Sunday, May 31, 2009

Houses All Around With Nothing To Buy

I looked at some housing prices this weekend.  I'm not really in the market but I like to keep tabs on where things are.  I have noticed that there are a lot of new "For Sale" signs going up in and around the Pasadena area.  I think most of this is people getting ready for the summer selling season.  I think a lot of people held off trying to sell in the weak market that we have had in the last year but people can't wait anymore so here comes the inventory.

But when I look at housing, I think about the saying with regard to the dehydrated man stuck in the middle of the Ocean.  "Water, Water everywhere without a drop to drink."  While I am interested in housing and there seems to be a lot of inventory, there really is nothing to buy.  How did I come to this conclusion?

I just did the math.  I pay $1700 for my two bedroom apartment.  I admit that it is a pretty good deal when you factor in where I live but I don't want to be spending way more than that right now.   Doing the math backward, I looked at houses with mortgage if I paid $2000 per month.  That comes out to a $300K mortgage.  Factor in a down payment, and you get a house of around $350K.

My search criteria was simple.  Find me a single family starter home in the $350K range located in Pasadena that has at least 3 bedrooms.  I think there was something like 3 listings.  All the close neighborhoods east are worse as they are even more expensive so there were no listings there.  West in the Burbank area?  Only a handful there too.

No way housing should still be this high.  All I want is a decent starter home and there is nothing within a halfway decent range.  So I'm staying out of the market looking for something to do with all this cash.

Wednesday, May 27, 2009

Make Money in Any Market

The market was down significantly today, almost 2%.  Despite this my portfolio was up about 1%.  Now you might think that is because I am short the market but that would not be the whole story.  I made money yesterday when the market was up by almost 2%.  Now I did not make as much money as the market but I also did not give anything back today.  One of the secrets that Warren Buffet always uses is to not lose money.  In a market like this one, it can be hard to do because of how it is whip-sawing back and forth.

I am achieving this through a very specific strategy.  I am pairs-trading.  This strategy is relatively simple.  You go long of one thing and short of another.  For example.  Say you are bullish on Broadcom.  You would like to buy it but it has had a pretty good run the last three months running up more than 50% in that time period.  To do a pairs trade you can buy Broadcom and go short of a broader index like the Nasdaq or the Semi-conductor index (SMH)  Why would you do this?  You are taking the market risk out of your stock purchase.  Stocks move up and down for any number of reasons.  Only half of a stock's price has anything to do with the actual company itself.  The other half is related to the broader market and the sector.  You are betting that the thing that you buy will outperform its peers but hedging yourself in case the market does crazy things.

I am short of the Dow, the real estate sector, and U.S. Treasuries while being long China, Materials, and a bunch of individual stocks.  This on a whole has performed quite well.  I've lost some money on my short positions since the market has continued to rally, but my long positions have more than carried me up.  Could I have made more money if I wasn't short?  Sure.  But the hedges have kept me sane by limiting my gains and more importantly limiting my losses.

I continue to use this strategy to great effect.  I think we are about to have another leg lower from here, there is weakness in the market right now and that is pretty evident.  I would like to get more short of the  market but won't get too crazy right now as I can easily be wrong.

Tuesday, May 26, 2009

Short Treasuries

I decided to put my money where my mouth and sell America.  I did this by buying TBT which shorts the twenty year US treasury.  I am not a fan of this market as I think the market should be going down and the rally we are in is very persistent.  I went into this trade because it works for two reasons.

  • In the short term, if the market continues to rally, treasuries will do badly as people become less risk averse

  • In the long term, the U.S. is taking too much debt and is going to find it hard to continue to sell treasuries

Not everyone will understand the first point so I will explain it a little further.  People buy U.S. treasury bonds as a defensive play.  That is, if you think the market is going down, you buy U.S. treasuries because there is little change the U.S. will default on its debt.  The reverse is true too.  As the market rallies, people look to take on more risk.  They sell bonds so they can buy stocks.

I think the correction in treasuries is going to come fast and it is going to come soon.  I now have a medium sized position in TBT and will look to get an even larger position in the next few weeks.

Monday, May 25, 2009

The Haves vs. The Have Nots

One thing that I have thought about over the past few weeks seems to be this bifurcation that seems to be taking place between those who are struggling in this economy and those that seem to be doing just fine.

