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Peter F. Way, CFA

 
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  • Apple's Stock Price: What Do Market-Makers Think It Can Sell For? [View article]
    Jeff,

    thanks for the kind comment. glad you find what we do of interest. it seems like price is almost an afterthought in terms of the thrashing the financial reports and competitive analyses get. But it is how the score is kept. By the way, the upside is not my prediction, it's being made by money committed by bigger, better-informed organizations. We're just the messengers. stay in touch, there's lots more to come.

    regards,

    Peter
    Feb 1 12:37 AM | 13 Likes Like |Link to Comment
  • Interested In A 100%+ Annual Rate Of Gain 7 Times Out Of 8, With Worst-Case Risk At -10%? [View article]
    xpan,

    perhaps I misunderstand your comments, but it would be easy to believe that you did not take the trouble to read the article. please try again to widen your understanding of the investment world, while you still have as much capital as you do opinion. There is plenty to be learned from SA contributors if you will make the effort to ingest instead of just excreting.

    regards,

    Peter
    Jul 2 08:01 PM | 12 Likes Like |Link to Comment
  • Apple's Next Few Weeks, Seen By Market-Makers. What Then? [View article]
    Three Cheese,

    Thanks for the caution that this article lacked the necessary background on our analysis, for new readers to understand our conclusion. It may best be found at http://bit.ly/1jUQTbo.

    Unlike many Apple Inc. reviews, this is not a study of the company's activities and prospects, but of how the stock is being perceived and treated by the combination of investment professionals and individual investors alike. Its price is ultimately how the score is kept for most of us, so that is our principal interest.

    Besides, there are plenty of fans and followers to comment on the deserved achievements of AAPL in the competitive commercial arena.

    I hope your curiosity will encourage you to explore at blockdesk.com's FAQ how we see the very serious game of stock investing, and the special role that its biggest subject occupies. Individual investors clearly (to us) have far more influence on AAPL's price than they do on most other actively-traded equities.

    Again, I appreciate your comment and wish you well on your investing journey. Hope we may be helpful in that adventure.

    best regards,

    Peter
    Jun 27 10:00 AM | 10 Likes Like |Link to Comment
  • SPDR Gold Shares - A More Intensive Pricing Study By Market-Makers [View article]
    WACG,

    perhaps you can add to your investment education and reduce your naivety about today's markets, the manner in which they operate and who makes them work by reading more of my articles.

    MMs are no longer principally exchange specialists, as they once were, folks with high moral standards and respectful of the responsibilities of the operating privileges accorded them. Now most issue markets are driven by the block desks and prop trade desks of the so-called "investment banking" firms, which basically make their own operating disciplines -- for their benefit, not necessarily that of the investing public.

    They are masters of arbitrage and hedging, and often make the bulk of their trade profits in the derivative markets essential to providing liquidity in the equities markets.

    In this buyer-beware environment the best-informed players (including MMs) traffic at the expense of the misinformed and uninformed. Some extreme observers hold that MM firms are among those doing the misinforming. Could that be proved, then lawyers would be making (more) giant fees -- if a wallstreet cop could be found that would make the arrest.

    This ain't your father's market. As a great-grandfather I've lived professionally through times that functioned the way you imagine they do now. We can only hope that sufficient public exposure to actual market functioning will help to herd the MM community back to postures of respect for what a great resource a fair market can be. Fear of public distrust may be one of the strongest persuaders that exists. It may be part of the equation now for GS. Read Michael Lewis' "Flash Boys" book.

    Thanks for your contribution to a necessary discussion of the problem.

    best regards,

    Peter
    May 26 09:50 AM | 8 Likes Like |Link to Comment
  • 10 Best-Buy Wealth-Building Bets, Odds-On Payoffs, In 6 Months Or Less [View article]
    Raven,

    thank you for helping readers do their own DD on one of these Quick-Pick lists, as SA description of the article category suggests. There are negatives in each investment candidate's stories, part of the reason they are priced where they are, and perhaps part of their appeal if that side of the story disappears. It seems that at least some in the big-money fund crowd thinks that might happen in QCOR's case. Every buyer needs a seller, and vice-versa.

