sundrenched

Post-TARP Partying on Wall Street

The person I feel most disgust with is Obama. I didn't expect much in the way of morals from Wall Street but from him I expected better. "Change you can believe in" indeed.

7 ETFs to Short Right Now

Sonic,

It's nothing esoteric, just simple high school math. Get a piece of paper out and work through a few simple examples of what happens for a couple of given changes in the benchmark to the inverse fund.

For instance, if you start with $100 in a benchmark and a double inverse fund. Benchmark goes up by 10% to $110. If it drops by 1/11=9.0909...% you're back where you started from, 100 dollars. However, movement in the double inverse fund from these changes will be $100 to $80 (minus 2 times 10%), followed by an increase to $94.5454 ($80+2x$80*9.0909%). There you go, very simple back and forth movement and you're down 5 dollars already.

You can work out similar examples for what happens if the benchmark first drops 10% then increases by 1/9=11.11% (again a loss in the leveraged fund), what if you have an unleveraged inverse fund (you still lose -- it's not just about the leverage as some think -- therefore I prefer to do a traditional short-sale for longer-term trades), or what happens if you have a triple inverse leveraged fund like Direxion (the greater the leverage the worse the decay).


On Jun 03 09:16 PM Sonic wrote:

> Is that because of the inherent decay of each leveraged fund?...I've
> been trying to get a full understanding of that. I would love to
> have a good understanding of how and why that works.
>
> jc

Thursday Outlook: Commodities, Global Markets

I agree that some of the commentary is too cryptic. For instance, "Curious how these blue lines work sometimes" (EWJ)... I have no idea what that means.


On Jun 04 12:03 AM User 425362 wrote:

>
> the problem is fry your commentary is pretty vague and not actionable.
> You describe what has happened, but not what will. it' Kinda like
> a chimp that throws shit at the wall; all you have is a dirty wall.

The Dilemma of Chinese Central Bankers

How about China actually buying some US made products or services with their "liquidity"?

Was just speaking with a friend today who works as a salesperson for a Swiss company in Asia, and recently he and his colleagues have had to travel to China on tourist visas. They can't get business visas anymore because, according to his Chinese contact, "you guys only come to sell anyway" (as if it's spreading a disease).

I have zero sympathy for the Chinese "dilemma". I'm not arguing for protectionism, but there has to be reciprocity.

A Non-Chartist Charts the Coming Summer Decline

Next time I get set up on a blind date and the woman looks like Mike Tyson in drag I'll be all over her because, against my expectations, she still has both ears and eyes.

A Safe Bet in a Bear Market Rally

Good point. The logic comes from the fact that trends do exist in stock prices (i.e., the stock price movements don't follow a random walk). A significant portion of stocks that have lost a lot of value will go on to lose a lot more, so it's better to cut your losses. Mind you, trends / time dependence in stock prices is weak (let's not exaggerate), but it does exist (see Damodaran's excellent books, a bit more academic but full of useful information). I suspect that the trailing stop thing works because it protects you against catastrophic losses. Meaning, it may not help you that much a lot of the time (or even cost you), but it can stop you from seeing your entire investment being wiped out on a sufficient number of occasions for the expected value of the strategy to be positive.


On May 18 04:41 AM Ludovici wrote:

> Are there any bright mathematically inclined people out there who
> have logically analyzed the rationale for trailing stops? Is an
> investment that has fallen 25 percent necessarily worth less than
> an investment that has risen to the same value, or than another that
> has just stood still? If not, where's the logic in this practice?

Starbucks Is on the Right Path

I think people overestimate the overseas potential and brand loyalty in general. The concept is easily copied and indeed improved upon by local competitors. I travel a lot in Asia, Europe and the US, and in almost every country you can find a local alternative that does it better than Starbucks: better coffee, more comfortable furniture, better music (note to Howard Schultz: stop putting on that free Jazz crap -- it's annoying, not "hip"), healthier, fresher and better-tasting food, more variety (for instance, non-fat, no-sugar smoothies)... Those are the things that drive people's choice a long way before Brand. Or put another way, there's little competitive moat.

