Kevin Stecyk

Making Sense of Blue Nile's Web Traffic Data

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On Nov 16 08:28 AM bdrose wrote:

> Do you think they are actually going to grow year-over-year, rather than sequentially, for the 4th quarter?

Last year, "Blue Nile reported net sales for the 14-week fourth quarter of $85.8 million..."

investor.bluenile.com/...=

According to their 3Q press release,

>>We are projecting fourth quarter net sales between $100 million and $109 million, and diluted earnings per share in the range of $0.35 to $0.39.

(See my quote and link in the published article above.)

Because they are forecasting year on year sales increase for the fourth quarter, the answer to your question is "yes."

Barron's on ExxonMobil: 'What a Gusher'

Yeah, there are two goofs, one an incorrect copy of the title and second, including my picture from my blog. I'll let the editors know.

Blue Nile's Strong Q3: The Outlook Just Got Brighter

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On Nov 12 08:59 PM Michael Shulman wrote:

> Your note was amusing since it relied on data and numbers rather
> than hope and hype -- but how can you be bullish on a company so
> grossly overvalued facing 2% growth?

Odd, I received the same negative comments back when NILE was $20.

> They have experienced margin
> expansion due to cost controls and reductions -- a one time event

Did you listen to the conference call? Margins are expanding for two reasons: 1) Product mix and 2) Better sourcing. And product mix will be an increasing benefit. In other words, it ain't over yet.

> -- and sales are essentially stagnant. They are selling for 80 times earnings -- if they grew profits 20% a year it would still take them four years to grow into the premium the market is assigning to them.

Earnings in the depths of a huge recession, one of the worst since the Great Depression, one where the U-6 Unemployment rate is 17.5%. Hey, I am happy they have profits at all.

But not only do they have profits, they have growing profits and growing cash flow. And they might even be buying back shares soon. As any investor knows, next year's earnings in the depths of a recession are not that important. Often companies will have extremely high p/e during the depths of a recession. So what?

But more importantly, while Blue Nile is growing its profits and cash flow and gaining market share, it's competition is struggling just to survive. Or put differently, Blue Nile is profitably increasing market share. And that's a good thing.

Don't Believe Long-Term Oil Forecasts

Be sure to read part II of this article:

seekingalpha.com/artic...

Don't Believe Long-Term Oil Forecasts

Please ignore the second last paragraph where the article mentions my Fish Creek Park photograph. On my blog, where Seeking Alpha found my article, I usually have a random photograph to begin my posts. At the end of the article, I usually write a brief blurb. Unfortunately, the photograph stuff was captured in this Seeking Alpha post. The editors might have removed the offending paragraph by the time you read this note.

Blue Nile Q1: Targets Raised on Strong Performance

Thank you for your well written article Eric. I was hoping to write my own positive article when Seeking Alpha released the transcript from the latest conference call. Perhaps SA is just late, in which case I will write my article in the near future.

Anyway, for those who didn't listen to the conference call, I urge you to do so. It wasn't a barn burner, but it was better than I expected.

Leveraged ETFs: Handle with Care

On Mar 26 04:50 AM limps wrote:

> Kevin, your advise is completely flawed. Your comment is just an
> explanation of how maths work.

And it's all about math. If you read the article carefully, you'll note that ProShares walks you through the same math. Again, it's just math, and rather simple math at that.

Blue Nile: Diamond in the Rough?

Thanks for the article Eric.

Leveraged ETFs: Handle with Care

On Mar 25 03:11 AM aarc wrote:

> There is something wrong with the author's analysis. He made his
> conclusion based on a non-trending market with daily ups followed
> by daily downs. Markets don't stay in consolidation forever. They
> do trend too. Make another computation based on trending markets
> with more up days than down day during the upturn and the inverse
> during downturns.

Markets are never linear forever. If you buy and hold, you will NOT achieve 2X or 3X. If the markets trend for a period, buying a 2X or 3X will give you more gain, obviously, then just holding the underlying asset.

Earlier you wrote, "We don't have historical data yet of the xETF to the upside." You don't need historical data on the upside. You can create your own proxy data. You will be missing the expense and tracking errors; however, you will have all the data you require to see the erosion of the 2X or 3X ETFs.

You can look at crude oil or S&P 500 or whatever. There's lots of historical data to play with.

Just use the methodology provided in my table with actual data. And then run it out for a year's period.

Leveraged ETFs: Handle with Care

In my previous reply to David Hollinbeck, I provided two links to Yahoo. Unfortunately, they didn't work out. So here they are again.

-----
David, by looking at SPY and SSO for the three month period, we note that the effect is not pronounced.

See here: bit.ly/18E832 (spy, sso, sds ... fixed link)

Let's look at six months: bit.ly/12wajJ... (spy, sso, sds ... fixed link)
------

Continue with my prior response to David. It's about nine or ten responses up.

