Thursday, July 23, 2009


Yaaaay!!! Yay!

While it's not the best outcome, compared to what the President is proposing about giving the Federal Reserve more powers to not use (or use incorrectly and/or unevenly), this is a much better outcome.

It's similar to the concept of the 3 branches of government. Absolute power corrupts absolutely, and the Fed has had too much power for too long as it is. Dividing responsibilities among different organizations will prevent this concentration of power among people who don't give a goddamn about the needs of the citizenry. (Greenspan didn't and Bernanke sure as hell doesn't.) It will also force those other regulatory bodies to build their strengths. The FDIC, CFTC, SEC, OTS, OCC and whomever else gains powers through this legislation have been long neglected in the financial regulatory framework (especially the SEC), with too few strong players on bench to execute their missions. Hopefully, this is the beginning of balancing the Fed's evil powers with less evil powers elsewhere. (Whether there will be good coming out of these other agencies is TBD.)

This makes me happy, sort of! Yay!

P.S.: The Federal Reserve should still be audited. Even if this effort is successful, it doesn't change the need to audit and hopefully dismantle the Fed.

Friday, July 17, 2009

Second Order Effects Redux

What was that I once said about second order effects? As my friend Equity Private might say, "Finem Respice".

They Went Thataway!

So CBRE says there is effectively no AAA paper in the CMBS market. The TALF program is only accepting AAA paper to be sold to investors. Did I miss something or does anyone else see a problem here? Seems to me there is a disconnect here.

It also doesn't help that the delays in the TALF implementation will mean a few more months of deterioration in the CMBS market before any paper is moved.

While I originally meant to publish this piece a few weeks ago, the thoughts still stand. Here's a article that I noticed just a few minutes ago. Everyone should think long and hard about this, but I don't see people giving this the consideration it deserves.

"Timberrr!" That could be the sound of the US economy taking another fall, and in very short order. SRS, as a short, looks promising, but what I really need is an unlevered fund. I'll be spending some quality time with ETFConnect to find one.

Until next time, peeps!

Wednesday, July 01, 2009

Back in the Game


It seems like forever since I posted. I know my readers probably feel similarly.

What happened, you ask?

The short answers is that both Velocity 2009 and Structure 09 happened. Both of these conferences, geared toward the Internet industry, occurred back to back last week in San Jose and San Francisco, respectively. Being employed in this industry, and extremely interested in the issues these conferences cover, it was imperative that I attend both. Along with, I spent some time working in my company's facility in San Jose, CA, which means that I can now officially claim a tax deduction for the airline flight to San Francisco, partial usage of the very nice rental car I gave myself, and my hotel room.

Unfortunately, my company did not see fit to send me to California to learn how to better serve our customers. Well, because, customers aren't that important anyway when you're a monopoly. You're going to get your pound of flesh one way or another, and 2 pounds on a good day. The tax deductibility of the 2 days I did work takes some of the edge off the fact that I was not fully able to enjoy my trip as a "vacation". I think I'll be returning some time in the near future, and I won't be working when I do.

I was in the Silicon Valley/Bay Area from 18 June until 25 June before taking off to Atlanta for a cousin's wedding. I have to admit, spending time in the Bay Area after such a long time away really made me consider moving back to California. There's just something about the thinking, the ecosystem, the infrastructure which has already been put in place and the people who are part of it. I don't generally like most Californians, but that could have a lot to do with spending so much time in southern California. NoCal and SoCal really are 2 separate states. For example, after Structure 09 concluded, Canaan Partners sponsored the post-event cocktail reception at which I met several very interesting people including Andrew Shafer of Reductive Labs and the great Paul Kredrosky himself. For some reason, this kind of experience only seems likely in Silicon Valley.

While I was gone, my positions in UCO and UNG didn't do too much, but they didn't move against me, which was welcome. I'm still monitoring them closely, probably even more closely now than I had been. The time is approaching when I have to unwind some of these positions. I still like the long term potential for natural gas, and I think oil is an obvious play long term. However, I also think short term technical factors may begin moving against both of these positions shortly.

While I'm at it, if anyone has suggestions for an oil ETF besides UCO, please chime in via the comments. I don't like the fact that UCO is an ultra (2x) ETF, for well known reasons. I want something with better characteristics and less inherent risk.

Anyway, that's what I did on my summer vacation. In the coming days, I plan to write a bit about some of what I did, as well as give my quarterly recap on my personal finances and goal achievement. 2Q2009 wasn't too bad on either front, and with a few tweaks to my debt payment plan, I think I'll be able to achieve my ultimate debt goal for the year.

Stay tuned, and thanks for sticking with me!

Tuesday, June 16, 2009

Selling Out

Yep, I did it.

I sold 60% of my position in UCO to lock in my gains. With the exception of $500, I've taken out my entire investment of $5500 (approximately). My remaining position would have to see UCO hit $2.50 in order to wipe me out. From here on, it's all profit. Having a smaller position in UCO is reassuring, as I now have some capital to deploy in other interesting ways, including possibly buying back into UCO or other oil related investments.

I still think the overall direction for the markets is down, at least from this point. How much further down and for how long are questions I don't have answers to. So getting out during yesterday's downdraft was fine by me. I really should have had a selling plan together, but I've been preparing for a trip to San Francisco and have been distracted by the details. Watching the European and pre-market US action yesterday was a wake up call!

So what's next? I have no idea. This money is my original investment, so the search is on for a worthy vehicle. My broker will be lifting day trading and margin restrictions on my account next Wednesday (hopefully) so that is very welcome. For now though, I feel like trading on a 3 - 12 month timeframe. I guess it's time to do some research. I really wish I could do equity options trading though. Certain things would be so much easier. Oh well. *shrug*


Until next time...

Monday, June 08, 2009

Too Big to Fail or Unwind

Short US Treasuries and Long US Treasury CDS FTW!

Okie, I go now...

How Dasan Is Investing Now

Those of you who follow the hardcore investors and finance types on Twitter will recognize the name Dasan. A very sharp and witty guy who manages a portfolio at an unnamed hedge fund, Dasan recently published an analysis of how he is currently investing and how his investment process works. Fascinating reading from an investment professional. Check it out!

Thursday, May 28, 2009

Stopped Short

I mentioned in my last post that I was stopped out on UGA. Total bummer really, but that's also the point. While the loss would have been temporary, I now have capital to re-deploy elsewhere.

So what happened, you say?

I entered this 100 share position at on 19 March 2009 at $24.82. I went light because I didn't have a lot of capital to deploy, and I really haven't like the price point on UGA. Basically, for investing in the oil patch, I get more value elsewhere.

My stop was filled at $29.26, for a per share price, after commission, of $29.19. My stop was placed at $29.25, which I thought was loose enough to prevent all but the most egregious of downdrafts based on UGA's trading history. Clearly, it should have been a bit looser.

Profit, after commission, came to 17.6%. Not too bad for a 2 month holding period. While I would have loved to continue holding UGA, I have been able to pursue some other ideas with the freed capital. So things eventually work out. I have no interest in chasing UGA on the way up, even though I think it has a bit further to run. I'd rather deploy capital in more efficient ways and focus on getting a 2 or 3 bagger, if not more.

Remember, cut those losses short. But there is nothing wrong with taking a profit. Just don't take them too aggressively. Always let your winners run if you can.

Until next time...

Sunday, May 24, 2009


Actually, it was more like "damn!!" but you get the picture.

That's what I said on Wednesday when I pulled the trigger on a trade. Why did I curse my trade? Because I'd selected a limit order instead of a stop, and in short order, 1/6th of my holdings of UCO were gone at a price of $10.54 per share.

Let me clear. I'm not upset because I made a profit. It's kind of hard (and stupid) to be mad about that outcome. I am mad because my profit was only $1.99 per share, with an entry of $8.40 for those shares (on margin). So, if we do the math and subtract $14.00 in commissions, my gross profit was 23.67%. Not bad for a position entered on 31 March. Of course, none of this includes tax calculations, but I have enough previous losses to offset the small amount of taxes here. I've also not subtracted margin expenses, and if I can get clarity on that point, I'll update this post or post anew.

Still, my net profit works out to be about 14 - 15% over 7 weeks, or 104 - 111% annualized. Not too shabby. Now to wash, rinse and repeat!