In the news, I continuously here about how ordinary Americans are struggling.  Unemployment is nearing double digits in most parts of the country.  It is even worse around here as California is above 11%.  The U.S. is printing money to cover up the problems and big companies like GM and Chrysler are going under.  It seems all is doom and gloom depending on where you are looking at things.  Of course there are the "green shoots" that we all want to see.  This is the reason that the market rallied over the last ten or so weeks.  We are up over 30% from the lows because the market has decided that we are not going to reach armageddon.   But if you really read the news it does not look good for most of your average Americans.

But I get the feeling that we are really coming down to a society of the haves and the have nots.  Throughout all this bad news the one thing that has really struck me is how little some things have not been affected.  I went to the mall this weekend and it was pretty crowded.  Of course I have no idea if people are actually buying things.  Maybe they are just looking and needing to get to the malls to get away from their problems.  But I'm definitely not seeing the scracity of people I would expect to see.  It was the same thing this past holiday season where the malls and outlets were much more crowded than I would expect given the dire situation much of the nation faces.

For more proof just look at the movies.  Hollywood is having a fantastic year at the box office.  People are going to see the big blockbuster movies like Star Trek  and Terminator.  By many accounts, this might be a record year for Hollywood.  Now much of it is due to higher ticket prices but that in itself is a good sign.  It is not easy to raise prices if there is no demand for your product.  And clearly there is demand.   With ticket prices over $10 in most places, I would expect this to be a luxury most people skip as times get rougher, but that doesn't seem to be the case.

Now everything I've written is mostly anecdotal.  Maybe people are really cutting back and I'm just seeing it from a different perspective.  But it has me thinking.  Maybe this recession is hitting the population in very disproportionate ways.  Most people would immediately jump to a rich vs. poor conclusion but I'm not so sure.  If that were really the case, I wouldn't be noticing the activity I am seeing simply because the "poor" should greatly outnumber the "rich".

So what is it?  Are things really either that good or that bad? Who do you think is most being affected by this recession?

Saturday, May 23, 2009

GM - Throwing Good Money after Bad

GM has borrowed another $4 billion from the U.S. government as it prepares for a possible bankruptcy filing.  It just amazes me the amount of money we keep throwing at this problem in the hopes that this will someday be a successful company.  In a world where we are throwing trillions of dollars around, $4 billion might not seem like very much money but this is actually a ridiculous sum.

To put this whole thing in context, keep in mind that this now brings the total that the U.S. government has given to GM to a staggering $20 billion.  Do you know how many global companies have a market capitalization over $20 billion?  Just take a guess.  The number is about 250 companies in the entire world.

$20 billion is about the size of a Costco and a Sony.  It is bigger than well known companies like Dell, Nike, News Corp, and Best Buy.  The U.S. government could have bought any of these companies with the stake that it lent to GM.  Now I know people will argue that GM allows people to keep their jobs and keeps communities open and blah blah blah.  But wouldn't it be smarter to invest this money in companies that actually have a chance of succeeding?  Wouldn't it be better to invest this money at retraining these people for jobs of the future rather than giving them false hope that we can somehow save the American auto industry?  Heck, it would be a better idea to give money to new and innovative companies like Tesla Motors than it would be to keep throwing money at a dying company like GM.

Just one more reason I am certain I never want government deciding where money and capital should flow to.

Thursday, May 21, 2009

Time to Sell America?

American FlagToday, Bill Gross came out and said that America might lose its AAA rating.  For those who are not completely familiar with how bonds work, the AAA rating is the highest rating any entity can have.  It means that there is very little risk of default and thus enables the entity to borrow at low rates.

America has had its AAA rating for almost a century and it seems almost unthinkable that it could lose its AAA rating.  But just look at the facts.  The U.S. got into the mess it did because we as a nation borrowed too much money and spent on things we could not afford.  All the "growth" we have had for the last decade was a mirage.  We should have never reached the levels of economic activity that we did because we borrowed it from the future.

Now look how we are trying to get out of the problem. The U.S. is borrowing from the future to pay for the problems of today.  We have been doing this for the last two decades.  It is like a credit card junkie that pays off one credit card with another.  It just doesn't work in the long run.  The U.S. keeps taking on more and more debt hoping for a brighter future and an economy that will lift us out of this mess.  That day isn't coming.  To fund this, we are printing money.  It is working for now since other countries are buying our debt, but if we really lose our AAA rating, that will stop as the U.S. will no longer look to be an absolute safe haven.

