trader717

Pair Trade: The Medical Equipment Industry

Hey Joe. I go to Bentley now and noticed your background. It's interesting you study technicals and fundamentals as do I. I am looking into pairs trading as well, as eliminating that market risk at this point seems most logical. Is there an email address I can reach you at?

Risk Management in Trending Markets

Everyone else has already said, so I might as well too. Great article. Really should be used as a basis for how articles should be written on this site. Very informative and unbiased. I agree with much of what you have to say.

Bernanke: The New "Death Star"

Thoughtful ideas on the Fed lending. I agree that it is disturbing why our Fed feels like they must bail out banks who have knowingly increased their leverage to maximize returns while not accounting for the risk when the markets turn south. Poor management needs to get flushed out. Consumers are and will continue to feel the pain of inflation combined with slower wage growth into 2009. Our economy, and thus our markets, have not recovered and will maintain this downtrend. The Fed needs to let this happen, if everytime a child (our financial firms) does something wrong (leveraging and lending freely), you forgive them and give them another toy (bail out, cash), they will never learn their lesson. I am a strong believer in discipline, something I consider when trading and investing, and something that the Fed should consider when dealing with the greedy executives on Wall Street.

Why Doesn't the CPI Seem More Like Real Life?

It was interesting to see the quantitative differences between the democratic and plutocratic price indices. However, I still believe the CPI will always be skewed because it must use a 'hypothetical' base year and because it can be debated for reasons such as yours. It is a great article and goes to show you that if problems such as these exist with a particular measure, it may not be the best measure to use. It is also difficult to use data prior from 2000, as the economic environment has changed considerably since then.

Offshoring Is a Dubious Policy When the Question is Oil Drilling

Thought provoking article.

Global supply and demand constraints are causing oil to rise. Yes there are speculators and always will be, but oil will continue to rise long-term. I don't think people realize that the oil we can drill off our shores will not have any major long-term impact on the price of oil globally. You have major exporters such as Mexico, Venezuela, and Russia having supply constraints. Global economies are expected to grow faster than the US. This means that yes long-term, demand in emerging markets will continue to rise as it becomes much harder for us to drill for the remaining half or so of oil that is estimated to be left on earth. Even if we are only 1/3 of the way through oil, it is a fact that it will continue to take more capital and technology to get the remainder.

Just think of India's car market. Last I heard, less than half of Indians owned cars. With India's population, and as their economy becomes more and more developed, demand for oil will increase. Mexico is expected to be an oil importer in 5 years or so. I don't know why people refuse to believe in supply and demand with any commodity that WILL run out. Predicting exactly when is difficult. But we are finally about to see world oil production barely meet world oil demand. The excess margin continues to shrink.

Noticed I am giving a longer term outlook. The reasoning is, as with anything that trades, it gets momentum. There are catalysts that exist for a pullback in oil short-term, primarily a global recession. It is overbought. But by no means should you believe oil will be below $100 5 or 10 years from now. $4 a gallon is going to be normal.

Eventually, we will have alternative energy sources such as Solar and Wind take up more market share. But this will take a very long time. The global oil and gas infrastructure is not going anywhere. Even if alternative sources account for 30% of world energy production in 20 years, I still believe supply and demand points to higher oil.

People need to get over this whole U.S. drilling. Frankel brings up an interesting point that we will eventually ABSOLUTELY need it. But if anyone actually believes that drilling for our oil will have a significant impact on what is going to happen to oil long term, they are wrong. Maybe it provides temporary relief, but who knows, we may be exporting that oil to Mexico before you know it.

Can the SEC Really 'Quell Rumors'?

I guess we might as well throw EVERY SINGLE EQUITY RESEARCH ANALYST IN JAIL FOR SPREADING RUMORS, BECAUSE THEY ARE FALSE LIES. HAS ANYONE EVER FIGURED OUT WHY WALL STREET IS SO RELUNCTANT TO ISSUE SELL RATINGS. Last I've heard, it was something like 80% of ratings were Holds or Buys. It is because so many of these firms do business with the companies they are rating! Does anyone realize how often Equity Research Analysts are wrong? When they come out and say a firm's profit for Qx WILL BE .20 per share, down from .40 per share a year earlier. And then results come out and they are .60 per share. Does that not qualify as a false rumor?

Yes, there are many out their with financial interests in firms who will spread knowingly false rumors to benefit from a drop in the stock price. However, Todd is right in saying these rumors will never seize to exist. I am strongly against those who knowingly spread false rumors, but Todd is also right in saying that those with an opinion who publicly state what they believe and are short should not get penalized for spreading false rumors. An example of what I mean is David Einhorn literally starting with 20+ banks (and shorting a lot of them), and through DUE DILIGENCE, was able to narrow his list down to BSC and LEH and stayed short those. He has publicly come out and stated the problems he has found with Lehman. Is he spreading false rumors? Lehman says they are false. A proper shortseller who does their homework and makes assumptions on companies based on legitimate homework they have done should not be accused of false rumors. If this was the case, as I said earlier, every single Equity Research Analyst who makes assumptions (all of them do) should go to jail for this crime when they are wrong (which they often are). And yes, Analyst ratings, upgrades, and downgrades can significantly affect a stock.

SEC Subpoenas More Than 50 Hedge Fund Advisors

What does knowing who the major shortsellers of a company exactly tell you? Does it really matter if you even know who the major holders are, besides maybe thinking what they will do in major voting situations, which is farfetched? People look to see who holds the stock because people follow smart money funds. Does it matter who they are borrowing the shares from? One person vs. another?

