Double Journey

I have to get out of meeting hell.  This week has been an absolute nightmare.  I am easily spending 80% of my time in meetings this day.  Part of this I just can’t get out of.  I now directly manage ten people, each of which requires some amount of time.  I’m also responsible for resource planning for the division, and we are trying to plan for 2009 right now.  You add on top of that that I’m the person who knows the status of any technology project, and I see the inside of the meeting rooms more often then I see my own desk.

Today was especially bad.  It started at 9:00 with my 1 on 1 with the GM of the division.  I had a 30 minute window after that before my next meeting, just enough time for me to boot the computer, grab a cup of coffee, and get the e-mail started.  Notice I didn’t say read e-mail, I said I got Outlook started.  From there, I had one one hour window that wasn’t booked, and that was lunch.  No sooner did my 11:30 meeting end, did I get a call from someone who said I was needed in a lunch leadership meeting.  They suddenly realized that I need to be part of this commission and they were requesting my prescense.  Great.  It might have been OK since they provided lunch, but they served sandwiches, and I can almost never eat the sandwhiches they provide since I hate mayonaise.  After that, I had meetings till the end of the day.  So in all, I had 30 minutes in which I didn’t have a meeting.  When the hell am I supposed to do resource planning?

It actually gets worse tomorrow.  While I don’t have meetings every single minute of the day, I do have an 8:00 meeting.  How evil do you have to be to schedule an 8:00 meeting when the standard starting time is somewhere around 9:30?

Normally, I don’t like to make complaints like this, it is just part of the job.  But this is a little over the top.  Most of the time I recommend a few things to get out of meeting hell

• Block out your calendar and don’t let people add you to meetings in that time
• insist on understanding why you need to be at any meeting and reject those you don’t have to be in
• Ask the organizer what input he wants from you beforehand, and give it to him before the meeting
• Delegate your responsibility to someone else who will attend, and get the notes and action items late

Unfortunately for me, most of these things won’t work for me right now.  As awful as it is, I’m required at most of these meetings.  A lot of them are my 1 on 1’s with people and I insist that I make time for those.  Those that don’t fall in that category often fall into the strategy planning for the next year, things I not only need to be part of but want to be.    I guess there is always the weekend to actually get work done …
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Only a quick post.  Worked a long day and have to get up early in the morning for an early meeting.  Work is starting to be a little crazy with me doing the job of two people.

The hedge is doing exactly what it is supposed to, it is creating ballast for the rest of my portfolio.  I still lost money today, quite a bit actually, but I’m not nearly as worried about it as I would be otherwise because my short position is balancing everything just a little bit.  Considering that this is a short term trade for me, and my other positions are long term holds, then I’m not worried about it.

The market is pretty ugly though, and I expect us to test the lows of the market that we bounced back from.  I expect the Dow to go back down close to 8000.  I will probably start selling my short position in that case, and play the market the other way.  But it won’t be nearly as aggressive as my short position is/was because I think we could easily go below where we were last Friday.
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Today, it was announced that there was a change to the government bailout plan.  The new plan calls for the government to, instead of buying bad assets, to inject NEW capital into the banks by obtaining equity stakes in exchange for the money.

Now, while this plan is actually slightly better than the old one, it still is pretty bad and in fact maybe worse in the long run for the country.  Here is my big problem with the plan.  We live in a capitalistic society.  This is a good thing.  The cornerstone of any captialistic society is the banking system.  Banks are the ones with capital. They put the capital in Capitalism.  The antithesis of capitalism is government run enterprise, socialism.

Now while this plan doesn’t actually give control of the banking sector to the government, it is a step in that direction.  And all it takes is one little step, and another one, and before you know it we have government controlling that entire sector.  The plan is similar to the one Warren Buffet got earlier, just worse.  The hope is that this injection of money will spur banks to start the lending the is so important to the proper running of the economy.  But even if this plan succeeds in the short term, it has scary implications in the long term.