So it is probably time to sell America.  I've been doing this slowly by selling treasuries, TBT.  I only have a small position right now but will look to take a bigger one soon.  You also want to own commodities and commodities stock.  When the dollar drops, "stuff", things that are actual and real, go up in price.   Things like gold, copper, and silver will all go up in price.

It doesn't feel good as an American to say sell America.  It feels like I'm playing against my own team.  But I just don't see how we can get ourselves out of this mess with our current path.  What do you think?  Am I just overly nervous?

Wednesday, May 20, 2009

California's Budget Problem

Yesterday, my fellow Californians defeated a series of ballot measures aimed at "fixing" the budget crisis that California now faces.  Sadly, this is the second budget crisis California has faced in the last several months.  Just a few months ago, our government proclaimed we had a $40 billion budget deficit and enacted a bunch of new measures to close the gap.  This included a 1% increase in the sales tax.  Something I wasn't too happy with.

But now California supposedly has another crisis on its hands and the only solution this time is going to be to make spending cuts.  What a novel idea.  Gee, we don't take in as much money as we used to, what should we do?  Seems pretty logical to me but I guess logic is not one of our goverment's defining characteristics.

I'm not saying budget cuts are easy.  I'm not saying that I want to see large class sizes and less police on the street.  But at the end of the day, you have to face reality.  I'm sure it was pretty painful for your average Joe to have to give their dream home they "worked" so hard for (notice the quotes since I don't think many American's worked all that hard for their house) but when the pink slip came and the money was no longer coming in, Joe had to give up the house.  Joe probably had to give up many other things to and I'm sure it hurt.

I've never found living within my means to be a hard thing, but that's probably because I never lived above my means.  I only wish our federal government had to be more like our state government.  I only wish they had to find a way to trim the fat rather than just print money.  I know some people may think that printing money sounds like a nice painless solution but believe me its not.  It just delays the problem until later.  It not only delays it, it actually grows it.   Money only has value if there is real value behind it.  Unfortunately for all of us savers, our dollars are starting to lose their vlaue.

Monday, May 18, 2009

Fake Imax

Seriously, what the hell is wrong with Imax?

When you think Imax, what do you think of?  You think of a big gigantic screen.  A screen so big that there is nothing else in your field of vision.  Well this weekend I went to go see Star Trek.  Which by the way was a pretty good movie, even for someone who is a closet trekie like myself.   A couple of my friends wanted to see Star Trek in the Imax experience.  Why not, it seems to be the perfect movie to go watch it in.  Plenty of action and lots of special effects. 

Well we went to the "Imax" in Burbank.  Notice the quotes because this was no Imax.  The screen may have been slightly larger.  Supposedly the picture was all digital and therefore cleaner and the sound was supposedly better.  But come on.  The screen was maybe 10% bigger than a normal screen and nowhere near the monster screens I've seen before.  To make matters worse, I paid a 30% premium on my ticket to go see this film.  Movie tickets are already way too expensive.  Add 30% on top of that and now you better have one hell of an experience. 

But the question is, why on earth would Imax do this to their brand.  Up until now, I thought Imax stood for something.  It stood for an experience you could not get anywhere else.  To sell out their brand like this to make a few bucks makes no sense.  It is like Coke making Coke Clear but even worse since Imax is not distinguishing these small screens from their much larger brothers.  At least with Coke, you knew you were getting something different.  With this I had no idea that the experience would be underwhelming.  In fact, the experience has left a bad enough taste in my mouth I'm pretty sure I will never go to another Imax film again.  All of that to just scam me out of $5. 

Have you been duped by Imax?  Do you think they are doing themselves a disservice by weakening their brand?

Sunday, May 17, 2009

Generation Screwed Part II

I've written in the past how I think  my generation is getting screwed in a lot of respects.   Seems like I'm not the only one who thinks so.  I found this article on MSN money about why Generation Y might never retire.   The article explores a behavior and attitude that seems to make my generation risk averse.  Given all the things I have written about in the past about the challenges facing my age group, is it any wonder that we are a little bit risk averse.

It seems that a lot of 20 and 30 somethings are stashing their money in banks accounts rather than in the stock market.  The article attributes the behavior to a fear that my generation has after seeing two major bear markets in the last decade.  You throw in scandals like Enron and Madoff and you have a generation that does not have a lot of faith in the financial system.