I don't understand how that affects due diligence that a smart hedge fund manager does on a company, and then profits from shorting it, which in the end makes the markets more efficient. It forces companies to compete and maximize shareholder return. If there weren't shortsellers, a company could simply run its business inefficient and ride the trend in its industry. Short selling helps to point out bad companies. Now I said before, rumor mongering does not. If a hedge fund shorts just to put out false information and profit from it, I am completely against that. It definitely happens, just like insider trading happens with employees.

Short sellers don't live long? Why is the market down 10+% and hedge funds only down .75%? Because they can short sell and hedge their bets, they are outperforming. Everyone gets pissed off when the markets drop like this yet this is something that is healthy for economy. Once in a while, you need a major shakedown and poor companies will be acquired or go out of business. If a company is truly great at what they do, short sellers will get squeezed and pay for it, the same way longs should pay for investing in a poor company.

SEC Subpoenas More Than 50 Hedge Fund Advisors

Besides, don't people realize that the only hedge funds out there are not just stand alone firms, like Citadel, SAC, Och-Ziff, etc. All the banks have hedge funds, Goldman, Morgan Stanley, JPM, LEH, and of course Bear Sterns!! It would be interesting to see if any of Lehman's or Bear's internal hedge funds are/were long/short. I guarantee they were. All the firms do it, don't let BSC and LEH fool you because they happened to be the 2 banks with the most exposure to the sub-prime and general mortgage market, with high leverage, and are now paying or paid for it.

SEC Subpoenas More Than 50 Hedge Fund Advisors

Short selling makes the market more efficient. Rumor mongering does not. Short selling is not the problem, isn't it the same as hedge funds bidding up the price of a terrible company? What happens then? Well all those average people who bought into the stock because it looks like it's good lose money when it tanks. Hedge funds trade, short selling is necessary to make their clients money in both bull and bear markets, as well as to hedge away risk. If someone does on average 60 hours of due diligence on a company, why shouldn't they be able to short one that they have found is clearly in trouble. Otherwise it would be a waste of their time and they would have to move onto another 60hrs, until they find a buy.

Dow's Next Move: A Technical and Fundamental Look

I know of the 5-wave cycles, but I have also never heard of the 7-wave cycles. If you do notice, the 5th wave up marked about the top, and then the Dow proceeded to trade in a range with a subsequent break below to form the first multi-month down leg A which bottomed in March. It was a good article to read. Although, you didn't provide too much into the fundamental aspect going on in the markets. You mentioned earnings, so a forward P/E of the Dow companies compared with historical forward P/E's can be important. Fundamentally, it is also not just our economy that is in a recession, but now European economies. Therefore, even companies with high international sales that have been holding the markets up as much as they could are going to see earnings deterioration.

In the end, yes a rally is highly probable and would be healthy, but the trend remains down and both technically and fundamentally, the markets are bearish. (by the way for all those technical analysis haters out there, I believe technicals have been more accurate recently as we had many analysts from top banks like Morgan Stanley and UBS predicting S&P over 1,700, when the technicals were showing a possible double top and a subsequent breakdown, I strongly believe in both technicals and fundamentals, but just wanted to remind the haters that both can work)

Another Hedge Fund Bites the Dust

why does it seem that those who complain most about hedge fund losses are those who do not invest in them? notsosmart is right, these institutions or individuals who invest in these funds know what they are getting into. Institutions do not invest 100% of their fund into hedge funds, rather maybe 20-30%, give or take for each specific one. That represents the more risky and speculative portion of their total portfolios.

Not to mention Devaney's half a billion is miniscule to our entire financial economy. That does not even dent the U.S.'s financial asset base. Why not talk about other funds as well, like Paulson & Co. generating 600% for some funds, which made billions for investors.

Volatility in the markets is needed. Markets trend, both up and down, bubbles are formed and pop. This is needed for our financial system to work. If volatile trends were not created in both directions, everyone could just put all their money into the market index, because it will go straight up forever in a straight line. CD's, money markets, savings accounts, would all be eliminated.

More on Technical Analysis

Felix,

I have read both of your recent articles on TA and suggest you just stop now. Not only are you clueless on the matter, but you seem to not have put forth any effort in researching TA and how it is truly used by those who are successful. The first article was horrible, and now you come back to defend it.

I am a Jr. Portfolio Manager at a hedge fund and know that technical analysis works. It does take time to learn and takes much patience when applying it. There are also many confirmations that people tend to ignore. Much of the smart money out there knows how to use technical analysis. It is just one factor that must be considered when trading or investing. I use Free Cash Flow models, Multiple Valuations, Regression Models, Financial Statement Analysis, AND Technical Analysis when researching. These are just some of the factors investors consider, and depending on if you are trading or investing you give more weight to certain ones (i.e. if you are looking for a short-term trade you weight technicals more). Technicals also range from analyzing market stats, to chart patterns, to indicators, to looking for short squeezes. Smart money combines all of this research. There is only so much each factor can tell you, for example, a FCF model may tell you the Fair Value of a stock is $20. The stock is trading at $20 on January 1st. You decide not to invest because it is fairly valued, but by June it is at $60. By December 31st, it comes back to $20. Smart money makes 100%, you make none and think you are so intelligent because you knew it was fairly valued. Hopefully point taken.

So in the end Felix, please do not publish anything on TA like this ever again.