    regards,

    Peter
    Apr 3 08:49 AM | 8 Likes Like |Link to Comment
  • The Now And Continuing Future Star-Performing ETF [View article]
    i262666,

    then you shouldn't go near it. this kind of reward deserves only those investors whose situations see a trade-off of risk and reward that is appealing in their case. In the past there have been many, but in each instance there has been a seller for the buyer.

    regards,

    Peter
    Dec 27 09:11 PM | 8 Likes Like |Link to Comment
  • Introducing Outstanding Performance Awards [View article]
    looking only in "long and short ideas" as tag definitions will likely put me out of the running for many of my past performance triumphs. They often result from what I regard as the "final screen" as to where to commit capital to risk exposure: comparisons with other logical and available alternatives. Mine tend to get tagged as "portfolio strategy" or "list" articles.

    Far too many investment articles, both on SA and elsewhere are a singular drumbeat about one choice the analyst has selected. He/she then goes on to iterate all the strengths, and some of the weaknesses, with little or no comparison of the current market price cost of that strong~weak tradeoff with that of other similar alternative choices. Doing so involves a lot of work, and probably much more reading than our typical audiences will tolerate.

    Unfortunately, most of investment performance comes from capital price changes. Many readers are all too eager to have "answers" of which to choose, to put up with careful reasoning of what the better choices imply or require. Instead, the novelty of a story, sometimes intricate or even imaginary, carries the day over what it will cost -- in comparison to other realistic choices. Other choices that require finding another article-author's different view of the matter.

    Differences of opinion are what make markets work, and where readers (and contributors) will do the work, hopefully better investment choices result. It is largely what SA is all about. There will always be those investors that are easily convinced (or easily confused) and they are necessary to "the other side of" your trade.

    But I urge widening the source of your search material for this contest, to include articles that produce recommendations focusing on one, or perhaps a couple of issues that have good competitive capital-gain arguments from within several alternatives covered in a single article, not just from narrowly-focused, single-candidate pieces.

    Peter
    Jul 25 01:12 PM | 7 Likes Like |Link to Comment
  • Where's Apple In The Public's Appraisal Of Market Sentiment? [View article]
    7picks,

    This link will start you with a background on what the article is discussing. For many SA readers it will be a new experience, but for some 2500+ they are already well up on the insight curve.

    let me know when you have specific questions.

    http://bit.ly/1jUQTbo

    best regards,

    Peter
    Jul 10 07:04 PM | 7 Likes Like |Link to Comment
  • When The Tunnel Light Ahead Is A Bear Train... [View article]
    Moon,

    Thanks for your comment. We see the same things. My focus is on investor sentiment rather than the fundamentals, but I'll take your word (and that of many others) that they are also being stretched.

    Unfortunately, none of us knows in advance when the tipping point will be reached, nor what combination of actions will cause the tip -- there are so many candidates!

    But we agree that it is better at this point to be pulling back rather than pushing more capital into higher-risk situations.

    best wishes on your continuing investment journey,

    Peter
    Jul 6 02:59 AM | 7 Likes Like |Link to Comment
  • Market Timing Can't Be Done? Well, That's What Market-Makers Do Every Day [View article]
    investinginvestor,

    I suggest you do a little relevant research before so liberally spewing poorly-founded opinions. If you start with my profile on SA, you will find that in my 50+ years of investment experience, much of it as a CFA, my understanding and involvement with arbitrage and the people actively engaging in it is extensive. For the benefit of SA readers I would suggest that they check out your SA profile as a comparison, as I have done.

    Peter F. Way, CFA
    May 24 01:01 PM | 7 Likes Like |Link to Comment
  • Banning Derivatives and Other Such Foolishness [View article]
    Paco,

    Thank you for stimulating the discussion about the role of derivatives in the market-making process.

    Aside from the social comments, which you and your responders have every right to make in whichever direction, my interest is in the implications inherent in efforts to improve on the badly flawed current financial situation. After spending 30+ years making a living from the stock price insurance business in a 50+ year investment career I may have some observations useful to ponder.

    There has existed since the mid 1970's a derivatives market that has managed to make itself a model of functionality and integrity. It is the listed stock options market.

    Make no mistake, this is an insurance market. The original motivation of the investment community was a hope that the investing public would return some much needed market liquidity (after once again being burned by a market cycle). The lure was an option's ability to offer operationally highly-leveraged fliers on a stock's near term price moves.