So in the future, I warn everyone to make sure that you set the trade type appropriately with your online brokers! Don't be like me. Don't give up profits early with stupid mistakes.

NOTE: We'll discuss getting stopped out of UGA the following day in a later post.

Happy trading!

Exogenous Price Shocks

It could just be me, but what I found to be most interesting in the 20 May post from David Kotok of Cumberland Advisors was the story about corn ethanol and its effect on "food insecurity" in Zambia (and by extension, around the world). 2,500,000,000 affected by bad US policy on corn ethanol. Brilliant!

My only question is how can I benefit without trading in corn on the CME? Trading grain futures and options on them handed me my own head once. There may not be a clear path to profitability for the small speculator, but I plan to keep looking. I'm all for capitalizing on bad public policy.

That's all for now. Until next time...

Monday, May 11, 2009

Canary Red

This quick blurb about HSBC over at caught my eye. Why? Because for those who recall early 2007, HSBC was the first major bank to admit any problems with its subprime portfolio. We know how the rest of that year progressed. I have to wonder if they are leading the pack again. I guess only time will tell, but it is definitely something to keep an eye on.

Could that be the stench of death around the financials, yet again? Hmmm. I know my choice for leading contender to die.

Until next time, good people, stay safe...

Tuesday, May 05, 2009

Peter Thiel on Financial Markets and The Singularity

I will definitely watch this again, but a few things struck me about this presentation by Peter Thiel. (For the unaware, Thiel was the CEO of PayPal who sold the company to eBay. He runs Clarium Capital Management LLC, a global macro hedge fund, and does early stage investing, mostly through The Founder's Fund. He was one of the first investors in Facebook and a bunch of other well known Web 2.0 companies.)

First, Thiel really is nerdier than I expected. I was hoping there was a suaveness to him, a relaxed confidence borne of his intelligence and success both as an entrepreneur, an academic and an investor. No. There really isn't. He's as nerdy looking and sounding as one would expect from reading about him. I'm not sure what to make of this, and it really means ABSOLUTELY NOTHING, but it caught me off guard. He's also a very unpolished speaker. Again, this is not a problem or a bad thing, but I always find it difficult to listen to people who overuse "ummm" and "uhhh" and "you know" in their speech. In Thiel's case, it is probably a matter of his thinking faster than he speaks, and his speech having to catch up with this (disorganized and chaotic) thoughts. However, it only serves to obfuscate his message and, to me personally, makes it almost painful to listen to him. He should probably spend more time preparing and organizing his thoughts when he is to speak to crowds.

Second, I think Thiel has misunderstood Warren Buffett's investing strategy. Maybe Buffett, and by extension Berkshire Hathaway, has invested in The Singularity better than anyone else. However, I don't think that was his objective. Buffett and Berkshire have been doing the very logical thing - managing risks and probabilities. Insurance is the ultimate business of managing risks and probabilities. The insurance business is basically about probability, and this fits with Thiel's singularity thesis because it comes down to managing the fat tail risks.

Thiel makes the point, several times, that there are all of these potential outcomes in a non-Gaussian distribution of risks, from -- for example -- an investment boom being the beginning of "The New New Thing" which will revolutionize life on Earth to just being an extended investment mania. He uses the Japan bubble of the 1980s, the Internet bubble of the late 1990s, the real estate bubble in the US in the early part of this decade and the pursuit of the control of space in the late 1960s as is representative cases. In most of these cases, there was a span of time during which great wealth (or "wealth") was created, followed by a spectacular collapse -- boom and bust.

Thiel continues on to mention that Buffett, by way of Berkshire Hathaway, is investing in the The Singularity by writing insurance against catastrophic events -- the busts. However, I think Thiel has missed some things. First, Berkshire is not new to the insurance business. Second, insurance -- basically, writing puts against given outcomes, which I think of as the best description -- is a well known business with solid underpinnings. Buffett understands this, and uses this to his advantage. The Berkshire insurance businesses are cash generators, and Buffett has intentionally steered away from certain lines, or approached them carefully. For example, Geico only recently began writing renter's and home owner's insurance, after having been in the auto insurance business for a long time. Geico has also been known as the company that would only take on the best drivers (e.g. the lowest risk drivers) and dropping coverage for drivers after a single accident (cutting losses early). The cash thrown off by the Berkshire insurance businesses has fueled Berkshire's acquisitions of other lowly valued businesses (on a fundamental basis) as well as it's war chest, which in turn had driven it's AAA credit rating (until recently).

Even Warren Buffett's mistimed (?) derivatives bets are nothing more than insurance plays. They are bets on the probability of certain outcomes, including the level of the S&P 500 equity index in almost 20 years. While the positions are underwater now, and Buffett can be considered hypocritical for calling derivatives of all stripes "financial weapons of mass destruction", he is fundamentally making similar bets as any of the insurance lines his companies write.

I say all of this to say that Buffett doesn't invest in insurance businesses due to some recognition of or belief in The Singularity but simply because he recognizes that probability is on his side. Everything has risk, but insurance, such as it is (outside of the realm of catastrophe, for example), is well known and generally a cash cow due to the small payout in claims against the large revenue in premiums. Maybe Thiel knows this, but he seems to express a view that Buffett has some grandiose "black swan" perspective on investing. I, personally, think not.

Anyway, it is an interesting presentation and not a bad way to spend 20 minutes of your time. Will you gain any new insight here? Probably not. But you never know. Maybe something he says will land with you in a way other talks have not. Check it out if you have the time.

Until next time...

Wednesday, April 29, 2009

Eric Rosenfeld Lecture about LTCM

If you haven't yet caught it, you should run - don't walk - over to Zero Hedge and check out this approximately 90 minute video of Eric Rosenfeld giving a lecture about the LTCM collapse back in 1998. Fascinating insider's view. The comments over at Zero Hedge, as expected, are acerbic but many are enlightening and worth a read.

I know I will be revisiting this again shortly, as I found the entire lecture interesting. While I'm sure Rosenfeld mixes and mis-uses some vocabulary and concepts, all in all I think there are definite lessons here. The biggest, of course, as we've learned in the last 2 years, is that in times of stress, all correlations go to 1. However, I want to reconsider the endogenous risks that Tyler @ Zero Hedge mentions. I'll definitely watch this again soon, maybe after my nap this morning.

I think the leverage factor, which has been widely associated with the LTCM implosion, bears added consideration. Recently, Accrued Interest made the point that leverage isn't what kills; bad investments kill. Clearly, this is true. However, leverage has the force multiplier effect and can transfer an innocuous loss into a catastrophe. Eric's lecture covers what he calls the 10 biggest myths and misconceptions about LTCM, and yes, they did hit 300x leverage at various points, according to him. However, it did not occur for the reasons you might have suspected. It adds a bit more color to the whole conversation. I know that, in my own mind, I vilified LTCM for such egregious use of leverage. Seems I was mistaken.

Finally, we're all familiar with the idea of prime brokerages frontrunning their hedge fund clients. As I think I have previously mentioned, I think there may be an opportunity for a 3rd party prime brokerage business to emerge, or even for trustees and custodial banks to subtly move into the space. State Street and Bank of New York Mellon are the obvious candidates, as they already have large custodial and administration businesses, so why not move up the value chain and entrench yourself further with you customers (for additional fees, of course). However, there's a startup opportunity in there too, I believe.

Anyway, go check it out. Good stuff for us finance geeks, anyway.

Until next time...

Thursday, April 23, 2009

The Hidden Risks of a Central Counterparty in CDSland

If you didn't catch it yesterday,'s Alphaville had a great piece about why a central CDS (credit default swap) counterparty (read: exchange or clearinghouse) might not work as well as everyone thinks it would. While I still think it necessary, it's obvious that the idea needs work. Specifically, it needs to be integrated with existing clearinghouses/central counterparties to make sure that cross-exposures are appropriately netted.

The piece also raises the point that CDS account for only 11% of the OTC (over the counter, or dealer-to-dealer) derivatives market.

