I myself agree with Warren Buffet of a long recession. What most cheerleaders are not telling folks is that the boom we just came off of was caused by the housing boom. Jobs from financing homes, furnishing homes, building homes, selling homes, etc.
Now that these jobs are shrinking as well as wall street jobs and lets not forget the ATM in the front room that is gone. These all make for some very long slowdowns.
What I find fascinating is that while we are in a recession the S%P is about 22 p/e while China is growing like crazy and they have an average p/e of 21. Which one would you invest in?
Asia is aggressively gobbling up and locking in deals around the globe for natural resources to keep this expansion booming. This will help a portfolio of natural resources.
The wild card in all of this is when the feds will be forced to bite the bullet and begin the slow rise of interest rates. The bitter sweet that is about to follow will be devastating for most. This will force a slower recovery while at the same time higher commodity prices along the way.
Interesting times for sure
Tuesday, April 29, 2008
Monday, April 28, 2008
Random thoughts
We are sitting on the biggest bond rating fiasco of all time. Much like the Enron, Worldcom etc. This will be much larger since retirements, pensions, insurance etc. are going to be involved. Watch out.
Natural resources are still my favorite but will get hit with corrections along the way. Set up a trading plan to avoid the pit falls of corrections. Either set up calendar/diagonal spreads, or place stop losses. Everyone knows my plan.
We are seeing overseas (England) starting to experience the same housing/mortgage/credit problems we are currently in. This stuff is spreading.
So why is the market going up I get asked? My explanation is rather harsh. People are stupid and therefore receive their just rewards.
I am staying the course and in fact picking up more gold on this heavy correction. I keep waiting for oil to correct but it hasn't yet.
Natural resources are still my favorite but will get hit with corrections along the way. Set up a trading plan to avoid the pit falls of corrections. Either set up calendar/diagonal spreads, or place stop losses. Everyone knows my plan.
We are seeing overseas (England) starting to experience the same housing/mortgage/credit problems we are currently in. This stuff is spreading.
So why is the market going up I get asked? My explanation is rather harsh. People are stupid and therefore receive their just rewards.
I am staying the course and in fact picking up more gold on this heavy correction. I keep waiting for oil to correct but it hasn't yet.
Friday, April 25, 2008
Bonds
Pimco's Bill Gross now has a bearish stance on bonds. If you are not familiar with him, he runs the largest bond fund.
Inflation now has bond investors attention. So for the foreseeable future bonds are going to fall and rate go up in their view.
I happen to agree.
How to profit from this? By using options, we can buy puts on bond ETF's or if you are like me and think it will be a slow process, you can buy a put calendar spread. Might even go the diagonal route. Bonds should take a few years to bottom out. It will be a painful ride for fixed income and pensioners. It does not have to be for you. If you are ultra Conservative here, you may want to get into money markets. Locking CD rates this low as rates go up will not be the way to go. If you are going the money market route, make sure it is a treasury money market fund. The yield will be lower but the underlying security (U.S. Treasuries) should keep their value.
Inflation now has bond investors attention. So for the foreseeable future bonds are going to fall and rate go up in their view.
I happen to agree.
How to profit from this? By using options, we can buy puts on bond ETF's or if you are like me and think it will be a slow process, you can buy a put calendar spread. Might even go the diagonal route. Bonds should take a few years to bottom out. It will be a painful ride for fixed income and pensioners. It does not have to be for you. If you are ultra Conservative here, you may want to get into money markets. Locking CD rates this low as rates go up will not be the way to go. If you are going the money market route, make sure it is a treasury money market fund. The yield will be lower but the underlying security (U.S. Treasuries) should keep their value.
Thursday, April 24, 2008
Put option strategy
Well it is a little too late to implement this of Ford (F), but here is a way to play down trodden stocks.
Selling puts on Ford. Now I know it sounds like risky business to sell options. In fact I do not recommend selling naked any options, in the case of Ford, (before today's earnings announcement) you could have deposited 700 dollars in your account and sold the 7 strike June put for .44 a six percent gain for 7 weeks. (assuming my math is correct)
The most at risk would be the 700 dollars. Stay with me here now, the stock can only go to zero and if so, you lose 700. Reality is that it will still trade and you can buy back the June and sell the next month until the stock is eventually above the strike and let it expire. I mentioned this strategy a few posts back for bottom fishing. The reason I mention this today is because Ford looks to be running up today on good news.
I do not like to do this on any position, but rather stocks under 10 dollars. Otherwise credit spreads on those over 10. Just one more idea to think about.