Government is notoriously inefficient.  It is scary to think that we would put the model of inefficiency over the very institutions that need to be the most efficient.  Banks need to base their decisions on profit motives.  However selfish and non-humanitarian that sounds, it is vital to the proper running of an economy.  Banks need to provide capital to those who will best deploy it.  Don’t believe me?  Look what caused this financial crisis.   The housing crisis was caused when GOVERNMENT decided that it was a good idea to start lending to people with poor credit histories and who could not afford their payments.

Now what will happen if we let government start having a say in who should get capital and who shouldn’t?  What happens the next time it is decided to help those who don’t deserve it.  Maybe it determines that the failing American car industry needs to be saved, and the banks should lend it money.  How can we prevent the people who run the banks not to curry to their employers and owners, the American government?  We can’t.  Nor can we prevent this from going past a “temporary” solution.  Too many times, “temporary” fixes become permanent.

I get their will be pain.  I get we might have a recession.  But really, should we be transferring taxpayer money to corporations that took huge risk and lost?  Does that seem fair?
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Today the market rallied.  And it rallied big.  This is not a time to get excited.  This was actually not a good thing.  I’ll explain in a minute, but let me get to what I did today.

I woke up to find that the market had rallied 5% up.  This was to be expected after a brutal week.  But the fact that it continued to hold up throughout the day was kind of surprising.  Too add to my skepticism, it was a bank holiday and volume (the number of shares being traded) was relatively light. So what did I do?  I sold at the end of the day.  I bought the Ultrashort S&P ETF, essentially betting that the market would go negative soon.  I bought the ETF right at the red arrow.  Notice how the market continued up (and thus my stock went down).  I actually ended up losing about 10% for the day on this stock.  The thing is, I’m fine with it.  Why?

I got into my position to essentially balance out the rest of the portfolio.  I’m long everywhere else, and thus when the market goes up or down, my whole portfolio goes with it.  I prefer not to have so much volatility.  Volatility makes people do stupid things.  So I decided to hedge the rest of my portfolio by going long here.  Now, if the market goes down, this position will act as ballast to the rest of my portfolio and I should be OK.  This is a peace of mind move to be frank, so losing money on it is no big deal.  The rest of my portfolio was up big today, so losing a little bit on this position is no big deal.  For anyone else who can’t take their eyes off the market, I recommend they do the exact same thing.

So back to my opening paragraph, why is it a bad thing that the market rallied this big this quick?  Fear.  There is still a great amount of fear in the market.  On the way down, fear drove people out of the market, causing huge down moves in the market.  Fear of missing the rally caused the market to rally up today and rally big.  It is hard to make any money in a market driven by fear.  It is bad for the economy when market makers are driven by fear.  So all this move shows me is that the market is still a pretty dangerous place to be.  All the more reason I’m OK, and actually feel pretty good, about my short position today.
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I went away for a mini-vacation this weekend.  It was the girlfriend’s birthday, and we decided to get out of town.  The destination was Palm Springs, something that was a complete surprise to her.  Neither of us had been there, and that was part of its attraction.  I did not really know what to expect.  I knew it was hot.  I knew that the residents there tended to be older.  And I knew that there tended to be lots of casinos around the area.

Now, I’m not much of a gambler.  In fact, I’ve never actually even approached a Casino table.  I have played slots before, and it is the only thing I ever plan on doing since the tables don’t have much draw for me.  So the casinos of Palm Springs just were not a big attraction.  That being said, we still decided to go to one, Fantasy Springs Resort to be exact.  We just walked around the floor for a while and got a few drinks.  The girlfriend likes to play the penny and nickel slots so we started on those.  Now, the penny and nickel slots are designed to just take your money.  It seems like you should be able to play quite a while this way, but it is a big con.  They are some of the worse odds in any casino.  But it makes her happy, so it was a relatively small price to pay.  All told, we played until we had lost $25.

