means...should the value of SPY change by $1 this put spread will change in an opposite direction by about 23 cents. In what world would this be referred to as fully hedged in all market conditions? Secondly, if SPY declines below 151...your underlying long position is no longer hedged AT ALL due to the fact you sold the 151 PUT. This is not fully hedged...this is hedged against a 6% market swing.

    At the end of the day this analysis didn't even stack up like a house of cards let alone fall like one. And unless it was totally misrepresented, this Anchor Strategy mentioned above doesn't sound like much more than a facade. Even if it is successful in terms of good performance, it is purely a function of allegedly superior stock selection - which is ultimately the ONLY possible way this strategy could remotely work at which point one might as well ask why not just pick stocks and short SPY on an equal value basis. If these Anchor Strategy folks - who I must admit I know nothing about outside of this SA post - are promoting themselves as running a fully hedged portfolio there are being misleading at best...but draw your own conclusions.
    Jun 6 06:38 PM | 8 Likes Like |Link to Comment
  • The Shedlock-Schiff Affair: A Chronicle [View article]
    What is amazing to me is that so many people came out so strongly against Schiff as though they absolutely knew he was wrong. As far as I am concerned, anyone who laughs someone out of the room for their ideas that might seem outlandish at the time rather than logically and intelligently debating them has no credibility whatsoever. I guess this is just a problem inherent in human nature. Will there ever be a day that we don't assume naively that we are right and the good times will never end? Maybe if everyone (people, advisors, and politicians) would start intellectually discussing issues rather than promoting idiocy investors wouldn't have lost so much money. I don't like perma anything. I like people who take a position and duke it out with their opposition all the while respecting the oppositions view. Funny how during all of those silly debates between Schiff and others....Schiff never lost his cool (from what I saw). Yet, his opponents never stopped yelling and laughing being entirely disrespectful of Schiff's views. And the ironic part, Schiff was by far more correct with what he said than anyone who argued with him. I am confident that Schiff is secretly having the last laugh...although he has enough class to not have that laugh out in the public eye.
    Jan 30 08:48 AM | 8 Likes Like |Link to Comment
  • Don't Let Talk of a Bubble Scare You Out of Bonds [View article]
    Bruce Krasting's comments provide a great point. Whether you agree or disagree about the merits of investing in bonds is actually somewhat irrelavent to the discussion. The central argument in the entire discussion is how you define a bubble.

    In my opinion the two biggest fads, in the past 24 months, (which I cannot wait until they disappear) is using these two terms: bubble and ponzi scheme. These are the two most over used misunderstood terms in existence right now. Every week countless commentators ask, "are bonds in a bubble...are hedge funds a bubble...are agg products a bubble...where's the next bubble going to be...what's the next bubble to pop?"

    As Mr. Krasting correctly points out...a bad investment does not constitute a bubble...it constitutes a bad investment. Roche, in my mind, wasn't arguing that bonds are a great investment he was merely pointing out that based on price action bonds are not on some unsustainable path that is destined to for a catastrophic debacle of mythic proportions that will likely unfold over some mind numbingly short time period.

    Bubbles are often associated with dramatic price declines in a short period of time. I don't see the merits in defining what will probably be a slow process of change over the course of many years as a bubble. Sure investors in bonds might catch some undesirable opportunity costs...but hell...at the end of the year have you ever checked the stocks with the biggest % gains for the previous 12 months and calculated your opportunity cost? I haven't. But I know it is HUGE. The fact that you missed that opportunity doesn't mean the stocks you actually did invest in were in a bubble. It just means they weren't as good of an investment as others.


    Sep 29 10:11 AM | 5 Likes Like |Link to Comment
  • Monsanto: The Quintessential 'Growth' Stock [View article]
    Monstanto might be a fine company but your evaluation of your option trade is misrepresentative.

    First of all you are analyzing returns from an "initial cash outlay" which is fundamentally flawed because the reality is you have to have 18K set aside for this trade or you will find yourself bankrupt should MOS trade below 90 at expiration obligating you to spend an additional 9K on buying the stock.

    Secondly, your analysis didn't show any major moves in the stock price over the course of the next year and a half. So, here goes...

