Today, I cut my short positions. This just felt like the wrong thing to do here with the market continuing to rally. I do expect a pullback relatively soon but I have left the money in these shorts far longer than I wanted to. I tried to stay disciplined and say I would get out of the short position when I lost 10%, and I didn't do that. The trade kept falling behind and I kept waiting for the turn that never happened. Rather than continue to lose money, even though I think the market will turn soon, I got out of the trade and cut my losses.
I still have smaller positions in this trade, but it is past the point where I think I can reasonably make more money than I already lost. Had to do it. There comes a point where you have to admit you were wrong and just move on. I don't think the market takes off from here, but I'm also not so sure we can come back down to retest the lows. If you have shorts on at this point, just get out of the way of this market. I know with my luck, this will exactly mark the turn, but I just could not continue to fight the market.
Tuesday, August 4, 2009
Monday, August 3, 2009
Free Money
The market continued its rally today. This was in no small part to good news coming out of the government's "Cash for Clunkers" program. Most of the pundits out there are calling this a great success since this has risen auto sales month over month. Something that hasn't happened in a long time. But is everything really that great?
In short, no. I think the analysis that states that this marks the bottom of the recession is a little short sighted. The problem with any program like this is that its long term effects are hard to measure and almost impossible to see. While I have no doubt that the program had beneficial effects for the auto industry this month, its longer term effect is not so clear. One problem that a government provided subsidy like this poses is the same problem we have had for the last decade or so. What happens to auto sales six months from now when the money has run out? Will demand still be there for automobiles or will yet another government stimulus be needed? Are we just pushing sales to the near months and the expense of the far months? How many of these sales would have happened without the stimulus? Compounding the problem, we will all pay for this with interest.
What most people do not realize is that this is a simple transfer of wealth from all of us to those who are buying cars now. Government subsidies must eventually be paid for and that money comes from the income tax that we all pay. I know for many people, this seems like a good thing. I mean, it is free money right? Sadly, no. We all pay. Does that mean I think the program is a bad thing? Well the jury is out. Being pro-environment, I'm at least glad some of the cars being traded in are being taken off the road. But as an economic stimulus? Sadly, I think it will fail.
In short, no. I think the analysis that states that this marks the bottom of the recession is a little short sighted. The problem with any program like this is that its long term effects are hard to measure and almost impossible to see. While I have no doubt that the program had beneficial effects for the auto industry this month, its longer term effect is not so clear. One problem that a government provided subsidy like this poses is the same problem we have had for the last decade or so. What happens to auto sales six months from now when the money has run out? Will demand still be there for automobiles or will yet another government stimulus be needed? Are we just pushing sales to the near months and the expense of the far months? How many of these sales would have happened without the stimulus? Compounding the problem, we will all pay for this with interest.
What most people do not realize is that this is a simple transfer of wealth from all of us to those who are buying cars now. Government subsidies must eventually be paid for and that money comes from the income tax that we all pay. I know for many people, this seems like a good thing. I mean, it is free money right? Sadly, no. We all pay. Does that mean I think the program is a bad thing? Well the jury is out. Being pro-environment, I'm at least glad some of the cars being traded in are being taken off the road. But as an economic stimulus? Sadly, I think it will fail.
Sunday, August 2, 2009
When The Market Doesn't Agree With You
I made a bet several weeks ago against the real estate sector. Specifically, I made a bet that we would see continued weakness in the Commercial real estate market. I made this bet because I just looked around my neighborhood and the ones I drive by and I notice numerous empty store fronts without any real chance of all of them being occupied. I actually did not realize how bad it is in certain areas of Southern California since my neighborhood is somewhat insulated from steep residential declines. But if you go into areas where house prices have fallen more, and thus affected consumer spending more, you see a lot more empty buildings. This is going to continue to be a drag on the economy and more importantly on the balance sheet of the those who own commercial real estate.
But right now, the market is just too good. Everything is going up and it is a bad time to be short anything. While my portfolio is up over the last several weeks, it would be even stronger if I wasn't short here and short against the Dow Jones. This does not really bother me since when the market looked weaker, I probably would not have gotten into some of my better positions if I did not short something against them. So net, I have made more money than I have lost.
Is it time to take profits on that position. If they were short term plays, absolutely. The market rally is now right around the level where greed and fear is taking over. There is no more reason to bid this market up yet it keeps going up. Yes, the world is not falling apart. But if you think a recovery is right around the corner, just take a peek there. You will notice that the next street over looks pretty bare.