Now I happen to know that you will get much better odds on the higher denomination slots.  Casinos do this to keep the higher bank roll people interested and in the Casino.  Like all gambling, the longer they can keep you in the casino, the more likely they are going to take money away from you.  So I found a bank of $1 slots that was promising a 98% return.  Not the best return on your money in the world but probably the best you will find on the casino floor.  (Actually given the current market, maybe it is the best return you can find)

I have simple rule.  When I play slots, I set aside a fixed amount of money.  It is an amount I feel perfectly happy going to $0.  In this case, it was $40.  I play until I either hit $0 or I can be up by 50%.  In this case $60.  I leave the casino whichever one comes up first.  By doing this, I have the discipline to not let the casino get too far ahead of me.  So as I played on Friday night, my bank roll continued to go down.  When I got down to about $12, I decided to go for broke and just play $3 at a time.  I figured I would get 4 more plays, and be done with it.  But then, the slot started turning in my favor.  I got back above $20 in a few spins.  It then climbed up to $48 after a few more.  I was tempted to leave at that point, just to take a small winning away.  But I stayed disciplined, and kept playing.

In two more spins, I got a row of triple bars, and that netted me $150.  At first, my girlfriend was excited, thinking I just won $50.  But she forgot I was playing 3 at a time, and so that tripled my winnings.  I immediately cashed out and left the casino.  I made sure I was going to get out while I was ahead, and not give the Casino a chance to take it back from me.  The thing is, my strategy usually works for me.  Of the half dozen or so times I’ve actually gambled at a casino, I may have only lost money one time.  So overall, I’m definitely ahead.  I think I’m only ahead by about $200 or $300, but I’m ahead.

So how about you?  Do you gamble much, and if so, do you win more than you lose?  Do you have a strategy.
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Wow, this market is getting ugly isn’t it?  Just when you thought it couldn’t get any worse, it did.  Seven straight days down.  Not just down, but huge moves down.  After the bailout, the market is down over 20% from a week ago.  Doesn’t look like the bailout plan created much confidence in the market does it?  Are we done yet?  Probably not.  I can easily see the market going under 8000 and probably even 7500.  From the market peak, the market is down almost 40%.  That is a pretty scary number if you think about it.  To give some perspective, here are the declines of some of the major bear markets

• Tech bubble burst- 34% (Over a 2 year period)
• 1987 Black Monday - 23%
• 1970 Stock Market Crash - 45%
• 1929 Crash, The Great Depression - 89%

So, while we aren’t in the worse crash of all time (not even close) we are in one of the worse crashes in recent history.  If the market goes down another 5%, which it could easily do in a day, we could easily be in the worse corrections we have ever seen. Is this justified?  It is really hard to say.  I find it hard to believe we can drop past 50% but I also have to admit that we are in unprecedented times.  I am getting my shopping list ready, and looking for a way in.  I won’t be blogging tomorrow, it is the girfriends birthday and we are going away for the weekend, but I will be thinking hard about what I want to own.

I think you need to stat looking to buy.  I had no interest in buying for several more months, but I seriously did not expect the market to go this far down this fast.  I still am mostly in cash, at least 70%.  That’s partly because my equity portfolio is so far down this year :)  But seriously, you want to buy the companies that are going to make it through this mess.  These are companies with

• Strong balance sheets with very little debt
• Strong cash flow
• Can grow by avoiding using debt and funding it with cash on hand
• Globally diversified
• In economic insensitive markets

As crazy as it sounds, I’m also interested in banks.  The sector is getting destroyed, and clear winners are going to emerge.  You add this to the fact that the government is making it EXTREMELY profitable to be a bank these days, and you have a recipe for some very big winners in the future.

So what are you doing in this market? Staying on the sidelines, losing your shirt, or feeling like a kid in a candy store?
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I did the classically wrong thing and I will now continue to do it.  I turned a trade into an investment.  As I’ve written in  my previous post, I decided to go long the market, and specifically the financial, expecting their to be a bounce.  No such bounce has shown up and I never closed out my positions.  This has put me in a precarious position of either taking a loss, which would be substantial at this point, or holding on to it for the longer term.

