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Must See: Phil on Money Talk

Watch Phil's TV spot yesterday.  Phil discusses the stock market, his expectations for the near future, and how he protects his portfolio from selloffs. Phil also outlines some option trade ideas. Click here to watch this excellent interview on Money Talk with host Kim Parlee of Business News Network. 

Here are some photographic highlights of the show.

Watch this interview here.  

 





Bad Behavior: From A to Z … and Back Again

Bad Behavior: From A to Z … and Back Again

Courtesy of Tim Richards at the PsyFi Blog

Talking Shop

A common reaction to pointing out to investors (or indeed, anyone) that they're as biased as a Fox reporter at a convention of transgender liberal pacifists is for them to respond, not unreasonably, by asking what they should do about it (that's the investors, not the reporters). It turns out that it's a lot easier to say what's wrong than to actually do anything about it.

The A to Z of Behavioral Bias is an attempt to address that issue, but it does rather show that there's no such thing as a common source of biases; bad behavior comes from many sources and requires many solutions. Or does it?

Toxic Arms Races

To generalize, perhaps beyond the point of reason, there are two sorts of bad behavior amongst investors. The first kind occurs because the modern investing industry is designed to be toxic for creatures like ourselves who evolved methods to deal with risk and uncertainty and duplicity in a completely different world. The same argument can be made more generally about the world outside investing, of course.

In addition, the creation of our consumerist society has led to a psychological arms race, as corporations vie with themselves to create redundancy in their products by magicking up a demand that isn't predicated on a genuine shortage of supply.  In investing, as in other areas where services or goods have to be sold, techniques have been evolved, by trial and error, that persuade us into parting with our money by exploiting our biases.

To Choose or Not To Choose

For many of us our problem is not the one that's afflicted humanity for most of its history: it's not that we have too little choice, but that we have too much. Choice overload, as it's known (see Jam Today, Tyranny Tomorrow), has been exploited by the securities industry, amongst others, to keep prices high and reduce competition. History suggests this hasn't been a deliberate attempt to manipulate us, but has developed by trial and error as corporations seek to maximize profits.


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Time to Put a New Economic Tool in the Box

Thoughts from the Frontline: Time to Put a New Economic Tool in the Box

By John Mauldin

[E]conomists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.

It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude – an attitude which, as I defined it some thirty years ago, “is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.

– Friedrich Hayek, from the introduction to his Nobel Prize acceptance speech in 1974

Last week we took a deep dive into how the concept of GDP (gross domestic product) came about. We looked at some of the controversies surrounding GDP statistics that we use to measure the growth of the economy, and we noted that the GDP tool seems designed to reflect and serve an economic theory (Keynesianism) that prefers to focus on the demand side of economic activity. If your measurement of the growth of the economy is entirely defined by final consumption (that is, consumer spending) and government spending, then if you want to try to improve growth you are left with just two policy dials to adjust:

  1. How do we increase consumption?
  2. How much government spending should there be to stimulate growth when the economy is in a recession?

But what if there are other ways to measure the economy? Might those other measurement tools suggest a different set of policies and methods to


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Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW in the comments below each post. 

Our weekly newsletter Stock World Weekly is ready for your enjoyment.

Read about the week ahead, trade ideas from Phil, and more. Please click here and sign in with your PSW user name and password. Or take a free trial.

We appreciate your feedback--please let us know what you think in the comment section below.  





Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's the latest Stock World Weekly. Please use your PSW user name and password to log in. (You may take a free trial here.)





The Thrill of the Chase

The Thrill of the Chase

Courtesy of Investing Caffeine's Wade Slome

Chasing FreeImages

Men (and arguably women to a lesser extent) enjoy the process of hunting for a mate. Chasing the seemingly unattainable event aligns with man’s innate competitive nature. But the quest for the inaccessible is not solely limited to dating. When it comes to other aspirational categories, humans also want what they cannot have because they revel in a challenge. Whether it’s a desirable job, car, romantic partner, or even an investment, people bask in the pursuit.

For many investment daters and trading speculators, 2008-2009 was a period of massive rejection. Rather than embracing the losses as a new opportunity, many wallowed in cash, CDs, bonds, and/or gold. This strategy felt OK until the massive 5-year bull market went on a persistent, upward tear beginning in 2009. Now, as the relentless bull market has continued to set new all-time record highs, the negative sentiment cycle has slowly shifted in the other direction. Back in 2009, many investors regretted owning stocks and as a result locked in losses by selling at depressed prices. Now, the regret of owning stocks has shifted to remorse for not owning stocks. Missing a +23% annual return for five years, while getting stuck with a paltry 0.25% return in a savings account or 3-4% annual return achieved in bonds, can harm the psyche and make savers bitter.

