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  • The return of the inflated appraisal [View news story]
    Wait just a minute! Homebuilder stocks are up, optimism is soaring. But mortgage business is off by 39%?
    Well, it seems that the only rational conclusion is that cash sales are at an all time high.
    Yes, Virginia, there is a Santa Claus, a tooth fairy, angels galore and frogs with wings.
    Dec 2, 2014. 11:37 AM | 6 Likes Like |Link to Comment
  • Home Loan Servicing Solutions: A Potential Tax-Avoidance Scheme Hidden Behind A Veil Of Complexity With 35% Downside [View article]
    YES, my thoughts exactly as I read the article. Also, the 'economic substance' or 'substance vs form' argument seldom stands alone. Generally speaking, one would need to establish a statutory issue, outlining a specific violation of a tax provision. There are a number of ambiguous doctrines (e,g. the 'step transaction' doctrine) that get tossed around-but actual tax evasion will require more specificity.
    I also doubt that this 'strategy' would have been implemented without the blessing of prominent tax lawyers.
    Dec 2, 2014. 09:23 AM | Likes Like |Link to Comment
  • Oil Is Reaching A Bottom Quickly [View article]
    Good points. But let me throw out another way to 'test the waters' with USO. Obviously the lower the price, the higher the odds of a rebound (or some period of stability).
    The first foray might be to utilize a bull call spread, and be prepared to average in. So, one might buy an at the money call (say a couple of months out) and sell a call a couple of stikes out of the money. This blended cost will increase your odds. If USO continues south, your maximum loss is the debit spread amount-not a loss on 100 shares.
    If you buy the 100 shares, buy a put AND sell a call. Cash in on the short call and long put at reasonable profit targets. If USO goes up, just roll the call out and up. Or, leave it in play, and sell a put.
    There are a lot of ways to play the game, and what I really like about USO is the reasonable bid-ask spread, liquidity and the subject matter-oil.
    Dec 1, 2014. 10:43 PM | 4 Likes Like |Link to Comment
  • Prepare For The Coming Economic Boom [View article]

    I agree that rentals will continue to do well. But, it's not just the 20-34 year old group. Assisted living and age 55 plus rentals are also increasing. And, as people live longer, they seem more keen to rent. Construction is solid for more hospitals, nursing homes, assisted living-not to mention the booming retirement rental business. I've also noticed a trend for retired couples to lease the same rental property for a few months every year. In essence, this is a 'second home' without the financial responsibility.
    Aging boomers will increasingly utilize legal strategies to avoid having their homes assigned over to nursing facilities, This will translate into sale/leaseback strategies, that heretofore haven't been implemented. I also think mini-storage (e.g.PSA), will continue to do well. I know people that use mini-storage to keep their golf carts, boats, etc near their de facto second home, so they don't have to haul it back and forth several hundred miles, two or three times a year.
    Dec 1, 2014. 06:41 PM | 2 Likes Like |Link to Comment
  • John Hussman: A Most Important Distinction [View article]
    Short calls have very low probability of being exercised. Puts are more susceptible-but further dated (e.g. Leaps) reduce assignment exposure considerably.
    If the short ITM put gets assigned, odds are that the long puts are making money. So, as a practical matter, if you get 100 shares of the underlying, the 2 (or more) long puts are still performing.
    I should have indicated that this strategy contemplates a timeframe greater than 3 months. I generally look at 6 months and longer-thereby avoiding option expiration and early assignment.
    Nov 25, 2014. 03:21 PM | Likes Like |Link to Comment
  • John Hussman: A Most Important Distinction [View article]
    I guess my interpretation is that QE, like a lot of things, is subject to diminishing marginal returns. I agree that some form of QE will be around for many years, both in the US, as well as other countries.
    And, a reasonable assumption may simply be that volatility will increase concomitant with the rate of DMR. In terms of strategy orientation, I'm using various types of spreads, primarily to collect option premium. I'm also layering in ratio backspreads. This is a strategy which sells a deep in the money call, or put, and the purchase of 2 or more out of the money long options. This is actually a credit spread which immediately puts money in your account. If a flash crash occurs, the strategy will pay off big time. If nothing happens, you collect a small credit. Overall, I'm creating a bounded 'atmosphere' where extremes can be gamed, but daily cash is also earned.
    Nov 24, 2014. 06:40 PM | Likes Like |Link to Comment
  • The Path Matters More Than The Destination [View article]
    I have several pages of notes on this subject-I've long found it extremely interesting. Like the Frost quote as well.
    A path may split, resulting in many different approaches. And, we don't really know which path is well-traveled, for that lies mostly in the future. But, at the risk of great over-simplification, what we seek is to travel with a minimum of assumptions and a maximum of conceptual precision. I tend to build bridges, as opposed to taking great leaps. Or, I sometimes think I move forward with a weight around my ankle (because I'm generally hedged). Still, we sometimes find the ox in the ditch, and have to make allowances. But, even as we lay out our scouting report, we know that many roads can lead to Rome. Some routes are safer and quicker. And we now know that great distances can be traversed via wormholes-eliminating enormous time constraints.