Again, putting CDS trading on an exchange or other central counterparty is important, but at most only 40% of trades might move to such a central counterparty. CDS are not standardized, and standardization removes profit which is why B/Ds are loathe to do it. It needs to be done though, to bring as much of the shadow banking system into the light (along with many other moves, however, like re-splitting commercial and investment banks a la Glass-Steagall, as I previously mentioned). The more trades in a central location, the better. There will always be OTC trading, but it should be for the most esoteric and specialized -- and hopefully rare -- trades.

Monday, April 13, 2009

Trading Report: Risk Management

This report will describe the lessons learned from my experience trading DXO, the PowerShares DB Crude Oil Double Long ETN (exchange traded note). Hopefully my experiences will serve as a warning and a guideline to those of you reading this. We should always seek to learn from our mistakes, and to make new ones as opposed to making the same ones repeatedly.

After my previous experience trading DXO, I figured I could use it as a vehicle for some trading gains. I believe in the long term thesis around commodities, and oil in particular. I think that $200 oil and $5 gasoline are eventualities in the US. I chose DXO as the vehicle because of its extremely low price and embedded leverage, making it, as @marketfolly remarked "a call option on oil". Nice!

The problems with this particular idea were manifold. First, DXO is an exchange traded note as opposed to being an exchange traded fund. If, for some reason, the sponsor were to go bankrupt or some other restructuring, the holder of DXO becomes an unsecured creditor of the sponsor. That adds counterparty and credit risk to the inherent market risk. Over on the Market Folly blog, there was a guest post by @tradefast which covered some of the details of trading oil via ETFs and ETNs, including the counterparty risk issues. That guest post is a must read!

The next problem is that DXO is a double long ETN. It seeks to replicate 2x the movement of its underlying index. For example, if the index moves 1% up on a given trading day, DXO should move 2%. Thankfully, in the case of DXO, this calculation is done on a monthly basis as opposed to daily, making DXO slightly less volatile than it could otherwise be.

My first, and probably biggest, mistake in wielding DXO as a trading vehicle was to not use stops. I really have no excuse for such an egregiously stupid act, and the market punished me accordingly.
Generally, my stops on DXO ended up being far too tight, and I would get stopped out much sooner than I really had a tolerance for. Either that or I would get stopped out right before a bottom. While setting proper stops on DXO is difficult due to the high volatility, at least having them in place would have (possibly) prevented the $6000 meltdown that I experienced.

The second problem I introduced was using bad position sizing. This may be the most critical failure. Given the price range DXO was trading in at the time (January - mid February 2009), I accumulated a sizable block of shares, somewhere in the neighborhood of 6000. This represented at least 50% and probably closer to 60% of the assets in my brokerage account. What's even worse, I had this oversize position on a security which essentially acted as a call option! This increased the overall volatility of my portfolio and created more stress than anything. It was a completely irresponsible action on my part.

My third problem was failing to construct a proper trading plan."Plan your work, work your plan." Simple, right? Not if you don't create the plan! I was trading DXO by the seat of my pants, and thus, by emotion instead of trading it in accordance with the plan I constructed. This caused me to buy at bad times, sell at bad times, and generally overtrade. Overtrading is the quickest way to deplete your funds, it seems to me. But the biggest issue with failing to construct a proper trading plan - and adhere to it - was being swept up in the daily volatility and gyrations of DXO. For a security that moves as violently as DXO, with built-in leverage to boot, you absolutely must have resolve in your idea. If the facts change enough to warrant getting out of the trade, then so be it. All of that is testable against your plan, however. If the market conditions, when compared to the plan, tell you not to do anything, then you don't. If they do, then you do. The trading plans adds clarity, focus and structure to what can easily spiral out of control into a emotional quagmire.

So, all of that said, what practices can be put into place to prevent these mistakes from recurring?

First, creating a trading journal is a must. Dr. Brett Steenbarger talks about this here. There's really nothing more for me to say on the topic.

Second, no day or swing trades will be undertaken without an accompanying trading plan. Long(er) term position trades or investments (12+ month time horizons) won't require this level of detail to enter the position. There would be nothing wrong with doing so, though. The trading plan is a tool to enforce discipline in the face of emotion. Since the emotion, for me, is a much stronger factor when dealing with the short term trades, I will focus on optimizing my routines for those cases first.

Third, I have created a new rule that any trade, long or short, will be made with an accompanying stop/loss order set. Discipline is required to keep up with this one, at least until I change to a new broker. My current online broker (who shall remain nameless to protect the guilty) sucks but there's little I can do about that at the moment.

I may delve further into this topic and the specific actions I took that led to this point. Deconstructing them may be instructional. But for now, I hope this analysis is interesting and useful to someone.

Until next time...

Friday, April 10, 2009

Goal Status and Updates - 1Q2009

The first quarter was a bit of a mixed bag. On one goals, I exceeded anything I could have imagined possible. All of the others were failures, at varying levels. :( Anyway, now I have some things to refocus on for Q2.

Business: Finish writing e-book by 9 Jan 2009. Publish by 16 Jan 2009. FAIL.
Business: Make 3 contacts during Money:Tech 2009 (6 Feb 2009).
Personal: Ride a blue trail by 31 March 2009. FAIL.
Professional: Find and accept an offer for an awesome new career opportunity by 31 March 2009 (end of 1Q2009). FAIL.
Fitness: Achieve 10% body fat by 31 Mar 2009 (end of 1Q2009). SURPASSED.
Fitness: 25 dips, full extension, full body weight by 31 Mar 2009 (end of 1Q2009). FAIL.

So let's break these down quickly. Money:Tech 2009 was canceled, somewhat unceremoniously, by O'Reilly. So there was no way I was going to accomplish that goal, even though I had my registration in order and was seeking a place to stay for those days when I was informed of the cancellation.

I am moving my "ride a blue trail" goal to the end of the year. I thought I'd ridden a blue trail at Whitetail on my last trip there, but it turned out to be a green. So I decided to take a break to refresh before tackling a real blue. Well, like an idiot, I ended up riding another green 2 or 3 more times (because it was just so fun, and the conditions at season end were amazingly good). Those runs totally crushed my legs, though. I should have just ridden the blue first, but by riding the green, I totally subverted the achievement of my own goal. It just goes to show that most of the time, you just get in your own way in life. :\

I'm still not sure if I will finish the e-book. The economic/financial crisis has been dissected to death, and there will be tons more in the future. This crisis is on its way to be becoming a Harvard Business School case study! So, although my e-book sought to be comprehensive in explaining the crisis as well as delving into practical solutions for real people to survive, thrive and prosper through it's aftermath, I don't know if I can do better than what has already come out. (Or will come out in the future.) I may still do it, just for my own personal edification, but I'm unsure at this point.

With my goal of 25 dips, I came close but as my father is fond of saying, "close only counts in hand grenades and horseshoes". During my workout, I normally do sets of 15 reps of dips, but I was (until recently) doing 6 sets. That works out to 90 dips over the course of a session. So I thought the 25 in a row would be easy to do. Man, was I ever wrong! I failed at rep 17, then again at rep 22. Since I did not make it straight through, I am calling this a FAIL even though the definition of success is my own. I could rightfully call it a pass, since I did get all 25 dips. I'll move this goal to later in the year as well, and spend more time preparing.

My 10% body fat goal was my only success, but given the rather aggressive fitness goals I set, it is amazing that I reached it when I did. Actually, I made it to 8.4% body fat before the end of January, IIRC. It definitely was measured before the end of February. If you look at my original 2009 goals list, the date by which to achieve 8% body fat was 31 December. So I basically crushed this goal, and almost achieved my annual goal before the end of the Q1. I can see my sixpack coming into focus, and I haven't even gotten serious about sculpting my body yet. Talk about inspiring!

Finally, I did not find a new career opportunity. Not even close. I dither on whether to continue pursuing this goal at this time. I have other projects I would like to spend more time on, and my job suits my lifestyle perfectly well. While it often annoys the hell out of me, it's an easy job, with a solid company, decent benefits, amazing hours, and I work with people I generally like doing something I generally like. The only real problems are that I think the organization is misguided and confused, and management above my direct manager is ineffective and highly politicized.


Time to get to work!