    What if MOS is well above 90 at expiration? Lets take an extreme case...lets say MOS is at 150 at expiration in 2011. You will gain 6,000 in profit on the stock. You will lose 4250 = ((90-150)*100+1750)on the call you sold @ 90. You will gain 1770 on the put option that was sold. This sums up to a net profit of 3520. Now this might seem like a grand return on what you call your outlay...however when you properly account for how much capital you need to have to realistically put this trade on without the fear of going bankrupt...it is 3520/18000 or 19.6% return over the course of 1.5 years - or a 13.04% annualized return. Hardly a great return relative to a 66% total move in a stock (or 44.5% annualized).

    What if you simply bought 18,000 worth of MOS and saw a similar move in the stock....you would earn 12,000 or the whole trade or the entire 66% return.

    What about the other direction? What if the stock falls to 50? You would lose 4000 on the stock. You gain 1750 from the call you sold. And you would lose 2230 = ((50-90)*100+1770) from the put you sold @ 90. For a net loss of 4480 or a total loss of 24.9% (or annualized -16.59%).

    If you are bullish on MOS, it would be far better to simply buy 9K or 18K worth of MOS and use a stop loss. Your option strategy is oriented for someone who doesn't think there is much upside potential in MOS over the next 1.5 years.
    May 20 12:31 PM | 5 Likes Like |Link to Comment
  • Something Is Happening in China: How Investors Can Profit [View article]
    The Chinese can afford to pay for their second stimulus plan because they have been running tremendous current account surpluses. Yes, I think you make a valid point that they will indeed have less desire to buy U.S. treasuries as they fund their own economy. Moreover, as they build out their own internal consumption, they won't have as much desire to hold U.S. Treasuries in an effort to keep their currency low to maintain their export driven economy.

    In addition, I do not believe that showing percent changes m/m obscures the very point I was trying to make. I am fairly confident that I am most interested in percent changes so that one might observe any correlation between my "suspect" basket of stocks and the PMI data. Especially considering that PMI data is somewhat unusual in that absolute levels have a different sort of interpretation than typical data series (i.e. >50 is economic expansion and <50 is contraction). So, i am pretty sure overlaying the raw number would have been pointless.

    I am going to take a look at the freight companies to see if there might be some insights gained from those. However, I am don't know much at all about freight companies so I am definitely open to suggestions for freight companies that are less likely to have accounting scandals than others.

    With respect to those who appear to get frustrated at anyone who would dare take a glance at Chinese data, I am well aware that the precision of the numbers are highly questionable. Although I must ask, if the Chinese numbers are not to be trusted, why do they show anything bad at all? Which is to say, why would the big bad communists ever show PMI data less than 50? Or declining GDP growth? Furthermore, a grain of salt is always needed when looking at any economic or accounting data.

    This is just a tiny trickle of information for those interested in forward looking investment ideas. If you don't like them, don't use them. If you do like them, find them interesting, and wish to build upon them with your own constructive ideas, awesome and I wish you luck.
    Mar 5 07:19 PM | 5 Likes Like |Link to Comment
  • The Inflation Time Bomb [View article]
    The second half of the equation is what causes the inflation. The fact that the banks aren't lending doesn't create inflation. It is when the banks lend from a capital base 10X bigger than it was 5 years ago that we get inflation (i.e. the growth of the money supply).

    Think about it....if I am a small business selling widgets. I usually buy my raw materials on credit (a business model under great distress because of the siezure of credit markets). I am on the brink of collapse. I am desperate for funding. I will be waiting in line to get credit lines back as well as loans for new capital investments.

    Sure, you can argue that the money is going to credit worth projects because of tighter lending requirements. However, that position has two flaws. One, it assumes that these new banking giants will correct there risk management shortcomings despite the overwhelming political pressures to deploy their newly acquired capital. The second shortcoming is that with this tremendously larger capital base, loans might be tighter than the were previously but they will hardly be tight. Even if theoretically every loan they make is a good loan i.e. limited risk of default, you have essentially dumped a couple trillion new dollars into the economy. This money has a tremendous mutliplier effect that only compounds the inflation problem as jobs are created. The article correctly points out the Fed's own worst enemy is the Fed. If you cannot visualize this scenario than you are failing to think strategically about the very delimma that the Fed is thinking about themselves.