    I'd say that most travelers spend time lost in the desert,ill-prepared to find the promised land. They follow the wrong footsteps and hear the siren call of popular delusions. A few hit the lottery or receive random blessings of fate.
    Nov 24, 2014. 06:03 PM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Are Investors Too Complacent? [View article]
    Hi Martin-yes the CB 'put' goes back to Greenspan. You make a good point about supply where sudden demand arises. Yet, I was thinking via a property/casualty analogy, that put pricing would eventually settle at even lower premiums. In other words, if only 5% of the driving population insured their cars, premiums would be substantially higher. The concept of insurance, though, is to spread out the risk among millions of motorists.
    Indeed, the government could require or mandate that mutual funds and/or all retirement accounts afford some degree of coverage. This power exists via the interstate commerce clause, and possibly other constitutional sources.
    Shiller has suggested that if the government had provided home value insurance back in 2007 (at then cheap rates), much of the resulting foreclosure angst and toll on citizens could have been avoided. I confess that I got the put idea from his real estate ideas.
    In an age of 'big brother' it would seem that the central planners could positively impact the lives of the average, law-abiding Joe, and not just favor those that require minimal assistance-if any.
    When Paulson went before Congress, he wanted a bailout number that would psychologically deter the naysayers. If everyone became convinced that a newly created portfolio insurance program would essentially operate as a fail-safe device, what eventual impact on the underlying risk? And, thus, what actual cost of insurance? I agree that the central banks around the planet are de facto insurance companies, but they shoot themselves in the foot from time to time by raising the specter of higher interest rates. In order to sustain the illusion of coverage, lower interest rates must be permanent.
    Of course, I don't expect my idea to garner any interest or support. Happy Thanksgiving to all, and best wishes for a successful end of the year run.
    Nov 24, 2014. 10:30 AM | Likes Like |Link to Comment
  • This Time I Really Mean It [View article]
    Also, to continue with your observations, small caps have really been spinning in the mud. Even the big jump on the China news merely created a big spike-which couldn't sustain itself for more than a couple of hours.
    As to the bid-ask spreads, that can be a challenge. Generally, the higher the volume, the more reasonable the at-the-money and related strikes are. Also, bid-ask can fluctuate a lot-almost in an uncanny fashion. This is especially true with some of the popular leveraged ETFs. I'm almost coming to think that those market makers are out to make a fortune-just by manipulating the spreads. I'm told that they've got it automated to extract the greatest amount of flesh at the 'right' time.
    Nov 23, 2014. 10:39 PM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Are Investors Too Complacent? [View article]
    Interesting info about car thefts. Hopefully I'm ok since I don't own a Ford 150.
    So, I suppose I could be complacent about the low odds of a thief stealing my car. But, in thinking about complacency in any activity where risk is involved, we generally feel better if we're insured. Even if I owned a Ford 150, and kept it parked outside my Florida residence, I would be complacent-knowing that I've eliminated the theft risk.
    So, why is it that we gauge our 'feelings' about portfolio risk on whether a majority of strangers seem to be 'complacent?' Most people don't get up in the middle of the night to see if there car is still safe-yet a lot of people will check the futures as soon as they wake-to see if someone 'stole' their portfolio value. Not only that, but quite a few people continue to monitor and obsess about their stock value-until the market closes. And, of course, this behavioral nonsense continues, day after day-until one dies, goes broke, gets out of the market, or becomes incompetent.
    It's indeed unfortunate that the vast majority of people go to bed, quite content (or complacent) in regards to their automobiles-but living lives of quiet desperation as to their investments. But, if all these folks suddenly realized that they could insure their portfolios, volatility would be eliminated. Now that would be a nightmare for traders of volatility. Come to think of it, let's just continue with business as usual.

    Nov 23, 2014. 10:24 PM | 1 Like Like |Link to Comment
  • For Wealth-Building Investments, Time Is The Trouble; So Time Is The Treasure [View article]

    Time is always a timely topic.
    Here's an interesting perspective from Daniel Kahneman:
    "The central fact of our existence is that time is the ultimate finite resource, but the remembering self ignores that reality...The remembering self's neglect of duration, its exaggerated emphasis on peaks and ends, and its susceptibility to hindsight combine to yield distorted reflections of our actual experience."

    William Eckhardt, in discussing things that impeded success, noted that..."psychologically, what seems of paramount importance is whether the positions you have 'right now' are going to work. Current positions seem to be crucial beyond any statistical justification...two of the cardinal sins of trading-giving losses too much rope and taking profits prematurely-are both attempts to make 'current' positions more likely to succeed...."