But right now, the market is just too good. Everything is going up and it is a bad time to be short anything. While my portfolio is up over the last several weeks, it would be even stronger if I wasn't short here and short against the Dow Jones. This does not really bother me since when the market looked weaker, I probably would not have gotten into some of my better positions if I did not short something against them. So net, I have made more money than I have lost.
Is it time to take profits on that position. If they were short term plays, absolutely. The market rally is now right around the level where greed and fear is taking over. There is no more reason to bid this market up yet it keeps going up. Yes, the world is not falling apart. But if you think a recovery is right around the corner, just take a peek there. You will notice that the next street over looks pretty bare.
Thursday, July 30, 2009
Too Hard on Candidates?
I'm usually in interview loops for most of the management positions in the company. I believe in giving a simple "Hire/No Hire". Most people in interview feedback are quite wishy washy. They say things that are middle of the road without truly committing one way or the other.
But I learned early on that you have to give a solid yes or no on any interview. When in doubt, you give a no. This comes from the simple fact that it is much better to pass on the right person than it is to hire the wrong person. Getting rid of the wrong hire can be really difficult. So when it doubt, better to just pass on the person. Now I'm not sure if it is the quality of candidates we are getting or if my standards are too high, but I have not been giving very many "Hires" lately. Perhaps it is because I'm interviewing for mostly higher level management position. These are the positions with the most leverage in the company. A wrong hire here can affect dozens of people and really affect the profitability of the company. Given that, I'm extremely reluctant to hire the wrong person. But am I being too difficult. If I'm giving out almost no "hires" are my standards just too high?
But I learned early on that you have to give a solid yes or no on any interview. When in doubt, you give a no. This comes from the simple fact that it is much better to pass on the right person than it is to hire the wrong person. Getting rid of the wrong hire can be really difficult. So when it doubt, better to just pass on the person. Now I'm not sure if it is the quality of candidates we are getting or if my standards are too high, but I have not been giving very many "Hires" lately. Perhaps it is because I'm interviewing for mostly higher level management position. These are the positions with the most leverage in the company. A wrong hire here can affect dozens of people and really affect the profitability of the company. Given that, I'm extremely reluctant to hire the wrong person. But am I being too difficult. If I'm giving out almost no "hires" are my standards just too high?
Tuesday, July 28, 2009
I Know I Have Not Made It
It has been hot in California the last few weeks. It has been in the 100's in some areas. High 90's in the others.
If you are like me, you are not able to sleep at night if it is too hot. Lucky for me, I have central air-conditioning. My problem? The air works much better in the living room than it does anywhere else. Further, the temperature sensor is also in the living room. So to get my bedroom cold at night would require that I put the temperature insanely low in the living room. For someone like me who hates waste, this is not an acceptable solution.
Those who follow my blog know how I feel about the lower standard of living my generation now has compared to the previous generation. It just does not make sense to me that someone with my combined household income has to make some of the trade offs that I have to make. I am not really complaining about it, it is just the way life is. But it is something I find particularly interesting.
Anyway, the reason I bring all of this up is that this "heated" situation just makes it all that more clear that I have not yet "made it". To solve my hot night dilemma I have had to move my bed, or more accurate my mattress, into the living room. I no longer have a living space, I have bed. And to quote my fiancee, it just looks kind of "ghetto". We are making the most of it. In many respects we like it even better this way (we can now watch the big TV in bed). But it just puts me in my place of how much farther I have to go to have a truly comfortable and un-comprising living situation. A household that makes in the top 5% of the US has resorted to sleeping on a mattress, in the living room, on the floor. But hey, at least I have the mattress.
If you are like me, you are not able to sleep at night if it is too hot. Lucky for me, I have central air-conditioning. My problem? The air works much better in the living room than it does anywhere else. Further, the temperature sensor is also in the living room. So to get my bedroom cold at night would require that I put the temperature insanely low in the living room. For someone like me who hates waste, this is not an acceptable solution.
Those who follow my blog know how I feel about the lower standard of living my generation now has compared to the previous generation. It just does not make sense to me that someone with my combined household income has to make some of the trade offs that I have to make. I am not really complaining about it, it is just the way life is. But it is something I find particularly interesting.