What pisses me off the most about Starbucks is that they pretend to be a premium chain and Howard Schultz keeps disparaging the competition, but so many times I've had: burnt coffee, lukewarm coffee, Americano as light as tea (do these barristas get any training?), stale scones (at least 2 days old, on one occasion it was powder dry), overfriendly/smarmy personnel, annoying cross-selling, dirty sofas (2 days worth of food between the cracks), etc. The contrast with Howard Schultz's hype is what makes it so annoying.

The current price completely puzzles me. It's priced like a growth stock, without the growth. There's so many other, better places out there for my money.

The Death of the Asian Development Model

As always a good article, but if I may offer a critique, also very wordy. I feel you could make the same points in a third of the length with little loss of information. Maybe it's me who needs a speed reading course.

Bill Miller Is Correct (For Now): 'Value' Funds Burying Quants

I'm not a professional investor so I'm not 100% sure I'm getting your arguments correctly in this series of articles.

Are you basically saying that some very large quant funds didn't get enough time to close their huge short positions and are now effectively insolvent? Or are they merely hurting? 27% down is bad but a far stretch from a forced liquidation.

Can anyone clarify? Thanks.

Thoughts on the S&P 500 Going to 325

Well, to be the contrarian here for a minute, around early March, when Nouriel Roubini was on the cover of Teen Magazine and was offered 3 million dollars to pose in Playgirl (OK, I made that up, but the man was ubiquitous), the probability of an Apocalyptic scenario was being priced in. Manufacturing orders and trade were in freefall, which gave rise to some very scary numbers, but some of those figures were exaggerated by businesses slimming down their inventories and problems in getting trade finance. End demand didn't drop nearly as fast as manufacturing orders, but the numbers give investors a sense of hopelessness and loss of control about the economy that might have been excessive. I do believe that eventually, eventually, the US will recover from this. It might take 10 years of more sober living, but people will still eat, dress, send their kids to school, even take vacations... (Not such a bad thing. On a personal note, I never really liked the go-go years with the ever more pretentious restaurants, shops, everything.)

Today the growing consensus is that the government will manage to stave off the worst, and that we're "only" in for a very bad recession, so even if little has changed fundamentally, there's a certain logic to the recent rally. My sense is that even if stocks were to drop again, there would be very strong support in the high 600s (bottom-fishers stepping in), so holding stocks today doesn't feel as scary as a month ago. I accept that it's a possibility that the S&P 500 will see 500, but equally I believe it's possible that after a brief snap-back from current levels, aggressive government action and inflation will make sure that we're never seeing the S&P below 750 again. If only one could short stocks in inflation-adjusted dollars!

I'm not a permabull by any means, just pointing out that it's not necessarily easy to make money even if you get the bear case right. You also have to get your timing right, not an easy thing in an environment with so much government intervention, and the looming danger of inflation and maybe even a dollar collapse.

Don't Jump into the Markets and Be an April Fool

I picked up some USB preferred stock upon reading your article early March and didn't regret it. I'll keep reading your stuff. Thanks.

Is it Time to Jump Back into the Market?

Suckers rally! It's unconscionable for professionals to advise people going back in here. Meanwhile the shorts are reloading their guns.

Maybe instead of "taking candy from a baby", it should be "like taking the 401k off of a pensioner".

What Happens When You Hold Leveraged ETFs for More than One Day?

Hmmm, seems shorting these over a long term timeframe is almost like printing money. Am I missing something?

Bonus Outrage: Look for the Facts

I appreciate your trying to keep a cool head, but the problem with your argument is that in most people's eyes even the base salaries on Wall Street are very high already. The base salaries on Wall Street are "low" only relative to the total package on Wall Street, not "low" in an absolute sense.

What is it about Wall Street that without a bonus they wouldn't be motivated to do a good job? Do surgeons threaten to do a half-hearted job if they don't get a bonus? What about teachers? Firemen? Engineers? What's so special about the people on Wall Street?

Ashamed of AIG

Rather than grandstand, congress should pass a law NOW that all bonuses in firms receiving aid will be taxed at 100%. End of story.

No need to break bonus contracts and set off a deluge of lawsuits, no need to let AIG go bankrupt and set off a firestorm of CDS.