    This problem is only compounded when you figure out that every equity infusion into the banks, as far as I know, does not have any kind of structural expiration. Which is to say, the only way to get this lending capacity (e.g. massive equity base that can be lent off of at some ratio)out of the system once the recovery begins is for the banks to buy back the equity stakes from the government. Now, why would a bank ever reduce their own equity stake...when their equity stake is the equivalent of their right lung when it comes to earning money?

    To argue that no one will want this credit is essentially an ostrich in the sand to what has happend in 2008. If no one needed the credit, what is all the talk of crisis for?

    Think about all of the new debt that the government is issuing to pay for these bailouts. This may very well be backing the U.S. into a very uncomfortable corner in which we are faced with two choices: Default or inflation.

    Jan 15 12:03 PM | 5 Likes Like |Link to Comment
  • Financing Retirement: Asset Allocation [View article]
    I have two things to contribute to the discussion about modern portfolio theory (MPT).

    First, a thorough MPT analysis includes returns generated from price appreciation AND dividends. IF it turns out that dividend stocks perform better than growth stocks (e.g. same or better return per unit of risk), an unconstrained MPT optimization process would pick up this behavior and investors would find themselves holding a much bigger portion of dividend stocks in their portfolio. That is, if it is true. The MPT process is a tri-fecta of three components: return, risk, and correlation. My guess is that dividend paying stocks (as a sub-divided asset class) are still strongly correlated to the overall stock market thus not a seperate asset class or rather not seperate enough to deserve an independent allocation in addition to a portfolio already holding a substantial portion of assets in equities. Bottom line is that the meat is in the pudding: if dividend paying stocks are statistically better assets than non-dividend paying stocks or the S&P 500, a simple MPT process would naturally shift assets into those stocks. (This is all contigent upon asset managers doing a thorough MPT process).

    My second point is a possible reason as to why asset allocation in the context of retirement planning has overlooked dividend stocks as a seperate asset class. Without incorporating short sales into the portfolio there are limited tools to isolate the effects of dividends from the effects of the overall stock market. Which is to say that without removing some amount of systematic market risk, you are really just allocating capital to what you are arguing is a less risky asset - not a different asset class.

    Lots of people have issues of various sorts with MPT. Some of which are very well founded problems that need to be resolved. Others are die hard MPT supporters. For this comment, I am neutral on MPT. I just wanted to try and add something to the MPT discussion.


    Aug 4 11:50 AM | 4 Likes Like |Link to Comment
  • How to Select Assets for Inflation [View article]
    I can't help but think TIPS are a pretty foolish investment for most people in the wealth building phase of their lives. Unless the individual thinking about TIPS is suddenly endowed with enough money that the realized interest rate differential between TIPS and the comparable plain vanilla note is enough to offset all of the increases in his/her living expenses, TIPS make little sense. TIPS are a wealth protection instrument not a wealth building instrument. Logical reasoning suggests that it make more sense for investors to put capital into the companies that produce/mine/refine or sell the components which make up the CPI. By definition if the CPI is rising then their profit margins should be expanding...if not even more so because companies can have substantial operating leverage. Quite simply, TIPS are a hedge against inflation for those already financially independent. TIPS appear to be terrific at locking up an extremely low return thus they serve as a superb hedge against one's ability to earn compelling returns for those in a wealth building phase of life.
    Jan 12 06:26 PM | 4 Likes Like |Link to Comment
  • Three Reasons to Own Oil E&P Stocks [View article]
    You might be on point with who started the systematic destruction of the dollar. However, that point is moot. The fact is the USD is being systematically devalued, and I would argue the current administration has no intentions of altering its path via good policy. There are implications of this policy and as such, investors should aim to profit from trends that they predict will play out because of this policy. Hence, the weak dollar doctrine is merely one point among at least 3 as to why oil exploration and production companies represent a compelling opportunity for investors.
    Jun 2 08:38 AM | 4 Likes Like |Link to Comment
  • Bill Ackman's Hedge Fund Losses Are Staggering [View article]
    Everyone, and I mean everyone, has entirely failed to see the otherside of the story with Ackman's fund. He never claimed that this fund referred to as the Target fund is a diversified low risk hedge fund. If this is all it takes to run a hedge fund, literally everyone would be doing it. They would start a fund, go all in on one stock and see if it works. That is not what Ackman is doing. He is an activist or at the very least is an activist with Target. He is working with management almost as a constultant to do things (right or wrong) that he believes will increase shareholder value for Target and thus his investors. Quite simply, he is a real investor in the "1940's building a business" sense of the word. While he might have positioned one of his funds entirely in Target stock, he seems to have done so because he believed if the execs at Target engaged in some of his ideas, their business would improve, not simply because he thinks he picked a winner with Target.

