Saturday, February 28, 2009

If I Had....

If I had a nickel for every time in the past couple of months I've heard:

Well, I don't even want to look at my retirement account statement....

I'd be a multi-thousandaire!

But really, how the bleep is *not looking* going to be productive?

These people are the same lazy-@ss Morons who refused to *look* at historical real estate prices.

They refused to *look* at historical interest rates.

They refused to *look* carefully at how much money they'd need to pay the mortgage, their bills, and save for retirement in a future with no Social Security and no pensions.

They refused to *look* hard at the possibility of an interruption in personal income, i.e. a layoff or a pay cut.

And, they refused to *look* critically at the false gospel of mutual funds and *the long run* their financial adviser peddled to them.

By not *looking* at your statements, you are doing precisely what those hucksters at Fidelity want you to do! You're still their willing b*tch!

So, the next person who boasts of their reckless stupidity in front of me.... going to get a lecture instead of sympathy!

Yeah, that's too harsh. Sympathy will be offered - for a nickel.

Saturday Morning Levity

So last week we were at the Y for swim lessons....

Kids aren't allowed in the adult locker room, but I have no shame flaunting that rule. My Captious 4-year old son came right with me. After we were done in the pool and back in the room full of nasty, naked 'old coots' who for some reason simply have to stay un-clad for as long as humanly possible....

Prince C-Nut - HEY DAD....THAT GUY'S FAT!!!


Two minutes later:



I used caps and exclamation points above but I'm not sure that I've adequately conveyed how LOUD my son bellowed his Captious remarks in an otherwise dead-quiet locker room.

I was mortified and trying not to fall over laughing all at once. And, I don't embarrass easily - which those unlucky enough to know me can testify to.

Hopefully my son inspired a few fat nudists in there to 1) get back on the treadmill and 2) cover their inglorious bodies!

See why kids are banned from the locker room?

Query - Do 'old bags' also traipse around locker rooms naked?

One of my female readers is going to have to answer this one.

Month End Trades

First see - Intraday Trades - February 27th, 2009.

As I mentioned in the link above, Friday I dumped all of my triple-short financials position in the pre-market. Here are all of my FAZ trades for the week:

Tuesday - bot 64.45, bot 57.87

Wednesday - sld 61.00, bot 60.00, bot 55.27, bot 50.00, sld 57.04

Thursday - bot 50.74, sld 55.75

Friday - sld the balance (3 buys) at 62.11.

Then I got restless and scalped it one more time in the afternoon. Bot 59.93 and sold at 62.00.

I also scalped SRS late in the day. In at 77.87 and out at 80.03.

Now let's talk about oil.

I dumped my entire position. I sold all of my DXO at 2.37; and all of my OIH at 74.72.

Both were losers.

My DXO buys began when oil was $62 per barrel at 4.95. I bought again at 4.92, 4.21, 4.18, 3.43, and 2.68 in varying quantities. My cost basis ended up being 3.81.

My oil service ETF - OIH - I've had since October. My cost basis there was 84.16.

I admit, I've capitulated on oil so it may very well be time for it to soar.

And, if it does so, I hope to get short. Yes, oil is a *store of value* in this world of flimsy fiat currencies, but its demand has also proven very sensitive, make that MUCH MORE sensitive to macroeconomic turmoil than I had predicted.

Right about now I would feel so much more comfortable with all my assets in an oil tank in my backyard than I would having them in bankrupt banks run by Morons. BUT, oil is difficult to store. So while the out-month oil futures hang high ($60?), near month spot crude keeps getting shellacked. How does this affect DXO? I don't really know. The ETF might be getting hammered rolling oil over every month - buying high and selling low. I've heard there is another oil ETF out there that keeps an equal weighting of spot and out-month futures' prices. It's hard enough gambling on the underlying; these issues with the *investment vehicle* are a real pain in the butt!

Also, all that research I did on ETF decay really put a damper on my DXO enthusiasm. If anything, to get *long oil* I should optimally be shorting DTO, the ultrashort oil ETF. [Yeah, I know DTO's hard to borrow and entails a couple other *risks*.]

I happen to think oil could be here, $30-$45, for a while and don't want to suffer short term ETF decay on a long term oil bet. Yes, oil could rally to $60 per barrel later in the year and DXO might very well still be 2.37. Again, it's all in the *path*. Read my previous posts:

ETF Daily Compounding

More On ETF Decay

Measuring ETF Decay

Leveraged ETF Risk.

My trading account is really getting pretty empty. I've had a good run in 2008 and am determined to not only *keep it*, I want to be fully loaded to take advantage of the next insane move in the markets.


If you don't think this is funny, then you don't read enough blogs (or you need to evacuate or something). Get off that juvenile infantile Facebook and find some worthy blogs to read. They're out there.

Friday, February 27, 2009

Our Pols - Humorless Liars And Idiots

White House Watermelon Email From California Mayor Dean Grose Inspires Outrage
The mayor of Los Alamitos is coming under fire for an e-mail he sent out that depicts the White House lawn planted with watermelons, under the title "No Easter egg hunt this year."

Local businesswoman and city volunteer Keyanus Price, who is black, said Tuesday she received the e-mail from Mayor Dean Grose's personal account on Sunday and wants a public apology.
Grose confirmed to the AP that he sent the e-mail to Price and said he didn't mean to offend her. He said he was unaware of the racial stereotype that black people like watermelons.

