In a Day of Crisis: Turn OFF the Noise: WATCH the tape:

One of the stark things about Wall Street is the disparity between the TALK and the reality....If you listen to the pundits, you hear nothing but confusing difference based on their stock positions...but if you watch the actual tape, or the stock transactions, you can see what folks are actually putting up their money to buy or sell...and there is a big difference between the two. In times of sharp volatility, such as tomorrow possibly, December 31, 2012, it is a wonderful time to try this out...just turn off your computer or tv screen to CNBC and just watch what the folks are buying or selling, and go with the flow.....I have bought a surfer poster just for the occasion so that I would not forget the lesson...Enjoy.

Nobody ever calls me when the market plunges:Tales From Normal MN: Fiction

This is the call

Every Day in Every Way...things are getting Cheaper; Tales From Normal, Mn.: FICTION

How does one truly hedge for a classic case of deflation???? this was the problem of the thirties, this was the problem that Bernanke did not want to face after the crisis of 2008, and after all this stimulus...this is still the problem that we may face...and it is unclear that we are any better able to solve it than Greece or Japan...and you? any ideas?

The Calm Before the Storm: 2012

It is a little weird, that in December 2012, after the failure of the political parties to resolve the fiscal cliff issue, there has been no plunge of the stock market that would reflect the dire situation that we are in as a nation....it is a little funny and weird...the vix which should reflect the volatility should be higher....everything should be more volatile..yet it is not..this is a little strange...make a note of it....

Be Wary...that is the Traders Edge

When one is young, and sharp, and a learner...the notion is that someday one will be supremely knowledgeable, be able to be the font of wisdom..ya..kinda the "Carnack the Magnificant" of Johnny Carson fame....the problem is that in the markets it does not work that way...the key is always to be on edge..to be wary...to never assume...to always be wondering...and that is the essence of the stress...and the success of the successful trader...as soon as one thinks one has the formula...knows everything...or is just a little complacent....all hell breaks out..and devastation comes shortly thereafter...make a note of it.

My Father loved to buy bonds

My father was a bond buyer...on the table next to his bed was a Guideon Bible, and a S&P Bond book...most of you would not remember that book, but brokerage firms gave them out for each stocks and bonds, and for bonds it listed the bond, all the details, and the rating of the bond. My father worked on the railroad---as a postal clerk, and had worked before and after WWII for them, and he had religiously saved so much a pay period and after six months or so he bought ONE bond for a $1000 dollars. Only after he died or got close in the bond panic of the 1970's did I learn of his bonds...and then because my mother was concerned with the spike upwards of interest rates...what would become of the value of these bonds---they had been terribly trashed....and it was a lesson that I learned and have faithfully passed on to my children...and to anybody that will listen. I also remember my dad saying during those final few years, that there was not anybody on Wall Street or in the firms that he could trust anymore...they did not know him and he did not know them...he had become a number and it terrified him.... The irony is for me that now that interest rates have been effectively held at zero, and the Federal Reserve has in effect targeted Seniors to make them paupers...as a way of saving the federal government money....the time has come full circle as the next move in interest rates is probably up....Stay tuned.

"The Peapod Game": and variations:

There are some old pictures of New York, and you can see on the sidewalk, the young men gathered in circles with dice, and a blanket, and some peapods and shells. As the man moved the shells, one had to guess under which shell the peapod rested.....It would have been glorious if each young learner had learned that game...cause that game and variations are the basis for many investment schemes. One of the doctrines on Wall Street, and used to be enforced quite strictly was the rule that when describing a dividend, it had to be made clear to the investor that when the dividend stock went "ex" the stock was reduced by the amount of the dividend, so that it was a "zero sum" game...it was not extra so to speak, it was just your value coming back to you. At the end of every tax year, there are folks that buy stocks that offer dividends and sure enough, when the dividend is issued on December 31st, the stock declines by that amount, and the investor gets the dividend in the mail, and then also gets taxed on the income from it....when in fact it was just "return of capital" so to speak. A variation on this is when a company sports a very large dividend, say 15%. You might notice that as the year goes on, the stock goes lower and lower, and then discover that the cash flow of the company cannot sustain the dividend, and inevitably many investors discover this, and the stock declines...and yes eventually you lose on the taxes and the decline in value of the investment.... So the general rule: If you see a deal that seems too good to be true--check further...it probably is too good to be true.