I have actually seen this first hand.  Clearly it is not true for someone like myself.  I've been pretty risk-loving when it comes to my investment decisions as of late.  That being said, I myself have been somewhat guilty of this.  For the longest time, I've been very heavy in my cash holdings.  Most of this is because in my investing lifetime I have not been comfortable with where the markets have been.  I only started investing in the last four or five years and it was pretty clear to me back then the market was too high.  Everything was built on the house of cards that was housing and it didn't make any sense to me how expensive things were. 

Then, the market crashed.  It presents a great buying opportunity so long as you are comfortable with risk.  But imagine you have not been as prudent as I have been and your assets were tied up in your house and in the market.  You have just seen your net worth decrease by 50% in a matter of a few months.  Maybe worse than that if you are now underwater in your house.  Given these beatings, who can blame my generation for wanting to protect the little that we have left?

 I definitely do not agree with all parts of the article.  The second half explains why long term my generation should not be afraid of the market.  It uses the old mantra that the stock market, in the long run, is always a good investment.  While true in the 20th century I am not so sure you can continue to use the past to predict the future.  "Long term" investors in the last decade have gone nowhere

So I'm not so sure what my generation really should even do right here.  At these levels, I don't think stocks are a bad buy but I hesitate to say they are a good buy either.  I could easily see us stay flat from here for the next decade as we work through the excesses we have enjoyed over the last five years.  If we really do stay flat from here, that will make twenty years of no growth right in the prime earning years of my generation.  How is that for screwed?

Thursday, May 14, 2009

Intel Antitrust Ruling, Is Google Next?

Intel Logo 

The European Union announced an antitrust ruling against Intel today.  The fine totals almost $1.5 billion.  As a free market kind of guy, this ruling obviously bothers me.  I find it hard to understand how consumers were actually hurt by Intel being aggressive with their partners and giving large rebates to those who bought more Intel chips.   Maybe it is because I do not feel that chip prices are needlessly high.  The price of microprocessors has gone down significantly over time while their performance continues to go up.  I also have also studied monopolies a lot in my life (My junior independent work was on the Microsoft Monopoly) and it is unbelieveably hard to actually get and maintain a monopoly.  This is especially true in a goods market like Intel is in. 

With rulings against Microsoft and Intel, I can't help but wonder if Google is in the EU's radar.  One of the things that really stuck out to me in the EU's reasoning was Intel's practice of forcing its partners to use them on an exclusive basis.  Now I know for a fact that Google does the exact same thing by signing exclusivity contracts with many of its partners.  If you do business with Google, they want to be sure that you are a committed partner and force you to sign exclusivity agreements.  It is not even an implicit agreement.  They don't even make it extremely profitable for you to do it so that you wouldn't even choose to go to another provider.  They simply make you sign a contract that forbids you to do business with a competitor.

Now I don't actually have a problem with that.  If you do not want to do business with Google on their terms you are of course free not to do business with them.  But the behavior, if you use the EU's definition, is clearly anti-competitive and an abuse of monopoly power.  As Google gets bigger and more successful they will continue to get hit on all sides.  Everybody will want a part of them.  How do you think Google will fare?

Wednesday, May 13, 2009

At the Turn ...

I would like to say I called the top of this particular rally.  With the Dow down over 180 points and consecutive days of weakness, it sure does look like we have come to the end of this particular little rally.  However much I would like to say that I called the end of the rally I could not say that with any credibility.   This rally has lasted way longer than I would have ever guessed.  Oddly, over a month ago I said that we would probably reach 900 before the rally reversed.  I'm looking like a fortune teller right about now as that is exacly what the market did.  The S&P traded up to 900, got slightly past it, and is now coming back down.

But however great that call was, I can't say I knew what I was talking about.  I thought we would get there much quicker than we did.  That call was over a month ago and I honestly thought we would get to 900 in a matter of a week.  Not a bad guess considering how much the markets were moving at the time but no way did I think a rally would last nine weeks.

So where now?  Let us see how accurate I can be.  I think we go lower here, significantly so in fact.  I doubt we will get all the way down to the mid 6oo's like we saw before but I do think we get close to the low 700's over the next several months.  I have a pretty sizable short position, so I'm well position to weather this downturn but if the market is slightly down tomorrow and hasn't run too far, I will probably short some more.  Of course, I have been hedging most of my trades and I will do it here too.  I will go net short for sure, but I will probably take a position that is long on interest rates (short on bonds).  I'll explain that trade tomorrow if I indeed do it.