Selling puts on Ford. Now I know it sounds like risky business to sell options. In fact I do not recommend selling naked any options, in the case of Ford, (before today's earnings announcement) you could have deposited 700 dollars in your account and sold the 7 strike June put for .44 a six percent gain for 7 weeks. (assuming my math is correct)
The most at risk would be the 700 dollars. Stay with me here now, the stock can only go to zero and if so, you lose 700. Reality is that it will still trade and you can buy back the June and sell the next month until the stock is eventually above the strike and let it expire. I mentioned this strategy a few posts back for bottom fishing. The reason I mention this today is because Ford looks to be running up today on good news.
I do not like to do this on any position, but rather stocks under 10 dollars. Otherwise credit spreads on those over 10. Just one more idea to think about.
Wednesday, April 23, 2008
Over extended moves
Uranium is a classic example of over extended moves. The fundamentals are very sound for this metal. Nuclear is the silver bullet for the energy problems facing many developing countries. Yet the price has gone from 140 to 70. Too much too fast!
This is my concern for oil as well. Severe corrections do occur in bull markets. This does not mean the trend has changed but that the weak positions are shaken out. Using Calendar or Diagonal spreads can usually weather the storm of these severe corrections. This is not to say that you simply take a position because the overall trend is bullish, but that you take a little time to get better entry points. After all, we don't want to buy at the high and wait several months to get back to our original cost.
Pull back in the oil is coming. When it does, it should make for a nice entry point. Until then, you are just chasing the price.
This is my concern for oil as well. Severe corrections do occur in bull markets. This does not mean the trend has changed but that the weak positions are shaken out. Using Calendar or Diagonal spreads can usually weather the storm of these severe corrections. This is not to say that you simply take a position because the overall trend is bullish, but that you take a little time to get better entry points. After all, we don't want to buy at the high and wait several months to get back to our original cost.
Pull back in the oil is coming. When it does, it should make for a nice entry point. Until then, you are just chasing the price.
Tuesday, April 22, 2008
Tuesday Webinar
I will be substituting for Paul this evening for those that get this in time. Nothing in particular to discuss, I will as usual leave this as an open forum to discuss any stock option related topics.
Real Estate news came in bad again so this basically erased any of the Feb ideas that we were finding a bottom.
See you tonight.
Real Estate news came in bad again so this basically erased any of the Feb ideas that we were finding a bottom.
See you tonight.
Monday, April 21, 2008
Derivative Insurance
It is estimated that there are over 200 to 1 leveraged derivatives on insurance books.
Let me explain here, I sell you some mortgage back securities, you want to be sure they are good since this is your retirement we are talking about here. So for a few less points I offer insurance on the deal. I buy this insurance and you take this at face value that the insurance is good.
Every thing works fine as long as the leverage works in the favor of the insurance. If it does not, then a simple .05% drop wipes out the entire investment.
Now as everyone knows, Real Estate can only go up so the chances of a .05% drop in mortgages is never going to happen. Unless it does happen as we are watching now.
For everyone that feels the worst is over, they can take the other side of my trades on this one. As the adjustable re-set, we will see more defaults and more depressed Real Estate.
Just one traders opinions.
Let me explain here, I sell you some mortgage back securities, you want to be sure they are good since this is your retirement we are talking about here. So for a few less points I offer insurance on the deal. I buy this insurance and you take this at face value that the insurance is good.
Every thing works fine as long as the leverage works in the favor of the insurance. If it does not, then a simple .05% drop wipes out the entire investment.
Now as everyone knows, Real Estate can only go up so the chances of a .05% drop in mortgages is never going to happen. Unless it does happen as we are watching now.
For everyone that feels the worst is over, they can take the other side of my trades on this one. As the adjustable re-set, we will see more defaults and more depressed Real Estate.
Just one traders opinions.
Friday, April 18, 2008
Emotions
Citigroup reported 5 something billion in losses this last quarter. The consensus was for much more losses. So the stock rally's 6%. This after they wrote off 18 billion previous.
So are we out of the woods? by the action today and this week we are. But the masses are always wrong so you think this through.
These are what make markets. There is always someone on the other side of your trade thinking opposite of you.
Myself, I am still bearish, although the financials may have been hit hard enough not to go much more to the downside. But they probably will not move much to the upside given the environment.
This just makes me feel more confident of the inflation scenario and to make money off this.
As with previous posts, I am looking to the future and the future should be raising interest rates. The bonds have already broken down and should continue.
So are we out of the woods? by the action today and this week we are. But the masses are always wrong so you think this through.
These are what make markets. There is always someone on the other side of your trade thinking opposite of you.
Myself, I am still bearish, although the financials may have been hit hard enough not to go much more to the downside. But they probably will not move much to the upside given the environment.
This just makes me feel more confident of the inflation scenario and to make money off this.
As with previous posts, I am looking to the future and the future should be raising interest rates. The bonds have already broken down and should continue.