Here is the thing, both of them are essentially indexes.  Both of them will eventually recover, I have no doubt about that.  The problem becomes, how far can you go down before it gets too painful? Lucky for me, I tend to have a very high pain threshold.  Too high actually, so long as I don’t watch the stock everyday.  I’ve taken a few stocks all the way down 90%, which is a complete mistake.  You should have a tight stop on individual stocks, and know when to get out.

So I will, for now, sit and wait for the eventual and violent trend up.  It will happen, of that I have little doubt.  I’m not saying I’m long term bullish on the market right now, but I am short term.  After this much selling, there is almost always a bounce.
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Today, the Fed announced yet another move to try and unfreeze the credit markets.  They have announced that they will start buying Commercial Paper.

While I’m not a huge fan of the Fed coming in and doing things like this, I much prefer this strategy over the strategy of throwing good taxpayer money at bad assets.  I even talked about this exact strategy in my post about what the government should consider doing. Why do I prefer this plan?  Unlike the bailout, this plan attempts to get to the root of the problem.  The problem isn’t with these mortgages going bad.  The problems we are facing now is that people are not able to find other parties which will extend credit.

The commercial paper market’s purpose is exactly this; it is a market created for business and government to obtain short-term debt.  This is vitally important for some businesses and governments because their cash flow is not sufficient to run their day to day operations.   This is the essence of the credit crunch going on right now.  The bad mortgages on the books of the banks is just one of the causes but it is not the problem that needs to be addressed.  If we really want to unstick the credit markets, this is the right approach.  The fed now truly becomes the lender of last resort, a role it has always historically had.   So long as this plan has a limited time frame, and it does, then this will have  the desired effect of providing liquidity in the markets and calming the panic that is now going on.

This won’t fix all the issues, so let’s not start popping the champagne.  But this is a much better step than anything that preceded it.  However, me being the skeptic I am, I am sure that the Fed wills somehow screw this up.  In all likelihood they will do this by dropping the fed funds rate.  They will of course have gotten amnesia and forgotten that the reason we got into this problem was that money was WAY too cheap for too long.

So how the heck did the Fed come to its senses?  Are they reading my blog? Are they going to screw it up again?
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I guess I just don’t learn. I took two short term positions in the market, and I got burned on both.  The financial play is a complete disaster for me.  I correctly called that the government would do something stupid and pass the bill, but the market reacted in a way I wasn’t expecting.  I could understand if the market went down slightly, and stayed flat on the news, but instead it decided to tank, and took off 5% from the top of the day.

You can attribute most of this to profit taking.  It’s a simple Wall Street strategy, buy on the rumor, sell on the news.  In this case, people were buying in anticipation that the market would rally, and as soon as the news hit people began to sell.  This dip in financials really doesn’t make any sense.  This is fantastic news for the banks and financial institutions in the short term.  The government is essentially telling them that they will buy all the crap still left on these financial institutions’ balance sheets.

I decided, probably mistakenly, to stay in this trade.  I saw the selling as a short-term knee jerk reaction to the news, and I hope that the market will come to its senses on Monday morning.  But given my track record so far, my advice to people should probably be do the exact opposite of me, short the financials.
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I just went ultra long on the financials, UYG.  OK, WTF?  How the hell can I go long into this sector when this sector is in for some more pain in the medium term?  Like I’ve said in my earlier post, I am pretty sure the house is going to pass the bailout package.  The package, in my opinion, is even WORSE than before.  But it serves special interest so of course it is going to pass.

I put about $10,000 into the Financial ETF.  I’ll get out as soon as the news if the bill passed or not.  It should jump one way or another, and it will jump fast.  So I’ll either make a good amount of money, or lose quite a bit.  This is pure gambling at this point.  I do not advise other people to do this.  This is money I can afford to lose and won’t make me stay up at night even if I lose quite a bit on it.  I am just making this bet because I think the odds are stacked in favor of this bet and I think the risk-reward here is quite good.
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