Tuesday, May 12, 2009

When Time Became More Valuable Than Money

I have officially crossed the line.  I fought it off for years but I think my time has officially become more important than my money.

I love a good deal.  In fact, I can not buy most things without getting a good deal on it.  I'm the type of person who will spend hours making sure I not only get the absolute best product to fit my needs but that I also get the absolute best deal I can find.  Well I have been in the market for a new video card for quite a while.  Like usual, I scoured the internet to figure out what the best card was and find the best deal on it that I could.  The problem was that I could not find a card that met all my needs so I kept searching.

Now usually, I have a lot of patience on this type of thing.  I waited almost 5 years before I finally bought my TV.  But I hate not having the use of my computer so it really bothered me to not have my computer working.  I kept looking for a good deal, looked every day.  I went to the brick and mortar stores to look but was not crazy about the prices there.  Then last week, I finally found what I was looking for at Frys (I had been there several times before with no luck).  It wasn't perfect, but it was pretty close.  The only problem was that I was going to have to pay full retail price. 

I am Chinese.  If there is one thing I hate doing is paying full retail price for any sort of electronic device when a deal is almost always to be found on the internet.  But I was more tired of waiting to fix my computer and I was even more tired of looking every day to try and find a deal on a card.  So rather than keep looking, and maybe save $20 or $30, I decided to just buy it.  When I think back on it now, the hours I spent looking for the card was nowhere near worth $30.  If someone offered me $30 to just nothing but search for a great price for a product for several hours, I am certain I would turn it down.  Why is it that I find it necessary to do when the cost is not as explicit?  What about you?  Do you do equally illogical things?

Now I Know the Rally is Over

Just heard Goldman Sachs' analyst Abby Joseph Cohen say that the S&P 500 will hit 1050 by the end of the year.  It is odd.  I greatly respect Goldman Sachs. I think they hire some of the smartest people around but I just do not trust their market forecast.  I guess I just remember them saying that Oil would blast past $200 and well we didn't quite get there and in fact reversed to the economy that we have now. 

When everyone has a rosy outlook, it is timee to sell.  I am not sure we will retest the March lows of the Mid 600's but I think we will be below 800 not too long from now.

Sunday, May 10, 2009

Outliers - A Review

Malcolm Gladwell OutliersI read Malcolm Gladwell's Outliers: The Story of Success this past week. I have read his other books Blink and The Tipping Point and enjoyed them. So when I heard that he had a new book out, I figured I would check it out.

From the onset I was intrigued by the subject matter. The focus of the book is what makes some of us successful and others of us not. Is it genetics, upbringing, or environment? Is it something else entirely? As someone who considers himself success and is looking to become more so, I was interested in what factors may have and will continue to contribute to this outcome.

Gladwell spends the first few chapters looking at people who anybody would consider outliers and looking at the set of circumstances that made the person successful. He looks at people like Bill Gates, Bill Joy, and Robert Oppenheimer. He looks at a group of people like professional hockey players and wondered if successful athletes have any common characteristics. What was perhaps the most interesting part of the book (which unfortunately was at the very beginning), he points out that one startling fact is that the vast majority of people who plan in the best leagues in Canada are born in the first three months of the year. This is not some strange statistical anomaly. No, the results are so skewed something must be going on. It turns out your birthday can have a dramatic effect on your eventual success. Think about it. Canadian youth hockey groups kids by their age. The cutoff is January 1st. So all kids born in the same calendar year play in the same league. But wait. What if you were born on January 1st? You play in the same league as someone born on Dec 31st, someone who is almost a full year younger. A year when you are 30 is no big thing, a year when you are 5 or 6 is huge, and it represents 20% of your life already. Naturally the kids born earlier are going to be slightly bigger and stronger as they are slightly more physically mature. These kids are singled out as being “better” as they look better compared to the much younger counterparts. This slight advantage means they get more playing time and more attention, which just makes them better. It is a virtuous cycle. This small seemingly insignificant fact like birthdates has ripple effects that factor in for years as the same pattern holds true all the way to the top ranks of hockey. Crazy huh?
He looks at their success of these outliers through the lens of other unknowns who seem to be blessed with similar talent yet somehow did not become wildly successful as Gates or Oppenheimer. In the end he concludes that outliers’ successes are very much correlated to things external to themselves. Sure, these people might be successful, but would they be true outliers. He shows that to be a technology giant in today’s world you needed to be born in 1954 or 1955 and that you stood a much better chance to be a successful NY lawyer if you grew up in a Jewish family from the Garment District and were born in 1930. Now mind you, he is not saying these people were successful solely because of these quirks in circumstance. He is not saying all Jewish kids born in NYC will be successful lawyers. He is simply stating that there are certain facts and circumstances that must be present for someone to be a true outlier.