He said he and Price are friends and serve together on a community youth board.

"Bottom line is, we laugh at things and I didn't see this in the same light that she did," Grose told the AP. "I'm sorry. It wasn't sent to offend her personally - or anyone - from the standpoint of the African-American race."

Grose, who became mayor in December, said he sent an apology e-mail to Price and her boss and also left her a voicemail apology.

Regardless, Price said it will be difficult for the two to work together.

"Now I am like - wow, is this really how he feels?" Price said.

He didn't know the *stereotype*?

If anyone believes that....they are so stupid they deserve to be lied to!

Furthermore, I fail to see how the propensity to eat watermelon is an offensive stereotype. It's a harmless fact.

Look, 'old coots' crave bland meat-and-potatoes, Latinos only eat at Taco Bell, Indians have their curry, Asians eat a lot of Ramen and canine, Bostonians like to eat crap, and blacks have a natural hankering for one particular fruit.

(And one particular beer, one particular boned meat, one particular vegetable, one particular evaporated drink, and one particular soft drink.)

So what's the big deal? Where's the *offense*?

Man, was the Fuzzy Zoeller/Tiger Woods incident really 12 years ago now?

Intraday Trades - February 27th, 2009

I let out my entire tripled-up position in FAZ this morning. I sold it at 62.11 in the pre-market. I did quite well in that thing on my first foray!

Note that one could have bought all the FAZ they wanted at 50.00 or even 48.00 the past two days.

I also sold some of my Ultrashort Long Term Treasury position. I let out TBT at 48.30 just now. That closes out the additional buys I made at 42.58 and 44.62 back in early December. Effectively it was a 28% reduction in my position.

So what am I looking to do the rest of the day?

Lie in wait. Today feels like the market could move big either way. Naturally I would prefer a big rally that I could short into.

For background, visit my previous trading post - Markets Teetering - Or Bear Trap?.

Scaring Kids

It looked stupid at first but it really grew on me. I wish the video footage was better so we could see the *whites of their eyes*!

What in this world is funnier than messing with people?

Leveraged ETF Risk

I already computed the decay formula for 2X ETFs in Measuring ETF Decay.

So what about 3X ETFs?

Lemma - Given an underlying A and its daily compounding triple inverse Z, a drop of R-percent in A which retraces fully the following day will DECAY Z by:

12*R2 / (1 - R)

when .25 > R > 0

So decay is TWICE that of double ETFs!

Remember a 10% drop and retrace decayed double ETFs by 6.66%.

Well, a similar 10% drop and retrace will decay a triple ETF by a whopping....

12 * (.102) / (1 - .10) = 13.33%

Theoretically, as we've discussed before, the trade is to *short* these things.

BUT, in practice, that strategy is problematic as shares can become *hard-to-borrow*. For example, I just read a testimonial of a guy shorting DTO - the double oil short - at 120.00 and then getting called away at 170.00.

As far as the financials go, as the tickers slosh around low numbers (i.e. Citigroup, Bank of America, Wells Fargo, and eventually JP Morgan) I think they'll easily be some violent, DECADENT two day price retraces.

So bear in mind, that an *event* like a 20% drop-and-retrace, by the formula above, will knock a whopping 60% off the value of a triple short!!!

Given all that ominous math, yeah, I'm still long FAZ at the moment.

Click here to get started on my stream of trading updates.

Taxpayers Bailing Out The NBA

Yep, we are bailing out those billionaire owners of sports franchises:
The NBA is set to borrow $175 million Feb. 26, marking one of the first league financings since the implosion of the credit markets last fall.

The money, which will be available to 15 teams, supplements an existing $1.7 billion leaguewide credit facility that uses the NBA’s media contracts as collateral to secure loans for the clubs. The NBA surveyed its teams, and 15 responded they would like to tap into the new borrowing.

While the league said it is pleased to borrow in an extremely illiquid credit market, the deal came at a cost, with interest rates up to 8.27 percent, hammering home the notion that the era of cheap money in sports is over. The 15 teams can use the money for any purpose, but covering operating losses may be high on the list.

"In this economic environment, it’s tremendous that the league can place such a facility," said Alex Martins, chief operating officer of the Orlando Magic, which plans to borrow from the new debt. "It certainly helps us bridge the time period between now and when we move into our new events center in 2010. We’ve been operating at a $15 [million] to $20 million (annual) loss over the past half-dozen years, so it helps us."

Each of the 15 teams can borrow a maximum of $11.66 million from the debt proceeds.

The private-placement deal was arranged by JPMorgan Chase and Bank of America.

Haha. Haven't JPM and BAC gotten a couple hundred billion in taxpayer relief (and counting!)?

Note that picture above of an empty Atlanta Hawks home game was taken in March of 2007. It was taken during the good, *bubble* years!

Now you can go here and read empty-skull Bill Simmons' whining about how boring All-Star Weekend was for him in this economic climate.