Here's my updated list of goals for the remainder of this year:

Personal: Cook 1 meal per week by 30 Jun 2009 (end of 2Q2009).
Business: Finish unwinding my real estate partnership by 30 Jun 2009 (end of 2Q2009).
Fitness: 1 hr of cardio on the Precor EFX 556 in interval mode by 30 Jun 2009 (end of 2Q2009).
Fitness: 10 wide grip pull ups, full body weight, by 30 Jun 2009 (end of 2Q2009).
Fitness: 25 dips, full extension, full body weight by 31 Mar 2009 (end of 2Q2009).
Personal: Save $15,000 for house down payment by 30 Sep 2009 (end of 3Q2009).
Personal: Read 1 book per month (12 total) by 31 Dec 2009.
Personal: Accumulate $30,000 in emergency funds by 31 Dec 2009.
Personal: Achieve $90,000 in net worth by 31 Dec 2009.
Personal: Pay AmEx down to $0.00 by 31 Dec 2009.
Personal: Ride a blue trail by 31 March 2009.


Fitness: Achieve a visible sixpack by 30 Sep 2009 (end of 3Q2009).
Personal: Achieve $150,000 in net worth by 31 Dec 2009.
Personal: Read 1 book per week (52 total) by 31 Dec 2009.
Fitness: Achieve 8% body fat by 31 Dec 2009.
Fitness: Chest press 200 lbs for 15 reps by 31 Dec 2009.
Fitness: 1 hr of cardio on Precor EFX 556 in hill climb mode by 31 Dec 2009.
Personal: Accumulate $50,000 in emergency funds by 31 Dec 2009.

Until next time...

Tuesday, March 24, 2009

The Missing Man

So I was reading some of the commentary about the new Geithner plan, and the one thing that struck me (particularly as I read this) is that we still haven't see anything cogent about the valuation of these "troubled assets".

At the end of the day, I think the banks ARE currently insolvent BUT I think they can survive this. The key will be getting those assets off their books. YES, they will be insolvent. Get over it. As Steve Randy Waldman said over at Interfluidity the other day, they were insolvent before, during the S&L crisis. Insolvency isn't the issue. A few years of reasonable earnings w/o dividend payouts and public markets recapitalization -- as James Surowiecki has advocated (see the Interfluidity post for the links to Surowiecki) -- and I think many (not all) of the current banks survive in some form. Obviously, the industry will see huge structural changes in other ways, but overall, I don't think we risk losing too many of the existing banks. Yes, the banking system needs to be fundamentally overhauled, and personally, I think Glass-Steagall needs to make a return, but that's a conversation for another day.

Aside: The ones I think we DO lose would appear to be interesting shorts. :) Figuring out those names is left as an exercise to the reader. That's what the comments are for! I'll start with WFC.

What worries me most is whether Geithner's new plan will attempt to do what Hank Paulson's original plan(s) attempted to do - bailout the banks with unrealistic valuations of these assets. I don't think too many private investors will be interested in overpaying to take these assets off the balance sheets of the banks. I know I wouldn't be interested in overpaying for distressed assets. The marks they carry are because they are distressed! So I am particularly curious to see when and how this question is answered. If anyone out there reading has anything to share, speculation or otherwise, please do share!

I already think this bounce is setting up a huge shorting opportunity. However, until this question is answered, we're still in what Upside would call a Wile E. Coyote moment, not realizing there's no ground underfoot but still running. If this question isn't answered well AND soon, gravity kicks in with a vengeance! Of course, that's not to say that gravity won't kick in just because. It is "The Market" after all.

Finally, realize that I am only speaking about this plan right now. So many people seem to have forgotten about the BIG elephant in the room, the REAL missing man. There will be a next leg down, I'm fairly certain. And the banks will continue to be insolvent. Whether that turns into a liquidity problem is To Be Determined. All bets are off on any of the existing private banking institutions surviving once the leg down kicks in.

Until next time...

UPDATE: Looks like I spoke a bit too soon, but still, I personally want more detail.

Monday, March 23, 2009

Random Thought

Sounds like portfolio insurance all over again, at least to me. This gave me a good laugh. Liquidations like this, across asset classes, are happening the world 'round.


Friday, March 20, 2009

Trading the 401(k)

There are plenty of reasons NOT to do this, but I would expect that many personal finance bloggers do so to some degree. Definitely not all, but the number is surely non-zero. Even respected professionals such as Teresa Lo advise against it for most people. However, the opportunity is just too good to pass up. This is the first of potentially many instances in which I plan to do this over the coming years.

To start, due to the almost 20% bounce off recent market lows, my 401(k) is has gained slightly over $5000 in value. Not a huge amount, true, but hardly non-trivial. So it seemed like a good time to lock in some of these gains. I am a believe that we have not seem the bottom of this bear market, and this is simply a violent bear market rally. As well, the numbers I've seen in my 401(k) strongly suggest that to me.

I started by rebalancing completely out of my employer's equity fund. I have been greatly disturbed that my employer pays 401(k) contributions as equity. I already draw my paycheck from this company. Being doubly long by holding such a significant amount of equity (about 6.37% of the total value of the account) on top of my income is a worrisome state. Thankfully, I was able to sell all of my current holdings, which are up 10.7% since the last time I updated my asset allocation spreadsheet. Future contributions will still be made in stock, but this I can't stop so there's no sense in worrying about it.

Next, I liquidated all holdings, both equity and fixed income. With the exception of the bond funds, all of the holdings are up double digits in the last few weeks. (I last updated my spreadsheet earlier this month.) I think a decline is imminent across most equity markets worldwide, and I want to accumulate as much dry powder as possible for future deployment. Hopefully, I will lock in significant gains and more importantly, avoid the downside after this rally fizzles out.

For the record, the holdings in my 401(k) were up as follows: US small cap equities up 16.66%; emerging market equities up 13.06%; international mid-cap equities up 12.38%; US large cap equities up 15.39%; US large cap equity index up 14.85%; international large cap equity index up 16.57%; US real estate up 20.27%.

Anyway, we'll see how this works out. I don't anticipate significant upside movement on any of my holdings, and if I'm able to avoid the next leg down, then I'll have the resources to acquire even larger blocks of shares on the way back up. Mind you, I think it will be a long way back up, several years in the making, but I'd like to take a value investing approach to this, while exercising some downside risk mitigation.

Wish me luck!

Yielding to Logic

That's what I have done with my latest transfer of funds.

How so?

Some of you will recall a plan I outlined almost exactly one year ago. That plan involved paying off my AmEx at a slower rate while I amassed my emergency savings. Now I am ending that plan and focusing on reducing the balance on my card.

So you may be asking what has changed since then?

First and foremost, I achieved my savings goal for 2008. I currently have $20,142 in emergency funds. While I will not completely terminate my Direct Deposit into that account, I am turning down the savings rate to about $150/month from $1000. The remaining funds will be divided among a savings account for travel expenses and for paying down my card.

Second, the return of principal I expected last year never materialized. Thus, due to fees, the AmEx balance has grown much faster than I originally expected or intended. That was a failure of management on my part. I needed to pay closer attention to this situation, and adjust my plan as soon as the payment clearly was not going to be made. This mistake is a learning experience and will not be repeated.

Third, as will soon be detailed, my trading adventures recently have been a less successful than expected. Thus, paying off the card has a higher ROI than shorting AXP or riding the volatility of FAZ. (I have been positive on my AXP shorts, but I haven't had the funds to control enough shares to make huge returns. FAZ, on the other hand, has stopped me out more times than I care to count.)

Fourth is the emotional and psychological component. In the year since that last blog post, the balance on the AmEx has grown pretty steadily. Even after I moved to my current apartment and stopped paying my rent on my card, I just have not been able to pay down the balance as quickly as originally anticipated. That outstanding balance is an albatross around my net worth. At this point, with other goals accomplished, it is now time to address this situation. As I previously mentioned, money is an emotional topic, and how each of us manages our finances is very personal. This charge card balance has finally reached a point of personal pain for me, and now is the time for salve.

By transferring out of my investment account so that I can use the funds to pay down the AmEx balance. While once upon a time, I had it under control, it has become abundantly clear that I am doing more harm than good but allowing this balance to continue living. The rate at which it is accumulating interest is overwhelming my ability to service the debt at a level I feel comfortable with. (To be sure, I could continue doing what I am doing, and technically it would not be hard, but I hate the feelings associated with it. Psychosomatic? Probably.)