Greed hasn’t fully set in like we witnessed in the late period of the 1990s tech boom, but nevertheless, some of the previous overly cautious “sideliners” feel compelled to now get into the stock game (see Get Out of Stocks!*) or increase their equity allocation. Like a desperate, testosterone-amped teen chasing a prom date, some speculators are chasing stocks, regardless of the price paid. As I’ve noted before, the overall valuation of the stock market seems quite reasonable (see PE ratio chart in Risk Aversion Declining - S. Grannis), despite selective pockets of froth popping up in areas like biotech stocks, internet companies, and junk bonds.

Even if chasing is a bad general investment practice, in the short-run, chasing stocks (or increasing equity allocations) may work because overall prices of stocks remain about half the price they were at the 2000 bubble peak (see Siegel Bubblicious article). How can stocks be -50% off…
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Stock World Weekly

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Good Trading Brain/Bad Trading Brain

It's long been known that the typical human brain did not evolve perfectly for success in stock trading and investing. There are probably many reasons, and many mechanisms contributing to this observation. Using fMRI imaging, researchers at the CalTech, the Virginia Tech Carilion Research Institute and the Wellcome Trust Centre for Neuroimaging University College London studied the brains of good traders and bad traders and found several differences.

Screen Shot 2014-07-07 at 10.31.22 PM

(Image from CalTech)

In "They Discovered Something In The Brains Of Great Investors That Makes Them Do So Much Better," Rob Wile at Business Insider reports on the results. 

Excerpt:

But according to a new study by Caltech and Virginia Tech behavioral economists, only certain people's brains are capable of acting on [Warren Buffett's advice to be fearful when others are greedy and greedy when others are fearful].

The researchers looked at the brain activity and behavior of people trading in experimental markets where price bubbles formed, using an fMRI scanner to track responses. 

They found that only "wise" traders received an early "warning signal" from their brains, causing them to feel uncomfortable and urging them to sell. 

The wiser traders had more intense activity in the insular cortex, which is associated with risk aversion — it's often activated when a person smells something rank. The much more common brain pattern the researchers found was one that made traders behave in a greedy way, buying aggressively during a bubble and even after its peak. These traders had much greater activity in the nucleus accumbens, or NAcc, which is associated with reward processing.

Here's the brain activity chart: The high earners, in green, saw significantly more insula activity as a peak approached. Meanwhile, the poorly performing traders' brains' regulation areas basically shut down.

pnas investing brain
 

And here's the trading activity chart. The high earners, in green, curbed their trading activity significantly as they sensed peak pricing approach, then bought into the dip once it passed. The bad traders kept buying throughout the peak.  investing brain activity


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Central Bank Smackdown

Central Bank Smackdown

Courtesy of  JOHN MAULDIN

Smackdown: smack·down, ?smak?doun/, noun, US informal

1.  a bitter contest or confrontation.

"the age-old man versus Nature smackdown"

2.  a decisive or humiliating defeat or setback.

The term “smackdown” was first used by professional wrestler Dwayne Johnson (AKA The Rock) in 1997. Ten years later its use had become so ubiquitous that Merriam-Webster felt compelled to add it to their lexicon. It may be Dwayne Johnson’s enduring contribution to Western civilization, notwithstanding and apart from his roles in The Fast and The Furious movie series. All that said, it is quite the useful word for talking about confrontations that are more for show than actual physical altercations.

And so it is that on a beautiful July 4 weekend we will amuse ourselves by contemplating the serious smackdown that central bankers are visiting upon each other. If the ramifications of their antics were not so serious, they would actually be quite amusing. This week’s shorter than usual letter will explore the implications of the contretemps among the world’s central bankers and take a little dive into yesterday’s generally positive employment report.

BIS: The Opening Riposte

The opening riposte came from the Bank for International Settlements, the “bank for central banks.” In their annual report, released this week, they talked about “euphoric” financial markets that have become detached from reality. They clearly – clearly in central banker-speak, that is – fingered the culprit as the ultralow monetary policies being pursued around the world. These are creating capital markets that are “extraordinarily buoyant.”

The report opens with this line: “A new policy compass is needed to help the global economy step out of the shadow of the Great Financial Crisis. This will involve adjustments to the current policy mix and to policy frameworks with the aim of restoring sustainable and balanced economic growth.”

The Financial Times weighed in with this summary: “Leading central banks should not fall into the trap of raising rates ‘too slowly and too late,’ the BIS said, calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity. In its annual report, the BIS


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Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743"

Thank you for you time!

 
 

Chart School

S&P 500 Snapshot: Down for the Day and Month with a Bit of Drama

Courtesy of Doug Short.