Thursday, February 26, 2009

Fidelity - A Mess

Here's Fidelity Investments' Chairman Ned Johnson the other day:

"Until the end of August, before the economic storm arrived, Fidelity’s results were on schedule," Chairman Edward C. "Ned" Johnson III, wrote in a letter to shareholders accompanying the report. Then in September, "we entered a downdraft in stock prices which hasn’t been seen since the ‘30s," Johnson wrote.

So it's all the market's fault?

And here's his zinger that got him atop yesterday:
"We can only hope that the government’s cure doesn’t further sicken the patient," Johnson wrote. "During the ‘30s, Congress -- with guidance from the president and the same kind of good intentions -- shifted the country’s cash flow away from productive business to government make-work projects, which most likely prolonged the Great Depression."

Okay. Now, usually I'm all for a good little swipe at *Big Government* but this statement, from this man, is a screaming deflection.

The fact is, Fidelity is a disastrous operation. It's bloated, jurassic, and severely underperforming.

Here on the South Shore of Boston, seemingly everyone I meet works for Fidelity. This local sub-population, they are by no means Morons, but let me just tell you, they make gobs of money.

And for what?

You know how it is - in good times, quacks and hucksters skate by, but when the going gets tough....they get exposed big time.

That's the story of Fidelity right now. A turbulent market has exposed their well-concealed incompetence. Fidelity has proven to be nothing more than a giant bull market skimming operation. Look at their latest sophistical propaganda that tries to persuade its ravaged clients (and new suckers) to *keep buying*. Heck, the numbers it uses are hardly compelling:
Fidelity nicknamed one of the market timers the "bear-market dodger." After the start of the downturn in March 2000, for instance, he shifted new contributions to cash, beginning in April 2000.

A second market timer, the "bear-market refugee," shifted new contributions once the bear market was official — hit the 20% down threshold — to cash starting in March 2001.

The third timer was dubbed the "doomsday capitulator." He shifted new money to cash at the market's low point in October 2002.

The three timers resumed investing in stocks as of January 2004. In the real market, that was when investors' cash weightings fell back to their long-term averages as investors returned to stocks, Fidelity says. Going forward, each portfolio got the bogey's 10.2% average yearly gains from 1927 to August 2008.

January 2004 was also the point in time when Fidelity measured how each strategy had fared.

After plowing in $34,000, the stay-the-course investor's account balance was $33,502. That was bigger than the other three investors' by 0.4%, 5.1% and 5.6%, respectively.

Still, Fidelity says if the account exists for another 30 years, stay-the-course investor's $617,331 balance is $2,671 more than dodger's, $31,380 more than refugee's, and $34,752 more than capitulator's.

A difference of 30k, over 30 years? That's supposed to be significant?

Note the so-called dodgers got to sleep at night - a point totally unquantified, totally unaddressed by the buy-buy-buy propaganda.

Furthermore, why don't we recalculate the numbers INCLUDING *buying* in 2005, 2006, 2007, and 2008?!?!?!

Yeah I don't think those particular dollar-cost averages would behoove the ridiculous propaganda....we'll just leave them out and keep it quiet.

Everything I hear, read, or witness about Fidelity these days just screams incompetence, AND stupidity.

It wasn't bad enough that Fidelity got its clocked clean last year buying financials, apparently it went bargain hunting again late in 2008:
Fidelity Investments, the world’s largest mutual-fund company, more than doubled its stake in Citigroup Inc. in the fourth quarter, ahead of a 63 percent slide in the stock this year.

Fidelity also added shares of JPMorgan Chase & Co. and Wells Fargo & Co. in the fourth quarter. JPMorgan shares are down 35 percent this year; Wells Fargo shares are down 59 percent. Fidelity owns 4 percent of JPMorgan and 5.2 percent of Wells Fargo.

One local Fidelity guy, an analyst or something, told me back in September to load up on the *best* stock on Wall Street. He said to buy Starwood Hotels. Since his recommendation in September, the stock has fallen 69%, from 37.00 to 11.42 today!

Why exactly is he making 600k (or more!) per year and I am sitting at home flipping odd lots?

Well probably because the PMs, the portfolio managers, at Fidelity fancy his useless research, or his personality.

Out of the dozen or so Fidelity employees I've met since I moved to this region, I've yet to hear of one of them getting laid off. I'm telling you, they make GOBS of money.

That company is in deep denial and won't bite the bullet until after another nasty *down year* for the markets.

Firing all their analysts and all their *mouthpieces* - as they should do - would be to admit that the entire company is, and has been, a fraud.

Though, in Ned Johnson's defense, this fraud was fueled by the laziness and stupidity of passive investors.

Mrs. C-Nut hates it when I bash asset managers. She sees nothing philosophically wrong with an industry that skims money from unsuspecting, deserving Morons.

I look at it egotistically. There's no way I could spend my time and energy fine-tuning investment strategies and marketing schemes that demand *victims* - just so I could live in big house, in a desirable neighborhood, and drive a nice car (to the train station!).

See also - Marginalizing Analysts and Skim Biz Update - Fidelity Investments.

Market Teetering....Or Is It A Bear Trap?

Click here for my previous trading update.

I sat at my computer most of the day, for a change, but didn't do much.

I had some more fun with new friend FAZ - buying more at 50.74 at 9:32am and letting it out at 55.75 late in the day.

Was a nice day on paper for my account as my bigger positions all acted favorably. I'm long: SRS, TBT, DXO, OIH, and short QQQQ.