Anyway, the reason I bring all of this up is that this "heated" situation just makes it all that more clear that I have not yet "made it". To solve my hot night dilemma I have had to move my bed, or more accurate my mattress, into the living room. I no longer have a living space, I have bed. And to quote my fiancee, it just looks kind of "ghetto". We are making the most of it. In many respects we like it even better this way (we can now watch the big TV in bed). But it just puts me in my place of how much farther I have to go to have a truly comfortable and un-comprising living situation. A household that makes in the top 5% of the US has resorted to sleeping on a mattress, in the living room, on the floor. But hey, at least I have the mattress.
Sunday, July 26, 2009
The Market Is Up ... For Now
Surprisingly, the market was unchanged on Friday despite major misses by Microsoft and Amazon. With the market showing some resiliency despite disappointing earnings from these bell-weather stocks, one has to believe that the market is indeed up from here.
But it quite honestly does not make any sense. We are not in for any type of recovery any time soon. I think a lot of people are looking at the housing bubble popping like the tech bubble popping. People believe that recovery is just around the corner and that companies' earnings will follow. I just really don't see that happening.
One just has to look deeper into the numbers to see what is happening. Most companies are beating expectations because of the bottom line, not the top line. That is, their revenues are not that strong. They manage to meet earnings because they have controlled their costs effectively. This should be a good sign because it will allow companies to use operating leverage if the economy recovers. Sales will grow faster than the cost structure meaning that companies will be very profitable on their way out.
But this assumes the economy is going to recover soon. Look at what happened last time. We came out of the problems we had by creating another asset bubble. Housing. By keeping interest rates low and allowing questionable lending practices, the government was able to paper over the previous problems with brand new problems. Of course, it took a few years to play out but like all deferred problems, the new ones were much much worse. Further, the jobs that disappeared with the tech bust never really came back, they just reallocated. We had a "jobless" recovery last time. Many of the high paying tech jobs never came back. Some were replaced by good paying real estate jobs but by all accounts more good jobs were lost than were made.
That is not going to happen here. I just do not see us able to paper over the problems that we have now created. They are too big. The housing bubble will not be re-inflated so what will take its place? Health care? Another tech bubble? I honestly don't see anything even remotely resembling a recovery back to where we were. Companies are being very cautious when it comes to raising their cost. For most companies, the biggest single cost is headcount and most will not be willing to increase this anytime soon. Flat is the new up and I think more than a few companies will be willing to forgo higher revenues for a more predictable and low cost structure.
So we will see a long period of cautious companies. Risk taking will be dampened. This will mean that we will have an extended period of high unemployment. This should have the effect of keeping any sort of earnings growth muted because most companies have cut to the bone at this point and will not see any more gains achieved from there.
How much more can it go from here? Like all other market movements, I have no idea. The market can stay stupid far longer than anyone can anticipate.
But it quite honestly does not make any sense. We are not in for any type of recovery any time soon. I think a lot of people are looking at the housing bubble popping like the tech bubble popping. People believe that recovery is just around the corner and that companies' earnings will follow. I just really don't see that happening.
One just has to look deeper into the numbers to see what is happening. Most companies are beating expectations because of the bottom line, not the top line. That is, their revenues are not that strong. They manage to meet earnings because they have controlled their costs effectively. This should be a good sign because it will allow companies to use operating leverage if the economy recovers. Sales will grow faster than the cost structure meaning that companies will be very profitable on their way out.
But this assumes the economy is going to recover soon. Look at what happened last time. We came out of the problems we had by creating another asset bubble. Housing. By keeping interest rates low and allowing questionable lending practices, the government was able to paper over the previous problems with brand new problems. Of course, it took a few years to play out but like all deferred problems, the new ones were much much worse. Further, the jobs that disappeared with the tech bust never really came back, they just reallocated. We had a "jobless" recovery last time. Many of the high paying tech jobs never came back. Some were replaced by good paying real estate jobs but by all accounts more good jobs were lost than were made.
That is not going to happen here. I just do not see us able to paper over the problems that we have now created. They are too big. The housing bubble will not be re-inflated so what will take its place? Health care? Another tech bubble? I honestly don't see anything even remotely resembling a recovery back to where we were. Companies are being very cautious when it comes to raising their cost. For most companies, the biggest single cost is headcount and most will not be willing to increase this anytime soon. Flat is the new up and I think more than a few companies will be willing to forgo higher revenues for a more predictable and low cost structure.