Thursday, April 17, 2008
Bonds
Bonds and bonds funds (TLT) should see some weakness in the next while.
As spoken earlier using a put calendar on these. The policy of the feds to pump money into the credit problems has led to yet another bubble. Commodities! So while this commodity bubble game has yet to play out, we should (as always) look to the future. The feds will have no choice but to start a campaign to raise interest rates. The only question is at what point.
The smart money is already taking positions to short bonds. Yesterday was a good observation. While the gig may go for a few more weeks, the feds next meeting could very well be the last rate drop for a long time.
Normally to short something via options, we take the straight put route. This is because typically things implode rather quickly. However, we should see a steady decline for a few years in the bond market as the feds try to gain control over inflation.
Right now the mind set of the feds to curtail the housing problem will at some point turn to controlling inflation.
Do not buy into the rhetoric or the spin, watch for actions such as bond spreads etc. More likely the feds will deny as usual any shenanigans until it is obvious to the general public what is transpiring.
My take on trading this is to wait for the institutions to get on board. If you want to play with the smart money, there will be long spans of no movement. This is not bad for accumulating, but not so good for options trading.
As spoken earlier using a put calendar on these. The policy of the feds to pump money into the credit problems has led to yet another bubble. Commodities! So while this commodity bubble game has yet to play out, we should (as always) look to the future. The feds will have no choice but to start a campaign to raise interest rates. The only question is at what point.
The smart money is already taking positions to short bonds. Yesterday was a good observation. While the gig may go for a few more weeks, the feds next meeting could very well be the last rate drop for a long time.
Normally to short something via options, we take the straight put route. This is because typically things implode rather quickly. However, we should see a steady decline for a few years in the bond market as the feds try to gain control over inflation.
Right now the mind set of the feds to curtail the housing problem will at some point turn to controlling inflation.
Do not buy into the rhetoric or the spin, watch for actions such as bond spreads etc. More likely the feds will deny as usual any shenanigans until it is obvious to the general public what is transpiring.
My take on trading this is to wait for the institutions to get on board. If you want to play with the smart money, there will be long spans of no movement. This is not bad for accumulating, but not so good for options trading.
Wednesday, April 16, 2008
Food shortages
The news is full of stories about the price of food rising all over the globe. Shortages and hording and speculating are all taking their toll on pricing.
The ETF "DBA" among others is a good way to be on the right side of this situation.
It looks to be longer than most had expected. If you are good at short term swings then by all means trade this that way. If you are like me and can spot a long trend but get whipsawed on every turn, then you may want to consider diagonal spreads.
CA real estate continues to look terrible. Many times I am asked are we at the bottom. To this I reply, the rise in inflated bubbles is usually followed by the same deflation. I other words this speculative bubble started in 2002 and peaked in 2006 so we should have another 2 years to go. Just one persons opinion.
The ETF "DBA" among others is a good way to be on the right side of this situation.
It looks to be longer than most had expected. If you are good at short term swings then by all means trade this that way. If you are like me and can spot a long trend but get whipsawed on every turn, then you may want to consider diagonal spreads.
CA real estate continues to look terrible. Many times I am asked are we at the bottom. To this I reply, the rise in inflated bubbles is usually followed by the same deflation. I other words this speculative bubble started in 2002 and peaked in 2006 so we should have another 2 years to go. Just one persons opinion.
Tuesday, April 15, 2008
Credit contractions
It seems that the credit markets are going to continue to deteriorate. This will also eat into the consumer as shown by GE earnings. There are arguments that the slow down of our economy will slow down the natural resource boom. While this is a valid argument, I would differ with that assumptions. Even GE's overseas infrastructure divisions boomed. That tells me that Asia is still strong and forcing most nations to grapple finding sources for natural resources. That is bullish.
On the negative side, Real Estate is still facing numerous challenges. As the bulk of the adjustable reset in the next few months, many more foreclosures will appear. For those waiting to get in on the action, it is too early.
As the Real Estate bubble pops, we have a new bubble in commodities. Expect your neighbors to be talking to you about this. That will tell you we are in the final stage. This one could go for awhile even after the neighbors climb on board. It will take patience on my part to listen to the new guru's about to be spawned. The neighborhood barbecues will be much nodding from me.
Long natural resources and short the dollar still.
Buy long term options and sell short term options is still the mantra of this trader.
As in all of these, this is for educational purposes and should not be considered investment advice.
Good to be back. Feel free to forward this site to anyone that may find it helpful.
On the negative side, Real Estate is still facing numerous challenges. As the bulk of the adjustable reset in the next few months, many more foreclosures will appear. For those waiting to get in on the action, it is too early.