    Instead, the market-makers soon realized that their needed liquidity to handle the big block transactions being thrust at them by pension funds and mutual funds, came instead from being able to lay off their temporary positioning risks by using listed options.

    The essential agent here is the Options Clearing Corporation, which ensures at every day's market closing that there is a seller for every open interest contract and that the sellers have the capacity to perform on the obligations that they have undertaken.

    As "Adam Smith" observed in his classic "The Money Game", if you don't know who you are, the stock market is an expensive place to find out.

    Every market trade of an item of intrinsic value requires both a buyer and a seller. The same is true of a derivative of the intrinsic-value item. With options, the buyer of the option has the privilege of acting or not, but the seller must perform if called upon.

    An option buyer is buying insurance, the seller is selling insurance. Players in this game better know which role they are in, and whether it is what they intend, and whether it is appropriate, given their business mission. The centuries-old British bank, Barings, lost sight of this and it ruined them.

    Counter-party risk exists in all insurance transactions. What the Options Clearing Corporation does is to assume that risk, minimize it by careful record-keeping, elaborate rule-making, and an adequate (but reasonable) transaction fee structure that maintains its own war-chest for contingencies. The rules, and their diligent enforcement, keep any contingencies quite manageable.

    The OCC is the cop on the beat. With recognized and credible credentials.

    When I came into the investment business in 1958, it was clear that if you wanted to have a career there, you followed the rules, which were avidly enforced. But the cop on the beat was not the SEC with its tiny nationwide staff of 300 clerks and lawyers.

    As Harry Markopolis (with whom I worked daily in a 10-year strategic business alliance) pointedly identified in the Madoff affair, the SEC for years has been all show and no go. The real cop on the stock beat during most of the 20th century was the New York Stock Exchange. They maintained the market-surveillance crews, flagged miscreants, and had the New York District authorities pursue measures of justice.

    Where is the NYSE now? Then it was a self-regulatory organization owned by active members of the investment community, who treasured the public's trust. Now it is
    a publicly-owned (and traded) for-profit organization more intent on maintaining its competitive position internationally, vis-a-vis possibly more technically advanced exchanges, than it is with matters that ought to be the purview of the government.

    So there is no real cop on the beat, nor has there been for several years. Years in which credit derivatives were manufactured and peddled by merchants that apparently knew, and attested to by rating agencies that apparently did not care, about how fraudulently misrepresented the contracts were, in an environment where there was no central clearing activity to provide any risk controls, or even basic records.

    Fear and greed operate all across society, not just in marketplaces. Until the public comes to recognize that trust in markets is essential to the survival of a capitalist society, and fear for that survival can be transmitted to the political establishment in terms of fear of termination by election (or worse, social revolution) we will be confronted by financial and criminal miscreants who have no fear of getting caught or punished for further misadventures.

    Present-day global markets, and their integration in practice by arbitrage using instantaneous communications, makes the beltway turf tussles over who will arrange the chairs on which deck of the Titanic a pathetic comedy.

    There can be only one effective captain of the regulatory ship, and he needs to have the breadth of coverage and contemporary technological resources to do the job. That means existing vested interests will be displaced, so they will resist. So its not an easy job, but it's got to be done, and can't be deferred, or it simply gets harder.

    Peter F. Way, CFA
    Nov 17 02:12 PM | 7 Likes Like |Link to Comment
  • When The Tunnel Light Ahead Is A Bear Train... [View article]
    RJL,

    Thanks for your observations, they may help me avoid misleading readers, which certainly runs counter to my intent.

    Point 1. The "November" Reward~Risk Tradeoff picture shows what the state of mind of MMs apparently was IN NOVEMBER regarding what might subsequently occur in coming weeks and near months. Those expectations were mapped from as complete an array of leveraged long ETFs as we could assemble at the time. Our purpose in presenting the picture was not to prove that they had any particular prescience as to what was about to happen in any specific ETF, but to show that there was a general state of optimism present, conditioned by whatever prior maximum price drawdowns had occurred in the 3 months subsequent to ANY such similar prior forecasts for each specific ETF (the risk-measurement side of the x-y plot coin).

    State of mind of professional market participants was the point here, not a chest-beating assertion that they were right. We have far better ways of demonstrating how effectively their forecasts can be used.