Fifth, having a written goal to pay off the card has focused my mind. While it will not be a simple process, if I am going to achieve this goal by year end, I have to commit myself to it. That means doing everything I can to allocate the necessary funds. Some of that will likely come from additional income. Some of those funds will come from re-allocating income from my job, and part of it will come from reducing the balance against which fees are assessed. No matter how this comes together, I MUST perform activities which support this goal given its importance to me.

I have already transferred half of my cash balance from my trading account back into my checking account. From there, it will be applied against my AmEx balance; that transaction should complete today, Friday, 20 March 2009. Along with the coming shift to reduced savings, I estimate that I should have this card paid down before the end of August. I think I can probably be even more aggressive, but there's no sense in creating suffering just to serve a goal. This single payment will reduce my outstanding balance by 46%.

On top of re-arranging my income stream to pay down the card, there are a few places where "found money" comes into play. I have a 5 year, $1000 CD coming due this month. When it does, I will transfer those funds into my checking account and then make an additional payment to my AmEx. I also expect to be repaid about $1600 that I lent to a friend last year. That money can either augment the savings I am assembling for travel spending later this year or, depending on the potential cost of those trips, I may just apply the money to the AmEx.

A bonus to this entire scenario is that I will probably earn enough Membership Rewards points to pay for at least one of the flights I am preparing for. That takes some of the edge off of the pain of scraping together the almost $22,000 that I owe. That alone is a huge win.

Anyway, that's the plan which has been put into action. I'll keep you updated on the progress.

Until next time...

Thursday, March 12, 2009

The Fall of CNBC

So I've been catching up on this story about Bubblevision, since I don't have television service. (Only FiOS Internet access, but it's great so far.) It is truly entertaining, both to watch the video as well as reading some of the analysis to come out of it.

What can I say? I popped my cherry on CNBC. I've been watching them, to some degree, since the early 1990s. Even after discovering Bloomberg TV, and watching hopefully for CNNfn to grow into being somewhat entertaining (before its demise), I kept coming back to CNBC.

But then, last year, there was a shift. A large motivator for that shift had to do with the realization that CNBC guilty of propagating bad information in various ways. However, I also became clear about what I was seeking from CNBC, and how it no longer served a central role in providing that. What I was seeking was information. Specifically, I was trying to find ways into the knowledge flow.

You see, this entire world of finance is based on information. A friend of mine used to have the following quote as his e-mail signature:

"Information - the currency of the future."

This was around 1993, so long after the release of "Wall Street", wherein Gordon Gekko first expounds on the importance of information. For a neophyte such as myself, at that time, I could not appreciate the sheer brilliance and importance of Gekko's lines regarding information. Even after being exposed to the above quote, it never hit me, through all the intervening years, just how critical the right information is to success in this world. I'm not sure when it finally landed, but I felt amazingly stupid for not "getting it" sooner. (Rightfully so!)

CNBC has always represented the regular man's access to the information flow of the world of finance, and Wall Street in particular. The very embodiment of the concept of "democratization" of information. At least, so I and many others thought. We didn't know what we didn't know.

CNBC's role in my life has slowly been usurped by the Internet, in particular the many excellent resources I list along the right hand navigation bar, and most powerfully, By Twitter. Sometime since early last year, the light bulb came on. I got it. And since then, CNBC was no longer just wrong. It was pretty much irrelevant, becoming more entertainment than information. All Jon Stewart did was highlight this for regular people, and they probably still won't really get it. The power brokers, on the other hand, have clearly been aware of this for a long time.

I don't miss CNBC, because there was never enough substantive information to miss (unlike the devolution of the Wall Street Journal over the past 10 - 15 years). It's clear as day. CNBC doesn't matter. Whether it ever will again, or even should, if a wholly different question. Sure, it will always have its place on trading floors/desks, among the financial cognoscenti, and the regular man. It is a tool - a very blunt tool - but a tool with some uses. Without sound, it is a decent breaking news tool and ticker. (Bloomberg's colors make it far too difficult to read their ticker quickly, IMO.) Yet the prominence and stature will never return, at least not for me.

Such is life.

Saturday, March 07, 2009

Net Worth Update - 07 March 2009

I apologize for the delay in posting this, but life has a way of catching up with you. Ya know?

As of 7 March 2009, my net worth is $57276.53. In a word, it sucks. However, there has been progress on various fronts.

First, I've been able to build my emergency account back up to $20111.07 from close to $15000. Those funds were transferred into my brokerage account for trading purposes. Now that I'm back over 20K, I will redirect the $1000 that I currently Direct Deposit into that account toward my American Express debt. Paying down the AmEx to $0 is one of my goals for 2009. (And no, I was not extended the offer to cancel my card and pay off all of the debt in one shot.)

Second, if not for the need to put $999.37 worth of work into my almost 10 year old car, my balance would be less than $20K. Such is life! However, it is thrilling to really make some progress on cutting that balance down. Once I start moving funds away from the emergency savings account and toward that goal, the balance should decrease even faster. Just thinking about it is energizing (but that could also be the feeling of my body burning more fat *shrug*)!

Third, I'm getting back into the mode of reducing unnecessary expenses. My total food expenditures for February 2009 came to. I think I ate out twice, and both of those were with friends whom I hadn't caught up with in a while. (In one case, said friend is recently unemployed so I picked up the tab. In the other case, we split the bill.) I recently canceled my subscription because I hadn't used it since I signed up (again) in April 2008. I'm considering dropping my subscription and possibly my subscription. I love Barron's, even more than, but I read neither as much as I used to. I may keep Barron's and dump the WSJ since I despise the re-designed site. This is pretty much what I expected once Dow Jones was acquired by News Corp. I will also be canceling 2 domain name registrations with Network Solutions. These are names that I will no longer use for a business idea that I am no longer interested in pursuing. Thus, I'll let those expire at year end. Since the majority of the current calendar year is already accounted for, I hope to find another way to monetize those domain names via domain parking or some other means

Fourth, I underspent most of my targets, with the exception of food costs. (Quelle surprise!) I only spent $126.65 on gasoline against an expense target of $400; $56.01 on medical expenses, against a target of $75; $21.60 on entertainment (a lift ticket for snowboarding) against a target of $100; and $1315.84 on rent and housing costs, against a target of $1369. Food, on the other hand, hit me for $610.99, against a target of $500 per month.

In the coming months, I'll spend some time balancing my food expenses against all the other priorities I have. Key among them will be saving for both emergencies and fun, as well as food costs. Having food at home and cooking has been very kind to me, though. Once I get a acclimated to cooking, I expect that my food costs will moderate and possibly decrease. We will see.

I also anticipate moving back to the same city that I lived in prior to moving to my current apartment. In doing so, I look forward to a reduction in my insurance costs. All of my insurances increased noticeably - car, renter's and the personal articles insurance policy on my laptop. I guess that has to do with moving into a "less safe" county. Too bad it also happens to be the wealthiest (by income) predominantly Black county in the entire nation. So very sad. I hope, with the current state of the economy and the number of empty residential properties on the market, that I can find a reasonable rent in downtown Silver Spring. I think my historically good (and improving) credit, solid income, and increased supply of rental units and moderate to decreased demand for said units will work in my favor.

Overall, my goals are coming together. I attribute some of this to posting my goals around my apartment. The above blog post is taped to the wall above the head of my bed, on my refrigerator door, and on the mirror of my bathroom.

Anyway, that's a small peek into my current financial situation. I like how things are progressing. I'll keep you posted as the situation develops, so keep reading and commenting.

Until next time...

Friday, March 06, 2009

What's Missing in the Market: Panic

You know, I could be short all day and not have a problem with it. Really. However, given the statistical history of the markets, there are so much better opportunities for making money being long in a rising market which has solid fundamentals AND technicals underpinning it. Everybody wants to be early, no one wants to be late. I, for one, can stand to be late, if it means probability is working in my favor. This is a war of attrition. Capital preservation is the order of the day, if you're not trading.

The one thing I am noticing, and I see it in today's closing, is the lack of absolute panic. There has been fear, true, but it seems like everyone is trying to call the bottom (except for the people I follow/listen to, who are just trading along). There's been a lot of knife catching, and I should know, as my trading report will show. But most of what I see is people just waiting - hoping? - for the turnaround to start "any day now" so they keep buying the dips, just to jump out later for a loss. It's such a Pavlovian response. It would be funny if it didn't indicate just how long and drawn out this tape will be.