He spends the second half of the book exploring ideas about culture and how the contribute to the failures and success of its people. There is an explanation on why Korean and Columbian airlines had such horrific air traffic safety records for decades (pilots defer too much to their superiors in their cultures). There is an explanation about why Chinese are so good at Math (and no, it is not just because we are smarter than everyone else). One of the most interesting conclusions is given near the end of the book. He looks at education levels among poor and rich kids. It is no secret that rich kids do better on standardized tests than poor kids but the reason he draws may surprise you. He concludes that we do not have an education problem. We actually may have a vacation problem. Rich kids never stop learning. There is always camp, a parent, or a book lying around the house for them to engage in over the summer. Not so for poor kids who may get a good vacation but come back to school behind their rich counterparts who spent the summer learning. What should we do about this? Year round school!

To sum it up, Outliers tries to show that success is actually pretty predictable. When you combine hard work with the right circumstance, you have a recipe for success. It is not just about having the most talent or random luck. It is about a gift people are given when opportunities present themselves and they have the strength to grab hold of it. He concludes the book by wondering what would happen if the same types of opportunities were given to everyone. If we understand which opportunities are needed for success, and gave these opportunities for all, would the outcome not become greater success for all?
Overall, I enjoyed the book. I think Gladwell tends to oversimplify a lot of issues but it is necessary in this type of book to keep it enjoyable. Usually his ideas follow mine, which make the reading more enjoyable and easier to write about. I agree wholeheartedly that success is determined by the confluence of hard work and the right circumstances. Anyone looking for a book that is a light read on a subject that is fairly interesting, I recommend picking this one up.

Thursday, May 7, 2009

Is the Market Turning?

S&P 500 Chart

The market was down today after several days of rallying.  This despite the fact that there was relatively good news that came out.  Most of the news as of late has been pretty good and for many people that is the problem.  When the news starts being better than expected you have to get a little bit nervous.   I'm not sure that we have really turned the corner but I do believe that after a 30% rally the downside is probably greater than the upside in the near term.  I just do not believe that you can have 9+ weeks of consistent upside gains of 1% and 2%.  I also really did not like that Nasdaq was the index that was the most down.  It was the leader up.  It now looks like the leader down as people try to get out with their profits.

The good news is that the bank stress test came out after hours and for many of the banks it was better than some had feared.  Tomorrow will be telling.  If the market reacts poorly to this relatively good news, than I think expectations may have overshot on the upside and the market may be going down over the next few weeks.   If the market rallies like it seems like it is in the after hours than you might get an even higher move to the upside.

I played the market to the downside this morning.  I took a position in the ultra-short ETF in Real Estate, SRS.  The real estate sector has rallied a lot in the last few weeks and I do not think it can continue like this.  When I look at the fundamentals, I think things are going to get even worse than right now.  I know there are those who think we  have reached bottom, but I'm not one of them.  I actually had a gain of almost 5% in the day in just this one position.   I am only taking a very short term position in this.  I'll take my gains or losses quickly rather than try and stay in this market too long.

Wednesday, May 6, 2009

More Supply Equals Lower Prices

Economics 101 people.  I just heard a financial reporter, Diana Olick of CNBC, say that housing prices will rise when more people start putting their home on the market.

To give context, the discussion was around the Zillow report saying that over 20% of homehowers are underwater.   The numbers might be even worse than this because there is a large "shadow inventory" of homes.  That is, there are a number of people, over 1/3 of homeowners, who wish to sell their home but have held off over the last few years for fear of owing more than their house is worth.

Olick pointed out that the sales number may be artifically low because the only thing that is selling are foreclosed homes and people who must sell.  She argues that when more of these non-distressed people put their home on the market prices will rise becasue these people will not sell their homes at the low prices.

Umm, no.  Prices are set by a confluence of supply and demand.  Suppliers do not just get to set whatever price they want.  They may wish for prices to be at a certain level, they may certainly not sell at a price they deem too low, but I can promise you prices will not rise because there is MORE supply.  It makes no sense.  I may want to sell my car at $20,000 even though it is worth about $10,000.  I may refuse to sell if I can't get $20,000 for it.  But that just means my asks will not affect the market even more.  And I promise you my bringing my home to the market will actually depress prices as buyers will feel they have a wealth of choices.

