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Friday, December 19, 2008
Friday Snippets
Many of these are forecasts that hopefully do not come true.
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Thursday, December 18, 2008
Quick question: Why is Bernie Madoff, apparently one of the biggest crooks of all time, doing house arrest with an ankle bracelet in his $7 million house when he couldn't make bail?
In a related story SEC Chairman Cox had this to say: the agency has found "no evidence of wrongdoing by any SEC personnel" in connection with Madoff's alleged $50 billion Ponzi scheme and that the SEC intends to get to the bottom of where it may have gone wrong. Is this guy kidding me? While he is at it he should find out where he went wrong alleviating the uptick rule.
OPEC Meets, OPEC Cuts Output, Crude Falls
In a meeting yesterday the OPEC ministers agreed to cut a record 2.2 million barrels of production a day from the market. This type of news at one point would have had the power to put fear into the trading pits and a tight squeeze into the crude shorts.
The announcement came as U.S. crude inventories rose more than expected which pushed the price of crude lower. Total motor gasoline inventories increased by 1.3 million barrels, compared to the 1.0 million barrel rise expected by analysts. And distillate fuel inventories increased by 2.9 million barrels, while analysts had expected an increase of 0.9 million barrels. This rise in inventories are in the face of sharp price declines that one would have assumed would drive demand up.
Where Do We Go From Here?
"Goldman, Once Warning of $200 Oil, Sees $45 in 2009", CNBC
"Merrill Lynch Says Oil Could Fall to $25"
Any of this look at all familiar? Maybe if you rushed to lock in your heating oil for the winter at $4+ because the "experts" were forecasting crude above $200 a barrel. Like they forecast Google above $1000 and so on and so on. Ah the experts. Where would we be without them? We could go by the random walk theory or maybe just flip a coin.
There is no question that demand for the product is weak and may remain that way for sometime which is bullish for a decline in price. Maybe I am just a contrarian which I am. But what I do know from watching Wall Street analysts for oh these many years is that when the momentum is strong in one direction regardless of the product, and they begin to fall over each other trying to outdo price targets, it can be time to look in the other direction.
Not that this time these forecasts might not be right. They may be. But where is the Mea culpa from Goldman regarding the $200 call. The same place it will be if crude makes a beeline for $100. No accountability, the Wall Street way.
I did, however, just lock in my heating oil price.
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Tuesday, December 16, 2008
Question: How do you make a small fortune?
Answer: Start with a large fortune and give it to Bernie Madoff to invest!
"When the truth is found to be lies, and all the joy within you dies": Jefferson Airplane,1967
"I would not join any club that would have someone like me for a member." - Groucho Marx
If something seems to good to be true, it probably is.
Don't ask, don't tell
Bernie Madoff: The Man, The Myth, The Thief?
I had heard about Bernie Madoff when I was at a Wall Street firm, working with guys that happened to know him personally. Whether they invested with him is something I don't know, but if you look at the three phrases above, each is very appropriate to this case. The man was something of an investing superstar.
The Ticket For Admission
In order to invest with Bernie Madoff, you had to be invited in. The exact rules for admission I do not know, but they were in place. Maybe you belonged to the right country club, knew the right people or belonged to the same organizations. Whatever got you in, you were happy to be there. His results were steady, year after year, up market or down. It was a good place to be. Until now. People now thank their lucky stars that for whatever reason they were denied admission to this club. Sometimes it is definitely better to be lucky than good.
How he generated these returns was a mystery, particularly because you apparently could not understand your statement and because you were not allowed to ask questions. But that was OK, because your checks kept coming. Like in all Ponzi schemes you are lulled into a false sense of security and don't know until the hammer comes down. Don't ask, don't tell until it is to late. We have seen it before and we will see it again. Greed trumping common sense and good business practices.
Greed vs. Common Sense
Greed will tend to trump all aspects of common sense. He fooled some very smart and very rich people, some of whom may have lost a large part of their fortunes. Success breeds success and comfort, so over the years I am sure that investors got comfortable and put more and more of their money there These stories will only come out over time. The fact of the matter is that investing is a very tough game and not a smooth process. We have had some incredibly turbulent years in the markets where returns resembled the EKG I recently had done. But not for Bernie, he merely plodded along with the same performance year after year with very few aberrations. Unbelievable and incredible, but if you kept getting your checks you were happy. Until now.