Now, don't get me wrong...there are a lot of pieces which need to come together for a sustainable rally to take hold. Most of those pieces are non-existent currently, which is why a bottom is really no closer. Given all the factors I've seen, and even with my respect for Jeremy Grantham and John Hussman, I'm staying out of the long side right now (with the exception of my primary thesis around commodities). Long is so, so wrong right now. Doesn't even feel right. We get closer to a bottom, true, but I think all of the knife catchers will find that the knife still has yet to reach the floor. THAT'S when I plan to pick it up.

I just don't see enough panic to say that all of the suckers have been cleared out. Yes, TLT is racking up gains (though it is off its highs), and TBT is getting its ass handed to it most days. Savings are up, but they can go up more. People don't even realize what else is coming down the pike, and insurance is SO fucked up I'm shocked and scared (just when I thought I had a good handle on the scope of our problems). But there's still too much hope out there. A lot more people need to get crushed to clear out the dead and create space for rebuilding. A LOT MORE.

That is all.

Selection Bias

Just great!

This is one of the problems with hedge funds. They have a bad year and just stop reporting data to the few databases which exist to collect data about hedge fund returns.

All this does is make overall industry returns look better, because there are fewer negative data points among the data that is reported.

I would imagine most of the databases anonymize data at some point. If not, they should. However, managers need to be willing to step up and let their returns be known (even anonymously if that's the only way) for the sake of the industry. It won't stop the bloodletting, and as some seem to think, we could easily be on our way back to 5000 funds (50% attrition). No matter what, the integrity of the data is of utmost importance to re-establish trust in the industry and in managers. This is one of several market oriented, non-governmental reforms that the global (and especially US) hedge fund industry needs to undertake.

That is all for now. Later!

Friday, February 27, 2009

Trading Report: Setting the Scene

Let me begin my setting the scene.

The Thesis: I believe that the best (only?) trade or even long term position right now is commodities. Yes, we're in an ungodly recession, depression, whatever kind of -ession you want to call it. Yes, it will get significantly worse. (Not going to talk my book, but believe that. Hell, residential RE and the attendant issues are not fully resolved.) However, there is a certain level of demand for commodities, especially oil, that will put a floor under their prices. It could be argued that in the high 30s, West Texas Intermediate crude oil is free. Not cheap - free! Even at the worst prices of summer 2008, oil was cheaper than water (another mis-priced natural resource).

The Security: The PowerShares DB Crude Oil Double Long ETN aka DXO.

Now that you have some background on my thinking and the stock I used to express my views, the next few posts will explain the mistakes that I see. If you happen to notice others, by all means, let me know in the comments. My goal is to both help my own understanding of my mistakes so I don't repeat them, and to share that experience with others, so that they avoid them (or at least correct them sooner).

Until next time...

Trading Report: Learning from Mistakes

This will be a short series about the mistakes I made on my purchases of DXO through January. By the time it was all done and I was out, I lost about $6000 total. Very expensive tuition, indeed. I am completely responsible for the outcome. This is trading. We're not able to will the market to do what we think it should. We're here to make bets on certain outcomes, and exercise risk management for the situations where those outcomes do not come to fruition in the expected time frame.

I will break this series up into parts based on my experiences and the lessons learned from those mistakes. I hope that others learn something from them, but the best teacher IS experience. Sucks, don't it?

Watch for the hook...

Friday, February 20, 2009

My Letter to Steny Hoyer about H.R. 1068, the "Let Wall Street Pay for Wall Street’s Bailout Act of 2009"

Below, you will find the text of the letter I just e-mailed to Steny Hoyer, the Democratic congressman from the Fifth Congressional District of Maryland. It is unedited. Amazingly, I managed not to curse. I will be following this up with phone calls.

If you haven't heard, H.R. 1068 can also be known as the "Let Wall Street Pay for Wall Street's Bailout Act of 2009". Of course, this legislation, like all the crap coming out of DC these days, lands squarely on regular investors like you and me. These fuckwits really deserve a bullet for their intentional destruction of this once great nation. And if this is how Oregon's congressman likes to treat investors and traders, that state should fall into the Pacific Ocean along with California. What a bunch of losers!

I don't normally talk about politics here because I honestly could care less about the subject. It's all legal crime and evidence of how Americans are handing over their Constitutional freedoms to the cock knocker with the best sob story. However, this horrible excuse for legislation will affect everyone, myself included, who hasn't yet escaped from this sinking ship of a nation. This legislation needs to be murdered outright, not modified, not amended, but simply killed. It is terrible for anyone who owns, or would own, any kind of security. And we all know that once a tax is levied, the government has no incentive to get rid of the revenue. (It took 108 years to PARTIALLY kill the Federal telephone excise tax which was originally levied to pay for the Spanish-American War!) Item 8 under Section 2 is a blatant lie!

Anyway, I hope you enjoy. Without further ado...

Representative Hoyer,

I am writing to lodge an official complaint about, and to implore you to do ANYTHING and EVERYTHING in your power to kill H.R. 1068., also known as the "Let Wall Street Pay for Wall Street’s Bailout Act of 2009".

As you must be well aware, the first rule of taxes is "whatever you want less of, tax". I'm sure higher cigarette taxes discourage casual smokers from engaging in an activity that is harmful to themselves. The hardcore, committed smokers are willing to trade the tax money for their fix. The government collects tax revenue on that transaction. But I would posit that much smoking has been ended or prevented due to the increase in cost associated with taxes on cigarettes. Probably way more success has been had by increasing the economic cost of smoking than by highlighting the physical damage done by smoking.

Clearly, by proffering such an absurd piece of legislation, your colleague Rep. Peter DeFazio [D-OR] seeks to discourage securities trading and investing in the United States. I'm sure there are other countries, other stock/options/commodities/futures exchanges outside of the United States which would proudly take up that business, since you and your colleagues seem so interested in giving it away. So please tell me, is killing the trading of securities what you and the Democratic Party want for this country? This is "change that disgusts me", quite honestly.

First, I am a small trader. I already pay significant commissions through my broker, and short term capital gains taxes on my trading earnings. Fine. Imposing a 0.25% tax on sales and purchases would greatly reduce my ability to conduct my business of trading. In fact, it would actively DISCOURAGE me from this activity. I know I am not alone, and many small traders would either stop trading or seek ways to avoid owning the tax to the US Federal Government at all.

Second, this act would DECREASE market liquidity. If buyers and sellers are DECREASED in number, prices of securities will reflect that by going DOWN. You and any other congressional representatives who vote for this act will be contributing to the death of American stock markets. Prices will fall, buyers will strike, and sellers will spend more time and effort seeking to devise clever ways around paying in order to exit a losing position. How are any of these desirable? Liquidity will move to other exchanges around the world. Private companies will have less motivation to become publicly traded.

Taxing transactions will, by definition, reduce the number of transactions. That means less commission revenue for broker/dealers, clearing and settlement companies, administrators, and others in the financial ecosystem. It will also create market distortions by increasing the bid/asked spread on securities and creating more arbitrage opportunities for the savviest and fastest entities. Basically, this act, if signed into law, will force small players out of the market, decrease liquidity and price discovery, and hand more advantage to large players who can exploit the information available. Instead of democratizing investing and trading, it will further stratify that world, handing even more advantage to the already privileged and powerful.

Third, if this tax is imposed, and as I read the current legislation, it will be assessed against transactions of all sorts, including against securities held in retirement accounts. This would violate the existing tax provisions on tax deferred accounts such as 401(k), IRA/Roth IRA and other retirement accounts. That is how the current legislation is worded - very broadly. Do the Congress and the President want to increase taxes on already battered retirement funds? Wouldn't that DIS-INCENTIVIZE saving? Is that something the Congress, the Democratic Party, and the President want to do - reduce long term savings, especially retirement saving, by individuals? What about Rep. Donna Edwards [D-MD].

Fourth, I voted Democratic in the past election. The Democratic Party is clearly showing why it neither deserves nor wants my support. If this act becomes law, I will do my best to prevent Democrats from ever serving in economically important roles within local, state or Federal government ever again, because clearly you, Rep. Edwards, and the party you both represent are our ENEMIES - enemies of the people you say you are serving, enemies of the citizens of this once great country.