(My other, smaller junk: FAS, DELL, SWC, EEV, and CDE.)

Debt = Wealth?

I never heard of either of these guys before, Jan Helfield and Pete Stark, a Congressional Moron from California.

Pete Stark - The national debt measures....the wealth....the wealthier we are. It's an indication of the wealth of the country. [sic]

Thanks to Taylor for the pointer. He also likes this one which I haven't yet had time to view.

Hooking Up My Boyz

I found a great online dating service for West Coast Tom, Taylor, my cousin, and the rest of you incorrigible bachelors.

It's called and it's for self-described *progressives*. It's sponsored by the ACLU, NARAL, et al.....I kid you not!

It also boasts:

Already have a life?

Okay, if they say so.

It's a great business model though.

The average paying member will probably last 15 years!

Morons Ablaze!

Barnstable man burned after building fire in car

By Karen Jeffrey
February 25, 2009

HYANNIS - A 24-year-old Marstons Mills man was taken to Cape Cod Hospital early this morning after walking into the Hyannis Fire Department seeking help for burns received after setting a fire in his car to keep warm.

Patrick Larue, of 80 Sassafrass Way, was immediately treated for burns and smoke inhalation and then taken by ambulance to Cape Cod Hospital, said Lt. Roger Cadrin of the fire department.

Larue walked into the station around 4:40 a.m., telling firefighters that he burned himself after setting a fire in his car to keep warm, Cadrin said. Larue told firefighters that he had been parked on Stevens Street, near the intersection with North Street, and was talking on his cellphone with the car running when the vehicle ran out of gas and stopped, according to Cadrin.

Larue said he started a small fire in the car in order to keep warm, but put the fire out when he started getting dizzy, Cadrin said. The car, a rental, was "heavily damaged," according to firefighters.

A rental car?

Teen burned trying to kill head lice with gas

February 26, 2009
EVANSVILLE, Ind. — Police say a teenager who soaked her hair in gasoline to try to kill head lice was severely burned when the gas fumes ignited and set her head ablaze.

Eighteen-year-old Jessica Brooks was in serious condition today at the burn unit at University Hospital in Louisville, Ky. She was burned Sunday night at her apartment in Evansville, Ind.

Police said Brooks was in her bathroom letting her hair soak in gasoline just before a pilot light from a water heater ignited the gas fumes and her hair.

Investigator Richard Howard said Brooks suffered second- and third-degree burns over more than half of her body.

Brooks was taking high school night classes in hopes of graduating this year.

She probably had a date that night!

Would you rather date a girl who was temporarily *infested* or permanently charred?

Links here and here.

Wednesday, February 25, 2009

For You Gambling Addicts

....who should be concentrating on wage slavery duties:

If you want to piggyback, in real-time, a trader who seems like they know their *poop*.

Here's his blog.

And here's his Twitter feed of trades.

Thanks to JReality who pointed me to another worthy trading blog - xTrends, where I found the Twitter dude.

I haven't had a chance to comb through either of those blogs - will do so this weekend. There seems to be a lot of good trading insight out there on the web assuming one can sift through the noise.

How the heck are y'all going to beat FREE RESEARCH!

A Little B-Ball

Now I've elevated Danny Ainge before, but the Boston Celtics GM was begging to be Marginalized this week with his signing of Stephon Marbury.

I thought about it, was about to write the post today,....but chose to refrain. Marbury is a no-risk flyer; he can be cut at any time should he wax malcontent or should a better play hit the waiver wire.

PLUS, I decided to refrain from busting on Ainge because West Coast Tom sent me a note with that very suggestion. So Tom read my mind and in doing so convinced me to change it!

I remember years ago, in Philly, how pissed Allen Iverson got at his agent David Falk. Apparently Falk showed his other client, Stephon Marbury more *love*. I think Falk hadn't even bothered to attend a Sixer game until Marbury was in town.

Iverson always had that huge chip on his shoulder; and went on to prove Falk wrong by reaching the Finals, winning an MVP, and becoming a much better player than *Starbury*.

But over time, both knuckleheads have proven that shoot-first point guards are anathema to winning basketball games.

Note the Detroit Pistons are 24-28 since trading for Iverson this season. After his one good year in Philly, AI hasn't done squat. And Marbury's done even less!

Prediction - Cleveland (i.e. Lebron) or Los Angeles wins the title this year.

Piggybacking Rules

It seems like, from diverse feedback, that out of all of my unofficial trade *recommendations*, it seems like everybody went with the same two - DXO and SWC - both dogs. [Though I made $$$ on SWC stock last year].

Here's the deal - I'm only right about 30% of the time. A picker-and-chooser will not likely replicate my returns/losses. Understand you have to do the whole basket. Minimally, you have to coattail a super-majority of my positions and even then there are no guarantees.

I tried to get a relative to *piggyback* my trades a few years ago and it didn't exactly work out. Out of the first 3 trades, one was a small winner, and the other two losers. My fourth recommendation was to buy Google with me at $177 (click here). There's where he cut me off. He admitted later on that the idea of buying an odd lot (less than 100 shares) was a non-starter.