Mindless Stock Screeners are "Mindless" and dangerous

Almost every stock site, or financial page on any browser has a stock screener by which a reader can put in some qualifications, like yield desired, PE, Price, etc, and then get the stocks that meet those qualifications. Some time ago, I did a sort on high dividend yielding stocks---this is a very popular sort these days, since many banks and investment vehicles give very low rates of interest. For example, if a bank gives 1.50 % on the savings, if you had saved a million dollars over your lifetime...it would give you $15,000 per year to live on...So now that you know that, being the self reliant person that you are...and the assets you have available for retirement...do the math...ok..you see the problem. Anyway..I digress...After my sort I got a list of stocks, and royalty trusts that sported some very attractive yields...all over 10%. And I did buy several. Some months later I was reading in an investment magazine that this particular royalty trust was going to be going out of business in 2015, or in three years....yes it had been formed a hundred years ago when the old Great Northern Railway had been around, and indeed James J Hill had been one of the founders of the trust...but what the simple stock screener could not tell me was that it was dated for demise. So---just a word to the wise...check out the financial details on the company you are investing in, and the history of that company paying dividends, what coverage they have in terms of cash flow to pay the dividend...and what the prospects are going forward...sometimes the reason that the dividend is rising is that the stock price is plunging because of adverse market conditions for that industry....

There is a Time to Buy...and a Time to Sell: A bit on "Limit Orders"

One of my daughters was a graduate student for some years, and when I used to ask her about how she could afford to furnish her apartment...she would just smile and say, "I've got it covered." I found out subsequently that on "Move out day" she would just drive down the street and look for the items she might enjoy and then just stop since the price was such an affordable zero. For the "price conscious" buyer, it is unheard of to just impulse buy...One waits till the price is right. When one is buying on Wall Street it is similar...Usually stocks have a high and a low over a period of a year, and it must be assumed that the swing from high to low is at least 20%. On hot growth stocks of course it might be different. But---in a time when the stock market has been booming, and there are signs all over the place that a sharp correction might be coming, and 90% of investors are in bonds....that is time time when it is prudent to use a "limit order" or place an order to buy some shares of stock at a price very much lower than the current selling price. You place the order GTC, which is "Good Till Cancelled". Of course you do have to have money in your account for when it is filled someday. Then during the year, your broker might call you and tell you that "your order for XYZ stock has been filled"---That telephone call tells you that there is a selling mood on Wall Street and you can check what has happened...and you also can celebrate a bit, cause you probably got a bargain basement price. I like to call this the "Limbo Rock Order" or how low can it go?

"Sanguine"

When you are a "sanguine" investor, it means you can win either way---when the market plunges, you can say "Yippie" and when it skyrockets you can say..."Yippie". You are prepared to win either way. When one invests so that winning occurs when things go up, you are really just a cheerleader...or an athletic supporter...You are not in the big leagues. Another word that is an equilivant to the word "sangine" is "Peace."