Finally, let me say that this incident is making me very clear where Rep. DeFazio's, Rep. Edwards' and your interests lie, and it is not with people like me. Should the "Let Wall Street Pay for Wall Street’s Bailout Act of 2009" pass into law, another personal mission of mine will become to prevent you and your cohorts from ever "serving" US - we, the people - ever again.

P.S.: Do your pensions get assessed this tax? I'm sure you'll find some way to make sure your absurdly large pensions will be privileged and protected to, won't they? How is Congress any different from Wall Street, with similarly large golden parachutes? You make me sick!

Saturday, February 14, 2009

Recessions & Recency Bias

Over at Infectious Greed, Paul posted this interesting chart the other day. It illustrates how few people currently working in American society have any real experience with a severe recession. The number is pretty small indeed. Take a look.

Even someone 45 years old probably was not in the workforce, or barely in the workforce, in 1981 - 1982. There are going to be a lot of people unpleasantly surprised by the extent of this downturn, as if there haven't been enough already.

What I found most interesting is the comment from rdd regarding the best things he took away from the experience. (He mentions entering the workforce in 1981, just in time for the second half of the infamous early '80s double dip recession.) Needless to say, I agree completely with his lessons. The one that stands out most vividly is to develop skills that others don't have. One of the biggest - if not THE biggest - secrets to success I have encountered is being able to do that which other's can't, or even better, won't. If you are the one who will, you make yourself that much more indispensable. Use people's laziness to your benefit.

That is all.

Friday, February 13, 2009

Trading Report: First Swing Trade = WIN!

Anyway, I *think* that's the correct term. And it was a success!

On Wednesday, I bought 100 shares of TBT, the ProShares UltraShort Lehman 20 Year Treasury ETF, as a short play on US Treasuries. (Over the longer term, I think the outlook for Treasuries is grim, so TBT might be a decent longer term hold.)

While I originally planned to make the trade a day trade, I was compelled by market factors to hold the position through the close. (Basically, it closed marginally above my entry at $45.00.) I placed an initial stop at $44.75 so that should the ETF drop, my loss was capped at $0.25 per share, or $25 total. If the opportunity presented itself, I would reset my stop to capture some of the upside while not tracking the market all day.

Well, opportunity REALLY presented itself on Thursday, 12 February. When I checked in around 12:15 PM EST, TBT was around $45.62. Thus, I reset my stop to $45.30. After checking in again around 12:30 PM, I reset the stop to $45.60 (with TBT trading in the $45.90 area). By 1:45 PM, my stop was executed and all 100 shares were sold for $45.60 as TBT made its way back to the $45.20 - $45.20 range. While it eventually closed at $45.96, I didn't re-trade it.

So, for the entire experiment, a $60 gross profit (not including commissions or taxes). While it's not a lot, I am still in the early stages of trading, and I don't have huge amounts of capital so I have to be prudent. But I am happy with the initial results.

(And remember boys and girls, this is not investment or trading advice. I'm just relaying to you what I did. You need to make your own decisions, based on your own research. Don't blame me if you try something I did and it blows up on you. That's your own situation to deal with. I take responsibility for my own successes and failures. Do you do the same for yours?)

Until the next trade, peace!

Wednesday, February 11, 2009

My Response to Crooked Timber's Analysis of "Wall Street"

This one I have put off for a while, with no really good reason for doing so other than being busy. However, after buying the 20th anniversary edition of "Wall Street" (my 2nd favorite movie of all time!) on DVD and watching it over and over, I found this analysis on and felt compelled to respond to it. I think several components of the review seriously overlook basic facts established in the film. So let's start at the top.

First, I don't disagree with the ultimate hypothesis of this review -- that Gordon Gekko was ultimately acquitted on all charges of securities fraud. Bud Fox, on the other hand, I'm not so sure about. While I see the author's point, I think some of Bud's actions were clearly illegal.

In the second part of this review, I plan to examine some things about Gekko that are critical to my understanding of the man and his motivations. Part II will encompass more of what is considered a movie review.

The first 2 points as laid out by our author only minimally trouble me. The first big problem is with the 3rd of the 6 "general areas" of charges against Gordon Gekko -- trading in Fairchild Foods, Rorker Electronics and Morningstar. Bud Fox does not bribe the owner of Marsala Maintenance to get a job which allows him to wander through the offices of Roger Barnes' firm late at night. In fact, he proposes to Mr. Panos, the aforementioned owner, an arrangement in which he would make an equity investment into Marsala. His exact words, at 57:10 (20th Anniversary Edition on DVD), are "Let me ask you something - what would you say to some working capital and a partner?" He then goes on to lay out his idea, noting that Panos' business is so good that he doesn't have the resources to keep up with his current book of business, not to mention the business that Bud can bring in. You'll also note that Bud walks through the site with clipboard and pen, appearing to evaluate various facets of the business and performance of its employees. At no time does he even deign to pretend to be cleaning. He's an investor monitoring and managing his investment, or at least, that's the image he seeks to portray.

Clearly, Bud has broken the law by reproducing files of Marsala Maintenance's client. There can be no doubt about that. But his gaining access to the offices cleaned by Marsala Maintenance, Roger Barnes' included, are legal under the arrangement he proposes to Panos. Whether that is the actual deal, or some variant thereof, which Panos agreed to, we cannot know. However, you can even call it a bribe. But it was not a bribe just to become an employee. He had the money to at least backup some of his claims, and Panos, being an intelligent businessman, made a business deal to expand his operation.

The 4th general area that this review covers is the conduct (or lack thereof?) surrounding Teldar Paper. This is on Gekko's radar long before he encounters Bud Fox, so there is no impact. Bud is an observer to these proceedings. I will note the mention that Teldar Paper being "leveraged to the hilt, like some piss-poor Latin American country" also has nothing to do with Gekko. In fact, it is probably a large reason that Teldar is position to be raided by Gekko. This is the fault of the then-current management, Cromwell (played by Richard Dysart of "L.A. Law" fame) and his staff. How he could even use this point to implore the current shareholders in Teldar to turn down Gekko's tender is beyond me. It's really an indictment of his poor management. So I agree generally with our author regarding this point.

The 5th general area is Gekko's conduct regarding a buyout of Bluestar. Our author seems to have missed the conversation that Bud and Carl (his father) have around the 1:00:00 mark where Carl informs Bud that the "damn fare wars are killing us" and that he's losing 5 of his men to layoffs. The FAA decision is just one of many affecting the outcome for Blue Star. All it did was increase the airline's chances for success. The author (Daniel) also presupposes that Gekko's intentions at the outset were less than honorable. However, I think we can discount that theory based on the outcome of the meeting at Bud's apartment. Gekko is more than willing to let Bud carry the ball in courting the unions. He also proposes a buyout with employee stock ownership provisions and other incentives for success. Only after Carl lambastes the idea do we see the change in Gekko's enthusiasm. He is obviously crestfallen. Now, none of this is to say that Gekko did not have the breakup idea in his back pocket the whole time, but I think the breakup was not how he intended to enter into the deal. Instead, it became his way of making lemonade from the situation.

Daniel's thesis that Bud committed fraud in his dealings with Gekko regarding Bluestar is plausible. Since I am not a securities lawyer (especially in the late 80s, as I was 12 when the movie was released), I can't say.

I won't address the 6th general area, as my feelings are generally in line with Daniel's.

So that's it. Bud Fox, an ambitious young stockbroker breaks several laws in order to curry favor with the high powered financier he idolizes, until his own world is threatened by his ambitions. He then has a change of heart and turns on his mentor. While ethically, Gekko's actions are questionable, I think they are far from being illegal overall, while Bud Fox has quite clearly crossed the line into illegality.

If you made it this far, you're probably wondering why I wrote this. Honestly, when I found the analysis, I was searching generally for information about the movie and stumbled upon it. However, if you watch the movie closely, as I have innumerable times, the points I make above stand out like a sort thumb compared to our reviewer's analysis. This was my attempt at setting the record straight.

In part II, I'll delve into what I think is the motivation behind Gekko. Until then...