As the Real Estate bubble pops, we have a new bubble in commodities. Expect your neighbors to be talking to you about this. That will tell you we are in the final stage. This one could go for awhile even after the neighbors climb on board. It will take patience on my part to listen to the new guru's about to be spawned. The neighborhood barbecues will be much nodding from me.
Long natural resources and short the dollar still.
Buy long term options and sell short term options is still the mantra of this trader.
As in all of these, this is for educational purposes and should not be considered investment advice.
Good to be back. Feel free to forward this site to anyone that may find it helpful.
Thursday, April 3, 2008
Blog update
Things have come up in my activities where it has come to my attention that this blog may be a conflict of interest. While I do not think so and certainly feel confident in that, never the less, I must for the time being suspend posting on this blog. It is a great pleasure to offer this blog and it is fun interacting.
For now I cannot keep posting. Please come back in about a month. I intend to keep this blog and use it for others who will be coming on board in the future. For now I will have to adjourn the postings. When I do start posting again there will be some changes. The content will still be me, but there will be changes.
Best of luck in you options trades.
For now I cannot keep posting. Please come back in about a month. I intend to keep this blog and use it for others who will be coming on board in the future. For now I will have to adjourn the postings. When I do start posting again there will be some changes. The content will still be me, but there will be changes.
Best of luck in you options trades.
Wednesday, April 2, 2008
Fundamentals vs. Technicals
My take on this ongoing argument.
I trade off of the fundamentals. The supply and demand. Not the spin that is so prevalent. If you trade off the spin you will have losses. Most of the negative about fundamental trading comes from not knowing the spin from the supply and demand. If you do not have this, then you would probably be better off trading technical. Much that is discussed on entertainment T.V. such as CNBC, etc. is nothing more than surface reporting. If we as fundamental traders traded off the gov numbers or the Enron numbers or Qwest, etc. we would be better off giving our hard earned money to a mutual fund. Watching massaged numbers from company earnings or gov data is useless (in my opinion). This is why I prefer ETF's they don't follow each and every blip number that comes out.
If you look at most major charts, they show a reversal in several sectors. Grains look to have peaked and are now entering a bear run. The dollar has bottomed and is making a solid run. etc.
While I do not discount what is going on with the charts, the overall fundamentals have gotten even more pronounced. So the average trader says what gives, more negative news coming out yet we have a 3% Dow rally??
Valid questions. Now as a long term trader these are merely buying opportunities, as a technical trader, these are key points to reverse short term trades.
Fundamentally we are moving in the same direction we have been for the last 2 years or so, technically we are reversing and are going to have a while of counter trend trading.
If you are sharp with the charts and can maneuver quickly and swiftly, then you will do well. If you are like me and knew the correction was coming but has never been able to tell when and for how much, then you stay the fundamental course buying far months out and selling the short months ignoring the hiccups along the way. Naturally this is easier said than done when you take a position and watch as the spin is yelling you are wrong.
Just one traders take on how to figure out these markets. I am sure there are many more ways to skin this market, you are just watching one way.
Maybe this weekend I will read up on how to add charts to this blog so that we can watch together what the charts are saying versus what the fundamentals are saying.
I trade off of the fundamentals. The supply and demand. Not the spin that is so prevalent. If you trade off the spin you will have losses. Most of the negative about fundamental trading comes from not knowing the spin from the supply and demand. If you do not have this, then you would probably be better off trading technical. Much that is discussed on entertainment T.V. such as CNBC, etc. is nothing more than surface reporting. If we as fundamental traders traded off the gov numbers or the Enron numbers or Qwest, etc. we would be better off giving our hard earned money to a mutual fund. Watching massaged numbers from company earnings or gov data is useless (in my opinion). This is why I prefer ETF's they don't follow each and every blip number that comes out.
If you look at most major charts, they show a reversal in several sectors. Grains look to have peaked and are now entering a bear run. The dollar has bottomed and is making a solid run. etc.
While I do not discount what is going on with the charts, the overall fundamentals have gotten even more pronounced. So the average trader says what gives, more negative news coming out yet we have a 3% Dow rally??
Valid questions. Now as a long term trader these are merely buying opportunities, as a technical trader, these are key points to reverse short term trades.
Fundamentally we are moving in the same direction we have been for the last 2 years or so, technically we are reversing and are going to have a while of counter trend trading.
If you are sharp with the charts and can maneuver quickly and swiftly, then you will do well. If you are like me and knew the correction was coming but has never been able to tell when and for how much, then you stay the fundamental course buying far months out and selling the short months ignoring the hiccups along the way. Naturally this is easier said than done when you take a position and watch as the spin is yelling you are wrong.
Just one traders take on how to figure out these markets. I am sure there are many more ways to skin this market, you are just watching one way.
Maybe this weekend I will read up on how to add charts to this blog so that we can watch together what the charts are saying versus what the fundamentals are saying.
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