    Nov 23, 2014. 03:18 PM | 2 Likes Like |Link to Comment
  • OPEC Muscle Flexing Pushes Crude To Value Levels [View article]
    Selling puts on oil is one of the best trades out there- even if one gets assigned- so what? Selling puts on the air we breathe is the only idea that's superior- but can't seem to find an option chain for that
    Nov 21, 2014. 06:00 PM | Likes Like |Link to Comment
  • How Does Freeport-McMoRan Use Collars To Hedge Commodity Price Exposure? [View article]
    Very interesting. I think the take-away for most is simply that one doesn't have to insure 100% of portfolio risk. Like auto/home coverage, there are many types of 'deductibles.'
    There's also something else to contemplate, which is equally important. An auto or home may be rendered useless or non-functional, without repair. The insurance covers the agreed upon coverage, and the property is 'repaired.' In contrast to that coverage, where one is restored to status quo, portfolio protection (e.g.. a simple put), actually does quite a bit more. Not only is there an immediate payoff for 'damages', but the insured property can 'repair' itself (perhaps over a lengthy time, or maybe very quickly)-resulting in a net gain to the portfolio.
    In this sense, put coverage is more akin to business interruption insurance. Laws now require all of us to have minimum insurance for autos, and all mortgage companies require homeowners coverage. What would happen to the market if similar requirements were mandated-perhaps like the penalty for not procuring health insurance? What funds would be needed to cover the pension guaranty obligations-assuming put coverage was required in lieu of actual dollars for self-insurance?
    Suppose the Fed had simply procured put insurance on all 401(k) holdings in 2007-as opposed to going thru all the machinations, illusions, concoctions to force the market up? Wouldn't that have been more useful to the good ol' working class than bailing out the TBTF banks?
    Nov 20, 2014. 01:22 PM | 1 Like Like |Link to Comment
  • A Diversified, Safer Way To Hedge Against Stocks Using ETFs [View article]
    Good point about one size NOT fitting all players. I've hedged executives that had to hold shares for n time period by using collars. The amounts involved were relatively substantial, and the collar paid for itself.
    A smaller, retail trader can afford to be nimble. When I started managing a pension fund (way back in 1981), transaction costs were terrible. Anyone arguing about transaction costs today is...well, I'll keep it to my self.
    But, let me come at this from a new perspective. A LOT OF MONEY CAN BE MADE SIMPLY BY GAMING THE INSTRUMENTS DESIGNED TO HEDGE.
    I somewhat agree with fishfryer above, in that the amount of leverage in the system is not just unprecedented, it's exponentially enormous.
    But, in any event, the one thing I would add to the article is that puts are not expensive IF (a)purchased when everyone is crazed with euphoria, and (b)offset with lower strike short puts to mitigate premium.
    If you're a die-hard, buy/hold fanatic, using puts can add enormous value to your portfolio-but have a methodology that's consistent.
    And finally, it's the actual management of any hedging strategy that is most difficult to learn. For example, suppose you own 100 shares of TSLA, and you bought a 6 month ATM put. TSLA has a down day, and you're put is profitable to the tune of $1,000. What are you thinking? You're thinking that TSLA could drop some more and you want to max out your insurance. The way to think about the situation is to realize that, whatever happens (from here to eternity), you are better off than the guy who bought 100 shares at the same price, but never hedged. DON'T TRY TO TIME TAKING THE GAIN! I've seen reasonably good traders fall victim to this same scenario. Instead of getting upset if TSLA continues to drop-you should switch gears and average back in. Yes, this is gut-wrenching. But, is it not a function of time-unless TSLA goes out of business? How much can you lower your basis? That's what you want to think about. If you let those red lights upset you, turn them off-or just walk away for a few days. Now, after the dust settles, you own 200 shares-at a lower basis. Suppose you bought one beach front rental for $500,000, and a duplicate property next door for $250,000 after a real estate crash. You can rent these properties for $5,000/mo. Your ROI metrics now look pretty good PLUS you've got potential appreciation. With the stock, you can now sell two calls for more premium, because of your basis management.
    My point is that hedging is not just about a momentary or one-off tactic to cushion a downdraft-it can be a very useful longer-term tool.
    Nov 20, 2014. 11:20 AM | 2 Likes Like |Link to Comment
  • BlackBerry Down 5% On Morgan Stanley Downgrade - Gift Of A Dip? [View article]
    My LEAP short put spreads (now paying off in Dec) took a hit-but still profitable. However, they took a larger hit a few weeks ago during the risk-off party.
    So, I'm adding more of the DEC 11 PUTS (short), using very old JAN 8 long puts as a crash hedge.
    If the stock does nothing over the next 3-4 weeks, the short puts will expire worthless- and I'll collect the premium.
    Nov 19, 2014. 12:43 PM | Likes Like |Link to Comment