US equity markets ended the month with a selloff. The S&P 500 and the Dow both posted their first monthly declines since January. The popular press has a grab-bag of explanations, most notably Argentina's default, the chess match against Russia, and concerns that a Fed rate hike might come sooner than expected. The S&P 500 opened at its -0.25% intraday high and sold off in a couple of waves to its -2.00% close at its intraday low. The 1.79% daily trading range was at the 97th percentile for the year, and the daily decline was the fourth worst of 2014. The VIX volatility index was up 27.16%, by far its biggest jump of the year.

Interestingly enough, despite some morning volatility in the 10-year note yield index, the Treasury put the official closing yield at 2.58%, up a mere 1 bp from the previous close. It is now 14 bps above its interim closing low of M...



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Phil's Favorites

Driverless Cars on UK Public Streets Starting January; Transforming Personal Mobility; Taxi and Truck-Drivers Targeted

Courtesy of Mish.

The march for fully autonomous driverless cars marches on. In May, Google announced the Next Phase in Driverless Cars: No Steering Wheel or Brake Pedals. Google’s prototype for its new cars will limit them to a top speed of 25 miles per hour. The cars are intended for driving in urban and suburban settings, not on highways. The low speed will probably keep the cars out of more restrictive regulatory categories for vehicles, giving them more design flexibility.

Google is having 100 cars built by a manufacturer in the Detroit area, which it declined to name. Nor would it say how much the prototype vehicles cost. They will have a range of about 100 miles, powered by an electric motor that is roughly equivalen...



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Zero Hedge

Demoted Chicago Tech Firm CTO Shoots Boss, Self

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

One man is dead and one man critical after a 59-year-old employee of Chicago tech firm ArrowStream shot the company's CEO and then turned the weapon on himself and committed suicide. Chicago Police stated that "he was despondent over the fact that he got demoted." The alleged shooter, Anthony DeFrances, CTO for the firm, had worked for the company since 2001. As Fox reports, the company’s CEO, Steven LaVoie, 54, of LaGrange, was in critical condition at Northwestern Memorial Hospital, after being shot in the head and stomach.

&...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Option Review

Kellogg Call Options Active Ahead Of Earnings

Shares in packaged foods producer Kellogg Co. (Ticker: K) are in positive territory on Monday afternoon, trading up by roughly 0.20% at $65.48 as of 2:20 p.m. ET. Options volume on the stock is well above average levels today, with around 12,500 contracts traded on the name versus an average daily reading of around 1,700 contracts. Most of the volume is concentrated in September expiry calls, perhaps ahead of the company’s second-quarter earnings report set for release ahead of the opening bell on Thursday. Time and sales data suggests traders are snapping up calls at the Sep 67.5, 70.0 and 72.5 strikes. Volume is heaviest in the Sep 72.5 strike calls, with around 4,600 contracts traded against sizable open interest of approximately 11,800 contracts. It looks like traders paid an average premium of $0.37 per contrac...



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Sabrient

Sector Detector: Bold bulls dare meek bears to take another crack

Courtesy of Sabrient Systems and Gradient Analytics

Once again, stocks have shown some inkling of weakness. But every other time for almost three years running, the bears have failed to pile on and get a real correction in gear. Will this time be different? Bulls are almost daring them to try it, putting forth their best Dirty Harry impression: “Go ahead, make my day.” Despite weak or neutral charts and moderately bullish (at best) sector rankings, the trend is definitely on the side of the bulls, not to mention the bears’ neurotic skittishness about emerging into the sunlight.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, incl...



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OpTrader

Swing trading portfolio - week of July 28th, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW in the comments below each post. 

Our weekly newsletter Stock World Weekly is ready for your enjoyment.

Read about the week ahead, trade ideas from Phil, and more. Please click here and sign in with your PSW user name and password. Or take a free trial.

We appreciate your feedback--please let us know what you think in the comment section below.  

...

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Digital Currencies

BitLicense Part 1 - Can Poorly Thought Out Regulation Drive the US Economy Back into the Dark Ages?

Courtesy of Reggie Middleton.

An Op-Ed piece penned by Veritaseum Chief Contracts Officer, Matt Bogosian

This past weekend (despite American Airlines' best efforts), Reggie and I made it to the Second Annual North American Bitcoin Conference in Chicago. While there were some very creative (and very ambitious) ideas on how to try to realize the disruptive Bitcoin protocol, one of the predominant topics of discussion was New York Superintendent of Financial Services Benjamin Lawsky's proposed Bitcoin regulations (the BitLicense proposal) - percieved by many participants at the event as an apparent ...



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Market Shadows

Danger: Falling Prices

Danger: Falling Prices

By Dr. Paul Price of Market Shadows

 

We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about." 

All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...



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Pharmboy

Biotechs & Bubbles

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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