    Point 2. The "July" Reward~Risk Tradeoff picture shows how the general market pro expectations (relative to risk) have shifted dramatically from optimism to concern and reservation. Once again, we have assembled all of the leveraged-long ETFs that could provide credible forecast information as of the date. The purpose here is not to sort out desirable "long investment" choice candidates for a buy-recommendation contest, but rather to point out that the sentiment environment among professionals had shifted radically from just 6-7 months earlier.

    Indeed, by our standards, at this time there are NO attractive leveraged-long ETFs for such a contest, where all other equities (over 1,000) with current forecasts are competitors.

    Point 3. The purpose of the UDOW picture is to illustrate that after it became attractive in February of this year, as the ETF's price rose, so did the MMs expectations for its future prices. But they did at a slower rate, so that eventually the upside prospects became smaller and smaller. The present extreme is detailed in the data line below the UDOW picture which spells out the current upside forecast of a meager +0.6% prospect from $123.70 to the sell target of $124.46. In the 6 prior forecasts like those of "today" (out of 1086 days in UDOW's lifetime) 5 times those targets were reached before subsequently falling back. We know they at some point had such price drawdowns, because the 6-instance average of worst-case incidents is shown to be -7.1% in the detail data line. Some may be observed in the UDOW picture by examining price history subsequent to the yellow lines. Other instances may exist in prior time.

    Where we failed to make our case clear is in not showing what the price change history for UDOW has been, following its Range Indexes at a variety of levels. My bad, since we have that evidence, easily retrievable. Now I can tell you that in EVERY CASE of a Range Index above 75 (there have been 10), by 65 market days later (13 5-day weeks, or 3 months) UDOW's market quote was lower than it had been 3 months earlier, by an average of -27%.

    Failing to include this evidence, in hindsight, seriously weakened the effectiveness of the article's ability to communicate one of its principal points, and I apologize for the oversight.

    RJL, thank you for providing me the opportunity to clarify the article's major mission. There may still be aspects of our approach that elude you, but I appreciate your persistence in attempting to understand, and hope you will continue.

    Best regards,

    Peter
    Jul 6 12:37 PM | 6 Likes Like |Link to Comment
  • 10 Best Stocks To Buy Now Without Market Decline Worries [View article]
    jimg,

    please go back and reread the article to see what it says about having to take some risk in order to get paid an appropriate investment return. The price drawdown data in the table are actual measures during the periods of holding involvements, at recommended times when they do not move in lock-step with market averages. That is a major point in the rethinking process necessary to get investors out of the CAPM trap.

    and you will do yourself a service to rethink what risk really is and forget about using "beta" as a measure of historical uncertainty. Perhaps this article http://bit.ly/1g94Vd2, may be helpful in your exploration. Several other articles, some more recent, and more complex, delve further into this essential subject. With your background, you should easily handle http://bit.ly/1nT8aW7

    They are among the 160+ SA articles listed under my profile which can be accessed by entering my name in the selection window on the SA home page.

    some have asserted that in stock investing the only two things that count are the two Rs -- Risk and Return. It's very important to have a handle on both of them that makes sense to you. We think we have, for us. You are welcome to be on the other side of our trades if you choose.

    Best wishes on your continuing investment education.

    regards,

    Peter
    May 15 02:03 PM | 6 Likes Like |Link to Comment
  • Natural Gas Prices At A BOIL, Market-Makers' Rest Of Year Outlook [View article]
    @ SA

    I already have an ignore commenter feature, used where appropriate.
    Feb 14 03:06 PM | 6 Likes Like |Link to Comment
  • Natural Gas Prices At A BOIL, Market-Makers' Rest Of Year Outlook [View article]
    DVL,

    I admire your efficiency and economy of communication.

    Given put/call parity, that makes calls a great short. Not what market-maker hedging is currently saying, backed up by lots of real dollars. They disagree, and not just for now, but later in the year, too. Their commodities desks read all the EIA data, while they are reading their clients actions. EIA talks, clients act.

    We'll see how it works out. Disagreements is what makes markets liquid (and gas is a liquid).

    Thanks for your valid comment and opinion.

    regards,

    Peter
    Feb 14 09:53 AM | 6 Likes Like |Link to Comment
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