So we will see a long period of cautious companies. Risk taking will be dampened. This will mean that we will have an extended period of high unemployment. This should have the effect of keeping any sort of earnings growth muted because most companies have cut to the bone at this point and will not see any more gains achieved from there.
How much more can it go from here? Like all other market movements, I have no idea. The market can stay stupid far longer than anyone can anticipate.
Thursday, July 23, 2009
Has the California Dream Vanished?
I have been writing often about California lately. I have done this mostly because there have been many things on my mind, not the least of which has been if it is really worth it to live in California. For the most part I think it is. I love most of the things that California has to offer and I have many ties to the area. My family is here, I went to high school here, and I have a lot of friends in the area. But I have lived in three of the four corners of the United States and can honestly say that I think I can make it work anywhere I go (with the possible exception of Alaska).
So if I love it here so much why would I consider leaving? Well, California has been in the news a lot lately, most of it not too good. There have been several articles wondering if the allure of California is fading. With the budget crisis the way it is there is little doubt in my mind that a tax hike is around the corner. Considering how high the tax burden already is, I am in no mood to see even more of my paycheck go out the window. Unemployment is high and the opportunities for me in the area are somewhat limited. While I like my current job, I don't know if I will be there five years from now so I am just planning ahead for what I will do down the road.
Of course one of my biggest problems with California will come to no surprise to my loyal readers. The cost of housing. It is still way to high. Most of the homes in my area are still asking for $500,000. They are nowhere near worth that. But even if prices come down another 20%, the housing would still be overpriced. On the eve of my marriage, I have to look at the situation and ask myself, "Is living in California worth reducing my standard of living?"
I know that I can make just as much salary wise in other parts of the country as I can here. In fact, in many areas I might even have a distinct advantage given less competition for jobs. So what is someone like me, a young successful mid-career professional supposed to do? Do I continue to pay high taxes and live in a small rented apartment? Or should I consider moving to a state like Texas which has a very low tax burden (no income tax at all) and very affordable housing? I did a quick search in some of the bigger metropolitan areas like Houston and Austin and there are many houses that I could pay cash for. For houses in the price range I want to spend, I could easily find a four or five bedroom house for what I could get a condo for here.
Yes, I know what the argument against is. I would have to live in Texas. But seriously, I'm sure it is not all that bad. Most of the people I know from the area speak highly of it and would go back if the right opportunity came along. I'm not saying I'm going to move there or anywhere in the next year, but it is something I would have to consider. it is something I would have to consider even sooner if California did something stupid like raise taxes yet again.
So if I love it here so much why would I consider leaving? Well, California has been in the news a lot lately, most of it not too good. There have been several articles wondering if the allure of California is fading. With the budget crisis the way it is there is little doubt in my mind that a tax hike is around the corner. Considering how high the tax burden already is, I am in no mood to see even more of my paycheck go out the window. Unemployment is high and the opportunities for me in the area are somewhat limited. While I like my current job, I don't know if I will be there five years from now so I am just planning ahead for what I will do down the road.
Of course one of my biggest problems with California will come to no surprise to my loyal readers. The cost of housing. It is still way to high. Most of the homes in my area are still asking for $500,000. They are nowhere near worth that. But even if prices come down another 20%, the housing would still be overpriced. On the eve of my marriage, I have to look at the situation and ask myself, "Is living in California worth reducing my standard of living?"
I know that I can make just as much salary wise in other parts of the country as I can here. In fact, in many areas I might even have a distinct advantage given less competition for jobs. So what is someone like me, a young successful mid-career professional supposed to do? Do I continue to pay high taxes and live in a small rented apartment? Or should I consider moving to a state like Texas which has a very low tax burden (no income tax at all) and very affordable housing? I did a quick search in some of the bigger metropolitan areas like Houston and Austin and there are many houses that I could pay cash for. For houses in the price range I want to spend, I could easily find a four or five bedroom house for what I could get a condo for here.
Yes, I know what the argument against is. I would have to live in Texas. But seriously, I'm sure it is not all that bad. Most of the people I know from the area speak highly of it and would go back if the right opportunity came along. I'm not saying I'm going to move there or anywhere in the next year, but it is something I would have to consider. it is something I would have to consider even sooner if California did something stupid like raise taxes yet again.
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