Of course, I rode that GOOG up to $750 or so (and then back down a bit). Had the piggybacking continued I could have parlayed that paper profit into more aggressive trades.

But we never got to that point.

I think most of y'all picked DXO and SWC for the absolute wrong reasons. You guys picked them because they are numerically cheap.

In fact I even joked with my oft-Moronic cousin, an SWC buyer, that if I had known that one appealed to him....I would have dumped it and gone short!

Don't be afraid to buy a little SKF, SRS, or TBT (when I buy myself, of course). Chances are you'll be buying more with me shortly thereafter - and that odd lot will grow to a round lot. Presently, I'm going to be doing my capital gains from last year and I have a sneaking suspicion that I made all my dough on SKF. We shall see.

I have to rethink what I want to do on this subject. I don't know that I want to post every trade I make in real time; what's in that for me besides eventual WWW embarrassment?; and I don't know how comfortable I am with the implicit responsibility for other people's losses - I have a hard enough time dealing with my own disasters!

But y'all are big boys, big girls, and West Coast Tom.

So I'll continue to post my trades; and promise more intraday updates.

Though I might create an electronic portfolio or something where y'all can see the relative size of my bets.

If this turns out to be too much work, y'all won't get none of it!

Trading From The Mall

First visit - Intraday Trades - Feb 24th, 2009. I have additional the comments of that post.

Today was a good trading day, theoretically anyway. I knew it was going to be a *mover* but had mentally committed to being away from my desk. I went to get Ashes; tried to go swimming at the Y (was too crowded on Ash Wednesday!); and ended up hitting the mall and Barnes & Noble with my kiddies. With all that planned, I wasn't going to be able to *professionally* monitor my positions and take advantage of the predictable volatility.

I dumped half of my FAZ at 61.00 early this morning.

In the afternoon, I started buying it back. I reloaded at 60.00 at 2:35pm. Then, into the face of this *rally*, I bought more at 55.27, cursed, and then left for the library.

I had forgotten that I left a 50.00 bid out there from early this morning - until Kfell mentioned that he bought some stock there. Good for him! And good for me!

I just released that *50.00 stock* at 57.04 in the after-market.

Though I'm sure it technically traded below 50 on an ECN somewhere....officially we bought the low of the day!

Other than FAZ, I did re-initiate a small position in Stillwater Mining - SWC. I got long at 3.31.

And I also dumped the additional SRS that I bought yesterday. I got in at 69.45 and out early this morning at 74.00.

Tuesday, February 24, 2009

On Wage Slavery

It hit me the other day that the best, the absolute most perfect image of the *wage slave* is that dude/chick you see during rush hour scratching lottery tickets on their steering wheel!

Funny, a little bit dangerous,....

....and kind of sad.

Not for anything, but some of my best friends are *wage slaves*.

Heck, Mrs. C-Nut is one and she'll stay that way until I ever decipher the vagaries of stock market gyrations, prostitute my ravishing bod for its full marketable value, or develop some other income stream.

Y'all realize that lottery tickets and the like are a voluntary, regressive tax, right?

In this day and age, there really shouldn't be any shock that a pol who co-opted *hope* was just elected President.

Just for kicks, ask the cashier at a convenience store, bodega, gas station, or packy if customers, "spend a lot on scratch tickets".

More on Kumon

Apparently, Forbes had published a short article on those Kumon workbooks that I've been using and mentioning - Sticking To Basics.

I swear some of these Big Media types are plagiarizing my ideas!

Now here's a much better article discussing a couple of precocious kids and Kumon - If X is 6 and Y is 7, then they are old enough to be taught mathematics.

Intraday Trades - Feb 24th, 2009

This morning I bought some SRS at 77.00 and was going to post my *buy* to the blog but sold it too quickly. I released it at 83.01 only 22 minutes later.

Just now I made my first trade on that FAZ, the triple short financials ETF. I bought a little at 64.45. I'm looking for just a few points.

With 2 hours left in the trading day, the market has the feel of one of those *up 400 points reversal days.* So I'm going to hold off any new shorts until 4pm or so.

What could possibly happen tomorrow to make stock investors eager to buy?

UPDATE - At 3:33pm I couldn't help myself. Doubled the FAZ position at 57.87 and I bought some SRS at 69.45. I just couldn't wait until 4pm!

Yoga Crazies

There's an animal called *partner yoga*:

There's *dog yoga* or *doga*:

And, of course, there's *nude yoga*:

Obviously, I omitted another possible modifier for the last pic.

I hurt my back pretty bad last week and I'd rather not say what kind of yoga I was experimenting with.

I wouldn't want to embarrass my corporate sponsors!

Monday, February 23, 2009

Ode To Broads

Whatever you give a woman, she will make greater.

If you give her sperm, she'll give you a baby.

If you give her a house, she'll give you a home.

If you give her groceries, she'll give you a meal.

If you give her a smile, she'll give you her heart.

She multiplies and enlarges what is given to her.

So, if you give her any crap, be ready to receive a ton of sh*t!

Probable *rule exceptions* ↑ ↓

A Day Without Upticks

First, see where I stood on Friday.

The steady, all-day decline visible in the chart above is pretty ugly. That type of intraday action is what I consider *the stuff of bear markets*. Note the Dow closed at a 12-year low.