    The reason the author is not running a hedge fund similar to Ackman's, with all due respect, is that he is lacking the capabilities and desire to work with the management of companies he invests in. Ackman literally is an owner of Target, as though Target is a private company. The only difference is that he knows every single day what his share of that company is worth. Hence, he is trying to do what he can to improve Target's business.

    All hedge funds do not operate the same, people need to remember that. You can't compare D.E. Shaw or SAC Capital performance to Ichan or Ackman. They employ entirely different strategies. Doing so is entirely misrepresentative of positives and negatives of each fund.

    All that being said, sure maybe Ackman could have done a little more to protect his clients. But as far as I can tell, when you invest with Ackman, you are investing in him to change businesses he invests in-not a quick trader who gets in and out in the blink of an eye.
    Feb 11 09:54 AM | 4 Likes Like |Link to Comment
  • Is Everything We Know About Stock/Bond Allocations Wrong? [View article]
    I accept.

    P.S. I am flattered that you found my article interesting/influential enough that you 1.) read it more than once and 2.) found it compelling enough to invest the time required to write an entire blog post devoted to raising questions and posing critiques to several of the arguments in my article.
    Sep 12 02:41 PM | 3 Likes Like |Link to Comment
  • Financing Retirement: Asset Allocation [View article]
    Mr. Fish you are correct. MPT, in effect, chases risk adjusted returns. I didn't say it works well or fails miserably. I am simply trying to accurately describe what MPT is all about in the context of asset allocation.

    In my view you are spot on...locking yourself into either generalization can prove catastrophic. MPT in effect can be guilty of both because it by definition chases risk adjusted returns, but inherently incorporates mean reversion into the process via rebalancing (which the asset manager controls the frequency of).
    Aug 4 04:05 PM | 3 Likes Like |Link to Comment
  • What Is the Yield Spread Telling Us? [View article]
    This is an excellent example of someone relying on models without asking why they work in the first place. In pretty much all previous cases in which a steep yield curve predicted relatively strong growth, the easy monetary policy (which gave rise to the steep yield curve in the first place) led to a strong recovery. In this instance the credit bubble that has come undone was so massively deflationary that incredibly easy monetary policy coupled with new measures by the Fed to make monetary policy even easier might not have the same effect as it did in all of the other cases. I am certainly not suggesting that another recession is in store during 2010...I am merely suggesting that just because a model that is by its very nature "curve fitted" fails to capture any differences in magnitude of the underlying weakness in the economy thus...we could see a steep yield curve for quite some time with very limited growth.
    Jan 19 02:18 PM | 3 Likes Like |Link to Comment
  • Outlook for Oil: When Contango Trade Unwinds [View article]
    I have a rough time believing oil prices will tumble too far as people offload their vessels filled with crude and products. If I concede that dumping physical crude oil into the market place will take a downward toll on flat price for some period of time...I must naturally focus on the implications for the contango itself. As flat price moves downward the contango widens...thereby naturally creating incentives for the next investor/trader to bid for the crude and storage, hedge it, and store for 6 months and earn a 4-10% return risk free. Seems to me this process will add a tremendous amount of stability that is failed to be taken into account when you suggest that oil prices could crash when traders begin to unwind their contango trades. If anything, I could buy the argument that vast amounts of storage will keep a lid on oil prices but I cannot stretch far enough to think that suddenly all of the trading companies who were diligent enough to lock up risk free returns north of 20% will just sit there and not rush to lock up 7-10% in the event of front month weakness. Obviously there is some give and take and it all depends on the required rate of return for trading companies but the point is clear: there is a balance that will maintain relatively stable oil prices due to the temptation risk free profits provide.
    Jan 18 05:56 PM | 3 Likes Like |Link to Comment
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