Learning from Failure; In stocks, In surfing, In everything

Chinese Fortune Cookie Corner: "Welcome Failure: Failure is the Breakfast of Champions"---a true story (2007) Yesterday I had to take my youngest to Janesville for a driver education road lesson. Before the lesson, we had a little time together for her to shop and then to share a bit of Chinese at the Food Court. I have a habit of opening the fortune cookie first--- before the meal. The Fortune Cookie read: " Welcome Failure: Failure is the Breakfast of Champions." I have mentioned in an earlier post, that over thirty years ago, right after a fortune cookie that read, "Not Now, but Soon," I had received a layoff from an employer. Ever since, I have paid strict attention to those fortune cookies. That being said, I wish they were more precise. The vagueness in unnerving. Relax. The driving lesson went fine. I think the Chinese were directing the fortune cookie towards those who did not know that the world of school and life are different. Nobody gets 99.992% success all the time and still ranks at the median of the class. Most folks are blessed with enough failures so they have a balanced view of their strengths and weaknesses. Or at least the whims of the world. After reflection, I feel pretty confident that I have had enough failures thank you. I do not need any more. What about failure in stock trading? Well, the pace has picked up. It used to be that one would review annually which investments had worked out, and which had not, and whether to take losses or gains, and "rebalance" the portfolio to the future. Or maybe a surfer, after looking out and seeing a wave that surely must be the largest wave he has ever seen, and catching it, finds out that it is a dud. The surfer does not then go onto the shore, review what he did wrong...vow to to better etc...and spend lots of time....no the true man of the waves, or yes woman of the waves, just quickly picks a new wave.... The newage surfer, picking an investment, has to note whether the volume and price action has gone against the position, and yes whether in fact the investment is working according to the theory---and then cut the loss quickly if the data was incorrectly viewed.....and that process of recognizing failure, and very,very quickly...did I say "very" is the most important part of the equation. Thus...the true nerves of steel, the James Bond winning style, is a style of recognizing failure quickly...ya its not a sexy as a casino scene,,but it is what works.

Where have all the Investors Gone?

If you read the Wall Street Journal or any of the business magazines or newspapers, one would think that every American is an investor? In truth, we have become a nation of mostly fixed investors scarred by the recent Crashes...and most of the trading is done by computer quants for large hedge firms or banking institutions and their propreitary divisions, and yes those are the very ones that inevitably do not supervise their employees very well...and thus...there are trading losses...like the recent one for 8 billion dollars by the "London Whale." These trading machines and their minions are adored by the current business model, and thus they have short names like movie stars, maybe Cher, Rocky IV, Bond etc....They are the "quants", the programmers, sitting in the room with all the screens, and if not writing some new code for automatic buys, they are playing poker or some other game. It is a new world.

"Buying the Tear Gas; Selling the Peace"

TUESDAY, JUNE 28, 2011 Buying the Tear Gas; Selling the Peace: Well today the news is all filled with the riots in the streets of Greece. It seems that Wall Street this morning is very optimistic that a deal can be reached by the Greek legislature so that minimum wage earners have their wages cut---its called the new austerity. It seems that the IMF and Wall Steet is real excited about this prospect for Greece....and who knows maybe for the United States too....just wait a few months or years.... In reviewing the news last week, it seemed that every day the financial markets were switching emotions faster than a love sick teenager---one might surmise that this was all rational behavior. From my perspective it was just one planted story by the bulls who owned calls or the bears who owned puts, and all just in time for option expiration. In short, most of what we have been reading is just bought and paid for by the commercial gamblers on Wall Street----and while I revel in the new freedom of online publishing, with blogs etc, I mourn the chaos that has produced mostly the tower of babel in real time. Thats how I see it. And you?

"Jersey is my backup"

If you go on a docent tour of Wall Street, you might hear one of the docents say that in a time of emergency, one must be calm because after all...."Jersey is the backup."" After the recent Hurricane Sandy, ya think this might be reviewed? Ya think that maybe Omaha, NE would be considered an alterntive? How about Keokuk, Iowa.....The magic of New York is that despite everything, they still have the ability to stare at their navel in wonder.