Tuesday, May 5, 2009

A Flurry of Moves

Only going to be a quick post today.  I did not go into work until late today because it seems I have an ear infection that causes me to have a pretty bad headache.  So rather than go into work in the morning I decided to stay home and rest a little bit.  Of course, with all that time on my hand I had to do something.  So I did a flurry of moves.  All told, I made four trades.  Since I normally only make a trade every week or so, doing four in one day just goes to show it is probably good I have a day job since I would spend all my time day trading.

The four moves I made were

  1. Got out of my long financial position, UYG.  I had a 50% gain in just a few weeks and decided not to be greedy.  Sold it at $3.91 when I had a cost average of about $2.50.

  2. Got more short the Dow.  Added to my position of DXD.

  3. Increased my position in the material's ETF, XLB.

  4. Increased my position in the Chinese ETF XFI.

All told, I increased my exposure to the market a few thousand dollars but probably went net short since my two long positions were about as long as the position I sold in the financials.  I really have no idea how long the current rally will last.  I have a feeling it might go up some more tomorrow as the market reacts positively if it is either good news or bad, the sign of a bull market.  I keep waiting for the market to correct, and yet it doesn't seem to want to do it.

Monday, May 4, 2009

My Portfolio Kicking Ass

If you look at my positions,  you will know that I have a very good day.  I am long the financials, China, and materials.  All of these are doing really well as this market rebounds.  I'm unfortunately a little bit more in cash than I want to be but I've been waiting for a pullback that does not seem to be coming.

I don't see any reason to rush into this market still, but I've been saying that for the last several weeks while the market continues to make new highs.  That leaves me with a lot of cash to try and figure out what to do.  I do think this rally has been getting a little long in the tooth, but that is the problem with crazy markets.  They do not have to make any logical sense.  I've been wanting to get short the market, more short than my current short position in the dow.  I think I will do a hedged position tomorrow.  I want to get a little bit longer on my materials and China position and then get short the market for the eventual correction that we will get.

I suggest you do the same.  This rally is going on eight weeks.  That is pretty crazy if you think about it.  People are piling into stocks to avoid missing the rally.  At some point, the buyers just will not be there anymore, and that's when the market is going to reverse and reverse hard.

Teapot Calling the Kettle

Is it me or is there a little bit of hypocrisy with Tim Geitner announcing Obama's tax plan to cut down on tax evasion by wealthy individuals and corporations?  I understand he is the treasury secretary and might be the proper person from a protocol perspective to announce this, but still.  On this one, you might have wanted to send Tim Geitner on some important mission  somewhere else and have someone else in governmnet introduce Obama.

Sunday, May 3, 2009

Costco Hot Dogs

Costco Hot Dog with Soda

The other day I went to Costco and bought a hot dog.  For those that do not know, Costco Hot Dogs are one of the best deals around if you like hot dogs.  For $1.50 you get a pretty good size hot dog and a refillable drink.  It has always been one of the best deals around.

But as I was eating my hot dog the other day, I got to thinking if it this hot dog deal was a "good" thing.  I thought of the problem in two ways.

  1. This is the type of thing that is leading America to be obese.  The hot dog and soda is about 700 to 800 calories.  All for $1.50. That is just nuts and encourages people to over consume.

  2. This deal is a marvel of economic efficiency.  You can get so much for so little.

Every time I see a deal like this, it makes me think of all the things that had to happen to actually get that product into my hand.  A pig had to be raised and then slaughtered.  The meat than had to be butchered and formed into a dog.  This had to be packaged and then shipped to the Costco.  A driver had to drive that dog to the Costco where it was unloaded.  Someone took that dog and cooked it.  All these people were paid for their time.  The material costs include feeding of the pig, the packaging, and the cost of gasoline.

Now factor in the fact that the soda, taxes that are paid, and a typical retail margin of 10%, and that dog at the wholesale level is less than $1.  That is simply amazing to me.  We live in a society where so much is possible for so little.  But perhaps things have come a little bit too easy.  When you can consume that much for that little, is it any wonder why we have some of the health issues we do?  What do you think, do the pros have having cheap and available food outweigh the cons of the health risks it presents?