Here's what I mean - last year, Wall Street saw amazing, bi-directional volatility. In my experience, that is not typical of nasty bear markets. Nasty bear markets are 1) uptick-less and 2) can't hold rallies in the slightest.

One example would be the gold market (both metal and miners) in the late 1990s - that's a sector in which I had plenty of experience. Another, more timely example would be this mini-bear in oil. Upticks, in the past 4-5 months have been violently crushed - as any recent DXO holder can testify.

To me, there were too many sustained rallies in the equity market to characterize 2008's 40% down year as a real bear market. I know I'm pushing semantics but hear me out.

Last year, a trader had to be scared, check that petrified of contra-trend rallies. For this year, I think the tickers are so beaten down, sentiment so awful, and all *denial* essentially washed out that shorts can get more aggressive. They can get more aggressive because the squeezes will be smaller. Big Government has no more rabbits it can pull out of the hat - or so I think.

Personally, I haven't gotten more aggressive, yet. I'm up a bit this year and waiting patiently for the right opportunities. In years past I've had real trouble *holding* on to profits. Invariably, I took profits and parlayed them into trades that I had been itching to put on (e.g. commodities). As I get older, I feel like I trade less and less. Heck, these days I'm not even really watching the market.

I did nothing today, in the markets anyway. Remember the SRS is my biggest position; its 10-point bounce retraced Friday's loss and put an almost-perceptible smile on my face.

It looks like JP Morgan Chase finally cut their dividend, after the close. The stock is upticking over $20....I doubt it holds for long.

So if it rallied to say 23.00 a share, yeah I'd short a little.

But a nice gap up to 27.00 or 28.00 and I'd hit it with the big stick!

I just don't see it happening, not in 2009. Reality has set in and everyone's waiting for rallies to sell into; they are looking praying for rallies that likely won't ever materialize.

By the way, if you recall I tried to short the Homebuilders ETF - XHB - last week but wasn't permitted ("hard to borrow"). Instead, I bought deep puts which expired and automatically exercised on Friday. So now I have sneakily established a short position....we'll see how long before they sniff out my subterfuge.

I think in 2009, one can sell delta and gamma, just about everywhere, and sleep pretty soundly at night.

Taylor's going to translate that last line for y'all - after he's done the other homework assignment I gave him.

Paper Trade Time Again

The March 195 straddle in SKF is "72 bid".

There are 26 days until expiration.

I say we short it.

Measuring ETF Decay

First visit - More On ETF Decay.

So how much do levered ETFs actually decay? I ran a few examples on paper, then computed the formula.

Say we have an underlying A, that is trading at 27.00 while it's double short Z is trading at 100.

Consider the example of a two day move in A where it drops 2% and then the next day retraces completely back to 27.00.

On that move, Z, the double short, will first rise to 104.00. Then the following day, it should theoretically close at 99.755.

So, a 2% drop and retrace (note the up move is greater than 2%) will *decay* the levered short by .25% - which isn't too bad.

Let's now consider a larger drop-and-retrace. A 10% drop on A would bring its price down to 24.30 - and obviously the retrace would bring it back to 27.00.

In that case, Z, the double short, would rise to 120.00 on day one - and then fall to 93.33 on the underlying's retrace. So after a two days of net-flat trading, the double short has just gotten hammered, losing 6.66% of its value.

Here's the formula:

Lemma - Given an underlying A and its daily compounding double inverse Z, a drop of R-percent which retraces fully the following day will DECAY Z by:

6*R2 / (1 - R)

when .3333 > R > 0

In other words, the initial drop can't be greater than 33%. Taylor will explain why in the comments.

Let's test my examples.

6*(.022) / (1 - .02) = .0024 which correlates to the 99.75 price we *retraced* to.

6*(.102) / (1 - .10) = .0666 which correlates to the 93.66 price the double inverse Z *retraced* to the second example.

Conclusion - The last thing a levered ETF holder wants is rapid, large price retracements!

Time for homeschool to open. This discussion will be continued later.

Saturday, February 21, 2009

Sometimes It's Better Not Knowing

Here's my buddy, the embattled Ken Lewis trying to comfort shareholders Friday as Bank of America's stock plunged as low as $2.53(!) at one point:

"Speculation about nationalization is based on a lack of understanding of our bank's financial position as well as a lack of appreciation for the adverse ramifications for our customers and the economy,"

Now I would never *defend* this buffoon; he's indefensible!

Nor is this the time for jokes about Ken and *lack(s) of understanding*.

But let's examine this situation fundamentally. Why is Ken Lewis out there, seemingly every other day, reacting to fluctuations in his bank's stock price?

Put it this way, if your bank - BAC, C, WFC, JPM, or whoever - wasn't a public company, and didn't have an easily researchable share price, how the heck would you know about any balance sheet woes?

How could you possibly know if there was a *silent run* on it?

You wouldn't.

Consider a *private* bank like USAA where my wife and I actually have some money.

I have no freakin' clue about its finances. Their website says they give out HELOCs and mortgages just like all the other amassers of *poopy collateral*.

So what's worse, being in the dark like depositors at USAA or watching the daily horror show that is the financial news these days and wondering about your nest egg at a, at least for now, publicly traded bank?

While it won't improve the financials, taking away the volatile tickers from the public dialogue will help people sleep at least, maybe.