Monday, February 09, 2009

Trading Report: Preamble

I'm going to discuss the first few trades I've made, both paper and real, as an exercise in metacognition. Along with actually generating real income via trading now, I want to improve my abilities and generate more income in the future. Hopefully, this process will further my trading education and support that goal (for starters).

First of all, I am now clear that I seek to enter any trading day on which I actually trade (with real money) with a goal to net at least $1000 from my trading. Otherwise, not only is it uninteresting, but it really isn't worth my time to risk the capital. This may mean I don't enter into the market with as much frequency as I might otherwise, but it does 2 other things which I think are critical. First, it gives me a specific goal to keep in mind whenever I do enter the market. Second, it gives me more time to practice my evaluation skills and paper trading without feeling like I have to risk capital.

My first successful trade (and really my first trade ever) was 2000 shares of the PowerShares DB Crude Oil Double Long Exchange Traded Note (ETN) -- known as DXO -- which I bought a few days before the end of 2008 and sold about 2 weeks later, for a pre-tax net of about $960. Not bad for a first trade, especially one that was completely unplanned. I wanted to start accumulating DXO and figured that my entry at $2.20 per share was fairly good. (The day that purchase occurred, I had a limit order at $2.10 which was totally missed because DXO gapped up about $0.13 at the open.)

Since that first trade, I've made a few smaller trades, mostly buying DXO at prices ranging from about $2.40 to $2.82, and even a short sale on IYR (if I recall correctly) which netted approximately $60. Currently, I've fairly inactive, just holding back and observing. I've a few theses which I'm tracking and just getting comfortable with trading. I welcome any ideas, suggestions, or tips (such as brokers and tools, as I am looking to change to a new broker with better tools - primarily real time charts - soon).

You can follow my trades (and other musings) by following me via Twitter, as that's where they tend to get announced first.

Until next time...

Saturday, January 31, 2009

Change of Direction

This move is probably overdue by several weeks, if not months. Now is as good a time as any, so...

I am in the process of converting my brokerage account into a pure trading vehicle. All investment activities will occur in either my employer 401(k) OR in my self-directed Roth IRA. I plan to migrate all of my existing investment allocations to InvivoAnalytics' Satellite Portfolio into my Roth IRA over the course of the year. It will be a slow process of rebuilding in the Roth, but it's for the best.

I have liquidated all holdings in my brokerage account that are long term investment oriented holdings. I won't be switching to another broker (for now).

I am doing this because mixing the 2 objectives in a single account had become...messy. I have found it difficult to maintain focus, which has distracted me and slowed my decision making. Slow decision making has led to missed opportunities.

Converting the brokerage account for purely trading will also allow me to take more concentrated positions than I can currently. I believe this will allow me to grow my brokerage account faster. I am to the point where the balance in my brokerage account, while not huge, is large enough to actually do something "useful". In a sense, my account finally has some weight.

Finally, the long horizon investment holdings will sit in a tax advantaged retirement account. I've had this account open for a while, but it has been dormant. Increasing the activity in this account will lead to tax diversification, which is always a plus. The investment holdings will also be allowed to grow unencumbered by my need/desire to raise trading funds, not that I was sacrificing them anyway. However, now that the split is physical and not just logical, I no longer suffer from temptation to touch those long term holdings.

For the next few trading sessions, I will be essentially "paper trading" - researching and studying trades ahead of trading sessions, but not actually executing them. Instead, I will watch how my proposed trades perform and how I can adapt my trading system(s) before I start risking capital. Even though I have had more success than failures on the few trades I've made, and I do want to start trading to earn money for various purposes, I've decided to spend a bit of time on my education by doing this. It sucks, but losing real money would suck more.

Until next time...

Wednesday, January 07, 2009

Quick Scalp

Well, that was short-lived.

Remember that energy play I talked about recently? Well, I sold out my position in DXO just now after 2 weeks since entry. Not as large of a profit as I could have made, but definitely positive by $963 according to my calculations. I'll do the final numbers and let you know.

And if you're wondering why I never mentioned the ticker before now, its so that no one can accuse me of talking my book. I trade (and win or lose thusly) based on my own thinking and instincts. You should do the same.


Tuesday, January 06, 2009


Re-balanced the hell out of my 401(k) in the last 2 weeks. That would appear to be the best time to sell out of all the vested employer stock that the employer contribution took the form of. All of the excess is going into the money market option for the time being, so I will have some dry powder available after I finish re-allocating most of the cash.


Also started building a small position in an energy ETN. Will start looking for a (roughly) equivalent ETF but so far, this is position is rocking! Up approximately 20% in 2 weeks. It's actually a bit more than that, but I haven't calculated the exact amount since I purchased at 2 different entry points. Funniest part is that I bought this with a time frame of 12 - 18 months, even though it is a bit aggressive as an investment. I never thought I'd see this kind of performance this quickly though!

Thursday, January 01, 2009

2009 Goals

Well, that was an interesting year! No matter what happened, 2008 was the best year of my life ever. Now it's time for 2009 to claim that title.

I fell down on my 2008 goals. September 2008 came around, put its foot in my ass, and I just stopped dead in my tracks. I stopped tracking my spending to the penny. Everything stopped.

It's really not important what happened. I'm fairly clear on what happened and what I need to do to breakthrough that block. (This post at gives a bit of insight on what that process looks like.) The first order of business is to post my 2009 goals here, for the world to see. Next, I plan to post them everywhere within my daily life, so that I remain present to them. Then I'll share them with people close to me, as I already have with my coaching partner, so that the people I most care about, and who most care about me, can hold me accountable to those goals.

Needless to say, I'm feeling some stress around some of these, in particular the first goal on the list of regular goals. Oh man, what have I gotten myself into!

Regular --

Business: Finish writing e-book by 9 Jan 2009. Publish by 16 Jan 2009.
Business: Make 3 contacts during Money:Tech 2009 (6 Feb 2009).
Personal: Ride a blue trail by 31 March 2009.
Professional: Find and accept an offer for an awesome new career opportunity by 31 March 2009 (end of 1Q2009).
Fitness: Achieve 10% body fat by 31 Mar 2009 (end of 1Q2009).
Fitness: 25 dips, full extension, full body weight by 31 Mar 2009 (end of 1Q2009).
Personal: Cook 1 meal per week by 30 Jun 2009 (end of 2Q2009).
Business: Finish unwinding my real estate partnership by 30 Jun 2009 (end of 2Q2009).
Fitness: 1 hr of cardio on the Precor EFX 556 in interval mode by 30 Jun 2009 (end of 2Q2009).
Fitness: 10 wide grip pull ups, full body weight, by 30 Jun 2009 (end of 2Q2009).
Personal: Save $15,000 for house down payment by 30 Sep 2009 (end of 3Q2009).
Personal: Read 1 book per month (12 total) by 31 Dec 2009.
Personal: Accumulate $30,000 in emergency funds by 31 Dec 2009.
Personal: Achieve $90,000 in net worth by 31 Dec 2009.
Personal: Pay AmEx down to $0.00 by 31 Dec 2009.


Fitness: Achieve a visible sixpack by 30 Sep 2009 (end of 3Q2009).
Personal: Achieve $150,000 in net worth by 31 Dec 2009.
Personal: Read 1 book per week (52 total) by 31 Dec 2009.
Fitness: Achieve 8% body fat by 31 Dec 2009.
Fitness: Chest press 200 lbs for 15 reps by 31 Dec 2009.
Fitness: 1 hr of cardio on Precor EFX 556 in hill climb mode by 31 Dec 2009.
Personal: Accumulate $50,000 in emergency funds by 31 Dec 2009.

Looking at the list of stretch goals, in particular, scares me. I mean, I feel tension and fear around those and my chances of achieving them. That lets me know that they are well chosen and will push me. I'm thinking that I should spend more time pursuing the stretch goals, and by doing so, I will likely achieve many of my regular goals as a matter of course.

So there you go. It's time to get started!

Happy New Year!


It is both amazing and disheartening that the last time I posted was on 7 December 2008. Not quite how I envisioned the final weeks of the recently passed year progressing. Not at all.

Oh well.

I'm in the midst of preparing some long awaited (by me, anyway) posts that I hope you too will enjoy. So I hope you'll join me for the trip as I start out making this year the best ever as Alpha Guy.