A Bit about "Feelings" and "Hedging"--what they have in common

Whenever you hear a pundit on Bloomberg news or such talk about how he or she "feels" about the market....run. Supposedly in a rational universe, where stocks are valued in an efficient manner, how one "feels" is not relevant. Usually when the pundit is opening the stock market about 8:30am central time he feels good about the stocks that he has a position in. Period. That for the record is "self interest" and what follows from his mouth is "self promotion"---yes ditto for those stocks that he has in his charitable trust. How does that relate to "Hedging" or buying calls or puts in the futures market, or buying "bear etf's" to hedge a stock position, or even buying gold. When to buy? When is the time? Now let's talke about "feelings". When you are at a bar and have had two wonderful Guiness, or even two Manhattans, not bar whiskey of course, but the best, you feel...wonderful...What you should be thinking of is who is going to drive home---instead you are thinking of other things....getting your mind to focus on hedging the risk means you have to worry about the ride home. The feeling is the trigger to hedge. The feeling after those two drinks is what the feeling is like...do not forget it. Further....hedging is like insurance...if you get someone to drive you home...which is a hedge...you do not have to worry about a DUI. When you have the bear hedge, you may lose in the insurance, but you will win if the market tanks....so keep the eyes on the donut...the investment...and plan on winning with the hedge only if disaster strikes....When and if you begin trading and gambling with the hedge....you are headed for high blood pressure or worse...make a note of it.

What Will Today Bring? A Trader's Meditation

At the beginning of every day, there is the reflection or meditation---What will today bring? The difference between a monkey and a human is forseeability....and visualizing is what the seasoned investment pro does...it takes imagination...after the imagination, one gets to compare the reality...but the imagination is what the trader and investment pro brings to the equation. On Saturday or Sunday, looking at the events of the coming week is key. These are detailed in Barrons Magazine in the calendar section, one looks at the events and plots what one thinks the week will look like. Is Bernanke going to speak? What job reports or retail sales are scheduled? You need to know. At the end of the week, you can compare what you thought the week would look like and what the reality was. This is important and surprising. Last week for example, ending August 3, 2012, it was speculated by the pundits to be a "Pump and Dump week", or it was a week where during the Mon to Thursday, the EU and the ECB would be making the promises, and then at the end of the week, the jobs report would probably disappoint, and oh yes...the ECB would probably result in nada..nothing...but smoke and mirrors, with the Italians just saying they wanted moral support. In the end, the last part was so, but the rest was a suprise. The market wanted to go higher, and disregarded everything to do so. The jaded news junkies had to just wonder and observe. So....what will next week bring. Visualize it.

Twenty Minutes is an eternity on Wall Street; The story of one Knight

It has long been known among regulars on Wall Street that live real time trading is very different than "delayed" information. In fact, thirty years ago it cost a small fortune to get real live data...but I date myself. One of the most exciting times to trade with live data is the first half hour of trading, when orders from around the world have bunched up over the hours when the exchange is closed, and all begin trading. In fact, it is during this early fifteen minutes that there is the "exception" to the normal circuit breakers that prevent wild swings on the exchanges. Leave it to the program traders to design an algorithm to exploit this weakness---and you have what occured last week with Knight Investments debacle, when an error in their program issued a weeks worth of buy orders all at once. In the end, the firm was 200 + million short and looking for a rescue from someone. Ya think we might have gone too far when the model announcers on the Wall Street channels are talking of "straddle" trades or currency plays that they dimly understand the ramifications of, and indeed should be prevented from even suggesting to innocent investors. Options always were for seasoned investors and serious traders, and were never meant, in my view, for anyone who needed something stronger than a light beer.

The Shot Across the Bow---Wall Street Opening---July 23, 2012

This morning I decided to sleep a bit late, and finally booted up the computer about 9am. When I got on the news, there was a picture of a trader on Wall Street, a floor trader, with his head bent down on his computer---yup it was either prayer or despair, and traders are not the prayerful type generally..... The sharp break at the opening down is a terrifying thing for any floor trader who has maintained his positions over the weekend---luckly for those who did not get stopped out, the market came back, BUT the opening today was like the shot across the bow of a movie, like maybe the "Pirates of the Caribbean"---so... Be watchful, but get ready in case u have to abandon ship and take some of that fine prized ale with you.....