Not Just A Great Investor, But A Great Dad As Well
The story goes that the sons knew nothing about the fraud, the schemes or anything else that was going on, and turned in their dad when they found out about it. As remarkable and unbelievable as this seems, maybe, just maybe, this is a dad trying to give his sons the ultimate gift of freedom. Maybe Bernie knew that the walls were crumbling down, that the game was at the end, that the piper had to be paid. Maybe, just maybe, he set all of this up to spare them and will take the fall himself. Or try to. I kinda have a gut feeling that they knew something at the very least, and everything at the very most. Maybe they did know nothing, or maybe Bernie is just a good dad. In a case like this, SEC ineptitude not withstanding, the truth will ultimately be told.
For the rest of us that did not get into the club for one of a hundred different reasons, let's count our lucky stars. Maybe I will apply to join the Rotary Club.
The Political and Financial Markets Commentator
If you didn't subscribe for email or feed delivery, these are the stories that you missed this week:
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Mike Haltman
The Political and Financial Markets Commentator
Friday, December 12, 2008
As In Life and Trading, Timing Is Everything
Buy the dips, sell the rallys.
I became a proprietary equity trader back in 1987. At the time, one of the most volatile stocks on the NYSE was MMM with moves that could be a full point or more. These moves were not that remarkable, given the fact that it also had a price above $100 a share. My first trade in the business was with this stock, and I think I made something like 3/4 on 1000 shares. Funny how you remember things.
Trading on the New York back then was grinding for 1/8's and 1/4's and finding the sectors that were in play at any given time. I remember the country funds that began to be issued and that would be exrtremely volatile, with the best exit strategy for weeks being a market on close trade because the final print would usually be up at least $1. Different stocks had their own distinct personalities that you learned from the experience of watching, trading and studying. Back then the biggest action was in the OTC market, where a system called SOES (small order execution system) allowed traders to sit in front of a machine and bang away at market makers that might be a little slow or asleep at the switch. You could only use SOES for 1000 shares, but if a news story came out and a trader on that stock at a market maker was in the bathroom, they would get pounded as the market was moving up or down and their market was not being adjusted.
The Markets Changed
In 1999 and 2000 when the tech boom hit the country the nature of trading changed from focusing on New York stocks to the wild wild west of the OTC market. What had been grinding for 1/8's and 1/4's turned into the boom times of trading for 5, 10 and even 20 points at a clip. Four dollar stocks could have moves of $3. The controls and disciplines of cutting losses and timing into trades lost meaning as the bull rally let traders sit with large losses on positions knowing that they would more likely than not get bailed out. Momentum trading became the vogue as we would trade stocks in companies that no one had ever heard of or any idea of what they did or the industry that they were in. Most of these companies had no earnings, some had no sales and had multiples and prices that were impossible to justify. Analysts became famous by falling over each other putting price targets on stocks that they seemed to pull out of the air. One, Henry Blodget, made a huge name for himself in just this way, and fell from grace just as fast. Traders made fortunes during this time, and it looked like it was never going to end. To use a phrase made famous today, this time it was different. But it wasn't.
As the tech bubble cracked, the lack of controls and disciplines in trading would come back to bite many traders, as they were no longer getting bailed out on bad buys. They were just bad buys that kept going lower. The market tanked, and for a while volatility, a traders best friend, was just not there.
What Is The Point Of The Title
I left the business a few years ago, but the goings on the past year or so brought back the memories of volatility, and then some. The VIX which normally fluctuated between 15 and 25 almost hit 90 earlier this year. The financial stocks did their best imitation of the tech stocks, only in reverse as stocks like Bear Stearns and Lehman completely disappeared, Fannie Mae and Freddie Mac fell to under a dollar, AIG is under $2 and the list just goes on and on. Traders have probably had their best year since the tech boom almost 10 years ago, although the economy is in shambles. Is it different this time as well? Time will tell.
Unfortunately for the rest of us, this money made by the few is due to the fact that the global economy and financial systems are riding along the precipice of collapse. At least someone is making money.
The Senate is debating the bailout bill for the auto industry tonight (Thursday), and we may have a vote on Friday. Round and round she goes.
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