Though really, just think how how much worse Ken Lewis might have managed the Bank if he didn't have at least a little *sunlight* on him at all times.

I know, it's sort of defies the imagination.

I've written a bunch on Ken - click here.

More On ETF Decay

First, visit - ETF Daily Compounding.

Lately, more than a few traders have reconsidered *ETF decay* and its effect on their trading strategies. If all of these daily-compounding, leveraged ETFs spiral downward with back-and-forth volatility, over time, then why not short them AND short the underlying?

Even better would be to short two decay-ers against each other! Consider two relatively new ETFs - Direxion's Financial Bull 3X Shares and Financial Bear 3X Shares. They've only been around since the end of November.

Since, theoretically, they should track oppositely, why not short them both?

So on one hand, you are *triple long* and on the other you are *triple short*.

If you're still perplexed, remember that -(-1), "negative, negative one", is also equal to just "1".

Say that a savvy trader shorted $100,000 of each at the beginning of our time period.

It's not too clear, but it looks like FAS started at 14.62 and FAZ started at 165. (I've truncated the first day of trading and started with the second day's close.)

So our spread began by shorting 6,840 shares of FAS and shorting 606 shares of FAZ.

FAZ closed at 72.50 yesterday and FAS closed at 4.90. Therefore, our P&L looks like this:

FAZ profit = $56,065

FAS profit = $66,484

Total profit = $122,549 !!!

And that's from shorting 200k worth of equity, a margin commitment of roughly only 100k....and in only 3 months time!

It seems that *decay* is greater for these ETFs when volatility and leverage are both high - the latter meaning that a *triple* ETF will erode more rapidly than a *double*. Forget *seems*, it's very simple to mathematically verify.

So where's the risk in this spread?

Maybe these ETFs are too hard to borrow - for the little guy trader at least.

I'm going to have to contemplate it some more.

And I'm definitely going to have to alter my strategies with SRS, SKF, TBT, and DXO.

Why should I trouble myself betting on *direction* when there's free decay, free theta, to collect in low risk arb spreads?

Greg Mankiw Discovers Agitprop

And declares it *genius*!

From Mr. Mankiw's post - "Create or Save":

Now that the stimulus bill has been passed and signed, we might ask: How will we know if it has worked?

The expression "create or save," which has been used regularly by the President and his economic team, is an act of political genius. You can measure how many jobs are created between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus.

Isn't genius supposed to imply *originality*?

What on Earth is original, no less commendable about *trust us, things would have been worse if Big Government hadn't....*?

That's decades-old agitprop for crying out loud!

You gotta love Mr. Mankiw....sitting in his 6,000 square foot house lecturing us on carbon emissions....stealing $178.89 from thousands of ignorant kids....

....overwrought with *fascination* for the double-speak of statists!

We can't say the pinhead didn't warn us, see - Economists - Useless BUT Harmful.

Yeah, that's his house in Wellesley, MA bought and paid for (many times over) by parental HELOCs and student taxpayer-subsidized loans.

The Wire

I started watching and really enjoying HBO's The Wire in the middle of Season Two, some 5 or 6 years ago. So I missed the first season - and even the last one because we no longer had HBO, which we've got back now.

Recently I've been watching Season One through HBO On-Demand and my zeal for the show has been reawakened.

You see, despite its riveting drama, The Wire is a foray into deeper socio-political and even philosophical matters. I'll let the creator describe in his own words:
Simon has said that despite its presentation as a crime drama, the show is "really about the American city, and about how we live together. It's about how institutions have an effect on individuals, and how ... whether you're a cop, a longshoreman, a drug dealer, a politician, a judge [or] lawyer, you are ultimately compromised and must contend with whatever institution you've committed to."[1]

I kind of sensed these undercurrents 5 years ago, but not fully - my mind was in a completely different place back then. No kids. I might not have even been married yet. It was PCN time - before the incarnation of CaptiousNut!

Allow me to elaborate on the show.

In Season One, a cop (McNulty) brings a drug lord to the attention of a judge, who then makes waves with the higher-ups. The police chief knows nothing of these thugs who are running half of Baltimore's narcotics and who are terrorizing whomever gets in their way. So rogue politicians made some noise and demanded the cops tackle these dangerous criminals. Instead of taking up the task with dutiful pride, the police commissioner goes apesh*t. First, he is pissed because this development, i.e. his ignorance and incompetence, made him look bad politically. He doesn't care one iota about the blood shed, children corrupted, or the justice unrendered. In fact, he makes it his prime focus to railroad the cop who *opened his goddamned mouth* and to sabotage the new investigative operation. Time after time in Season One, you see cops get into trouble for the most ironical crime possible, *doing police work*.

At root, The Wire is an exposé of the myriad failings of massive politicized institutions. Season One deals with cops and law enforcement. Later on they hit on politicians, unionized dock workers, public education, and more. Simon weaves all the themes and plots together, masterfully.

Read John Gatto's fulminations on Big Education, then go back and revisit The Wire. I promise the nuanced profundity you missed before will jump out and bite you!

Here's the opening scene from the pilot:

And here's a link to a video recapping Season One. If you haven't seen any of the episodes, don't watch too much of the recap; there's too much *plot spoilage*.