Leveraged ETFs: Handle with Care

On Mar 24 08:59 PM Vanderpool wrote:

> This is the best article about these funds I have read yet... Thanks
> Kevin for the effort.

My pleasure.

Still I have some questions...
> What I do not understand is what effect do they have on your holdings
> if you stay in them overnight. Do they open up the next morning compensating
> for any plus or minus action that occurred since closing the previous
> day?

My understanding is that they do compensate for any plus or minus action that occurred since the previous day. So in other words, if the markets open up big the following day, your 2x ETF should reflect that when trading begins.

You would have to read the prospectus of the ETF in question, but my *guess* is that most of these ETFs use a few stocks/futures/options during the day to keep the ETF tracking the underlying asset. And then toward the end of the trading day, they attempt to "true up" the ETF by using a more comprehensive suite of assets.

Some speculate that the wild trading that often occurs in the last hour is attributable to these ETFs.

> Can they be used at all to protect you from overnight swings in the
> market?

I suppose if your portfolio had a beta of 1.0 (or pick any value) and you went with a negative 2X (or whatever value) S&P ETF, it would help flatten your exposure.

That said, these ETFs do experience tracking errors.

> If not, how do you trade in these if you have a long term perspective
> on where the market is headed? (In them in the AM and close out
> in the PM? Everyday until your market expectations change?) How
> do you capitalize on their potential to out perform?

If you believe that the market is headed up (or down), go ahead and buy a triple ETF. Just recognize that volatility will eat away at your returns. So if you have a strong few days and expect the next week to be choppy, sell.

Or buy the ETF in the AM. Ride the ETF throughout the day and sell before closing. In the morning, assess whether you believe that the day will be another winner. If so, buy again. If not, stand aside.

It's the volatility that will eat away at your returns. If you believe that you are about to enjoy several days in a trend, go ahead and try to capitalize on that.

Leveraged ETFs: Handle with Care

On Mar 24 08:21 PM Nic Horns wrote:

> Kevin,
>
> I understand performance drift, I trade the BGU and it is down 50%
> since inception on 11/5 and the Russell 1000 is down 12.9%. At 3X
> that should be a 38.7% decline in the BGU. In order to combat the
> negative volatility effects, do you think coupling the levered ETF
> with a long VIX ETF or option would be a good idea?

To be honest, I don't know. One person who knows these ETFs, VIX products and options well is my friend Adam Warner. I encourage you to follow his blog Daily Options Report at:

adamsoptions.blogspot.com/

He might be able to provide a better and more informative answer.

Leveraged ETFs: Handle with Care

Shaun wrote:

> My bad... I plugged in wrong numbers for +1X. But what about -1X
> ETF. It seems -1X will be same as +2X on even days.
> Day Price +1X -1X

Yes, your math works. Again, my example is quirky in that we have +25%, -20% alternating back and forth.

The key takeaway from this entire exercise is that using a levered ETF, your actual return will differ from an "intuitive expected return," where the intuitive expected return is the ETF multiplier times the actual realized return of the underlying asset. This difference is magnified by both volatility and time.

Leveraged ETFs: Handle with Care

Shaun wrote:

> This implies that even 1X ETFs that simply move based on daily performance
> of the underlying will be off by about 51% on the 10th day (+1X)
> and by about 75% (-1X) when the underlying would be exactly at the
> same price as on Day 0. Does this suggest we only invest in stocks
> and forget about ETFs?

Sorry Shaun, but I don't follow your 1X ETF will be off statement. A 1X ETF should be very close. That is SPY should be very close the S&P 500. SPY is an ETF.

Leveraged ETFs: Handle with Care

David Hollinbeck wrote:

> I have charted the SPY vs. SSO over a 3 month period and don't see
> the effect you are saying will happen. During this past 3 month period
> the SPY has gone down but recovered to the starting value on two
> occasions. On those occasions the SSO has also recovered to its starting
> value. So, I don't see the behavior you are predicting.

David, by looking at SPY and SSO for the three month period, we note that the effect is not pronounced.

See here:preview.tinyurl.com/4d... (spy, sso, sds)

Let's look at six months: preview.tinyurl.com/4d... (spy, sso, sds)

Again, SPY and SSO actually look as though they are performing reasonably well. That is, SSO has fallen roughly 2x as much as SPY. Looking at SPY, though, shows that it is reasonably straight. It has gone down consistently.

However, look at SDS and SSO. Both added together should equal 0. 2X + -2X = 0. On my screen ~+10 + ~-60 doesn't equal 0.

The key to understanding how much these levered ETFs will deviate away from 2X (or -2X or 3X or -3X or whatever) is look at the volatility of the underlying asset and length of time. And, as an additional spot check, add the mirror (if you using +2X, look at -2X) ETF to see if you get 0.

Look at FAS and FAZ. When added together, even over a three month period, you'll note that the two ETFs don't come close to 0. The financials have been much more volatile.

Again, the two main keys are volatility of underlying asset and length of time held.