soitanly

Just Another Bear Rally?

Professional traders say corrections are necessary for a healthy bull. The current bull run has not had a real correction yet, and looks like it may soon begin to roll over. It also looks like (in pattern shape and after-effect) the succession of failed rallies that have accompanied the DJI or S&P bear market (11/19/07, 2/25/08, 3/10/08, 7/15/08, 10/9/08, 11/20/08, 3/6/09) all the way down. The rally beginning 11/20/08 peaked in early January 09, and eerily resembles the current bull run in its topping pattern.

Depression-era bull runs were sharper and fell off much faster, at least 9 waves down. Also, Depression-era average volume decreased until the real bottom in mid-1932, while this bear has had increasing average volume throughout, showing the influence of increased participation by large funds. The fat lady hasn't even come on stage yet.

Three Ways China May Handle Growing U.S. Debt

Most likely course for China is to continue to buy UST while simultaneously selling an equal amount of the shorter-term issues. This prevents a large drop in the value of their UST holdings, but effectively punishes the US for profigate spending and debt. Slowly driving US interest rates up, this policy would gradually clear their books of exposure to the low end of the yield curve, where returns are negligible. China will in a few years be much less dependent on the US as customer for their industrial output.

Top-Down Portfolio Construction vs. Selling Stocks That Drop

Subtle stuff, realizable in a normal economy. But we are likely going to taste hellfire before this mess lightens up, and surely all-in short the overall market has been and probably will continue for some time to be the way to actually make money versus "balancing a portfolio" or some similar mantra. BAC holds my over-priced mortgage, and it has been ironic indeed to have BAC funding it via a string of put options. Will a $4 stock, down 90% in a year, go to ZERO? In this case, more likely than not. The Ken Lewis interview with Margaret Popper was very telling in this regard. Each response to her penetrating questions was technically correct but every one was completely reactive, not proactive at all. here is a man who thinks he's still sitting on top of the world, controling and growing a trillion-dollar empire.

There's a certain entertainment value in watching The End of Days coming, if you can fund yourself adequately until then.

Bank of America Needs More of Your Tax Dollars

A nice pairs trade is long KRE (regional banks) versus XLF. KRE means less toxic debt. Very clear widening spread for the last 6 months.

Damage Report: Nokia Blows Up Mobile Sector

A note on these extremely low prices: a January 2010 option straddle on PALM costs less than the stock, controlling 100 shares for over one year, with zero to very little risk through February, largely protected from downside risk and with all the upside potential of the shares if PALM even modestly recovers to around $5. The same strategy applies to almost any of the beaten-down issues, just buy plenty of time (PALM also has a January 2011 LEAP option available). Unless this is the EOW (End of the World), most of these bets should pay off, but it's still nice to have downside protection. There may not be such an opportunity for many years. I'm not doing this yet, as there is still downside money to be made from simply buying puts during the recession. But it will be a sweet way to greet the dawn.

Where Is the Global Economy Headed Now?

Also see Edward's credit freeze timeline. Spectacular research, cogent analysis. I think he's right, the pain is only beginning to be felt.