Choosing Your Kids' Friends

When I was in 8th grade, our bus stopped to pick up the next pack of punks, my good friend got on and promptly ignored me. He sat far away; I approached him but he wouldn't so much as turn his head.

Nothing had really happened. I'm not one of these queer guys that has spats with his male friends - I never was. [Note that describes all the otherwise manly men of South Philadelphia. They are always having tiffs and going through *not talking to* phases with a gumba or two.]

But I could sense what was up.

Young C-Nut - What, are you no longer allowed to hang out with me?

To which I got a look-away nod of assent.

The bus stop was right in front of his house and he feared his parents watching him through the window. I felt a little upset, a little discombobulated but shook it off. Remember we were 13 years old. If this had occurred when I was younger it might have been a different story.

Mind you I had known this kid all my life. He lived only 10 homes down the street. His family was, let's just say *different*. I remember sleeping over his house back when I was five; after dinner, a nasty pot roast which his whole family referred to as *steak*, everyone, all three kids had to do their chores. I was a guest there and was astonished to be made to wash dishes! I was five!

However, what really made this family stand out from the crowd was the fact that they were passionate Christians. Born-again? I don't know. They were always having Bible study at their house; they were always starting, switching, or quitting another *church*. Everyone else, and I mean everyone else, in those parts of Central Massachusetts was a part-time or lapsed Catholic.

My buddy's apparently exasperated parents had concluded that I *was the devil* and they no longer wanted him to associate with me. Seriously, this is precisely what he told me as the bus drove out of sight of his spying parents. I was "the devil"!

The background for that specific period of time escapes me so I can't remember what may have been the catalyst for my excommunication. Though notably, the year prior me and my buddy had gotten into all sorts of trouble - we were suspended - for hacking into the school's TRS-80 ("Trash-80") computer network. I was suspended twice for crimes of this category and can't recall if my angelic friend, whom I led astray, was punished the second time.

Seventh and eighth grade were tough. The public school we attended was half *bilingual* and the rest was splintered into warring cliques. There were plenty of before-, during-, and after-school fights; rumbles even. The entire school was smoking and experimenting further down the ladder of maturity. The school may have not been scary in comparison to bigger inner city schools, but it was plenty bad enough. No well-traveled parent would be boasting, or even comfortable sending their kids there.

So given the rest of the social options, it was a little odd that I was being singled out as THE bad influence for kid who was just as bored as I was, and probably more adept at independently getting himself into trouble.

Now here I am, twenty years later a parent myself. Thinking back, I completely understand my friend's parents' actions. Without confessing any fiendish behavior I want to say I don't begrudge them one bit.

A child's friends are a most powerful influence on him. My wife and I were recently bemoaning the fact that all of our friends' kids are all a tad younger than our Prince C-Nut, and the ones close in age are all icky GIRLS.

And we want our son to socialize with not merely his age-mates, but with older kids who are presumably a good influence. This has been tough to orchestrate. Most seven year olds are not interested in hanging out with four year olds. The Prince does have one friend who's 1.5 years older but this kid, all he wants to do is watch TV. My son watches too much of the idiot box as it stands, the last thing he needs is a role model teaching him about the shows he'll graduate to.

My kids do have older cousins but they live in faraway Connecticut and Long Island. Five of the seven are typical wastoid teenagers. At family gatherings they sit and watch television. Well, actually, they do more than that. They sit there, four in a row on the couch each either texting someone or playing a hand-held video game while blaring iCarly or something in the background. No one helps with the dishes. No one is interested in playing a board game. No one dares step outside to throw a ball.

Because of the obvious distance, we don't see the cousins too often. But still, I wouldn't say they are even close to *ideal* influences for my kids and that's too bad. I remember vividly many, many things my older cousins said and did. Children really do look up to the older brats; and that's just ONE of the laws of human nature that mass schools abrogate with their *age-segregation*.

Getting back on track. The social or environmental climate we raise our kids in is pivotal; it's not something I want to mess up. Who knows how much further along my career or finances would be if I came across just one kid, when I was young, who was enterprising - who was cutting lawns or something? See - Sheep To Slaughter - if you haven't already.

And who knows how detrimental one particular charismatic friend can be for your child?

If I had my druthers, I'd surround my kids with responsible, considerate, self-motivated, older achievers. Whether they are a talented pianist, a dogged fisher, a hustling lemonade stand operator, or a voracious reader it wouldn't well matter. I don't want my brood to be subjected to a panoply of losers, kids with no oomph who're mesmerized by color TV and dependent on purchased toys for self-amusement.

I don't believe that a *strong* family can substantially offset or compete with the relentless influence of the outside world. I really don't. Think long and hard about what your life's goals were as they evolved. How many grew out of *what your parents wanted for you*? How many came from images of glitz, fame, and wealth which, without a television or peers, you'd know nothing about?

Job one is to turn the color TV off.

Job two is to homeschool - to in-source the mind control of your precious children.

And job three is to be mindful of whom your children befriend. You're probably going to have to bend over backwards, to expand your own social circle so that your kids can witness firsthand what they're capable of, and where they're headed.

I know. In this world, it's not so easy finding impressive people of character to hang out with. Finding eligible godparents for your kids was hard enough!