by Phil Davis - July 27th, 2014 8:42 am
What a month May was!
Through May 23rd, we had 158 winning trade ideas against 29 that did not work out (as of the review) for an 84% winning percentage. As usual, we begin our reviews with the last week of the previous month – even though the last week of May didn't overlap into June – as last weeks often do into the new month (which is why we do it).
Still, 4 parts is plenty for one month, so it's time to move on! Our Trade Reviews not only let us know if we're on or off track but, by putting the trades in context, hopefully we remind ourselves what works and what doesn't work in vartious situations so that, when we see a similar situation, we are ready, willing AND able to pull the trigger.
As usual, we should never be at 100% because we WANT to have trades on both sides of the table (as hedges) and the profit or loss of the trades are as of today, so we look very closely at the LOSING trades – to see if we now have better entries than we had originally (assuming we still like our premise).
Monday, May 26th was a holiday, so we start this month off on a Tuesday:
Selling risk to others in our Member Portfolios has given us 10%+ gains for year (so far). In fact, the only strategy we agreed with from the above chart was gold, which we bet heavily(along with DBA) at the beginning of the year.
Remember, this isn't about making good picks, per se – it's about having a good strategy that gives you a high probability of success – even when you are wrong about a trade. BEING THE HOUSE and selling risk (through options) to others is the closest thing we get to
by SWW - July 27th, 2014 4:49 am
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.
We appreciate your feedback--please let us know what you think in the comment section below.
by ilene - July 26th, 2014 2:37 pm
By Patrick Cox
Technological civilization runs on energy. Second only to health care in economic clout, energy accounts for slightly less than 10% of GDP depending on the actual fuel prices. Everything depends on energy, even the biological world inside and around us.
Energy is a cost component in all goods and services, from manufacturing to overhead and transportation. As such, the price and availability of energy is a major determinant of all price levels and, inversely, the standard of living.
The cost of power generation is not the only aspect of energy that we should be paying attention to, as members of the human race and as investors. In this article, I’m going to ask you to consider the financial impact of power availability and its many implications. At this point, this may be confusing, but all will become clear shortly.
Traditionally, most electrical power has been consumed as it is produced. This isn’t because scientists, engineers, and entrepreneurs haven’t wanted the ability to store energy, separating its generation and its use. They do.
The inability to story electrical energy is a serious burden because it means that power plants must be large enough to handle peak demand even though they operate far below capacity most of the time. There would be significant savings if power could be cost-effectively stockpiled. For one, generating capacity, maintenance, and overhead could then be reduced.
Unfortunately, electrical energy storage is hard, meaning expensive. While most media attention has focused on the supply side of electrical power, the development of storage technologies may prove to be just as important. One impact of a solution would particularly benefit the solar-energy industry. The lack of an inexpensive electrical storage technology is a major obstacle to the widespread use of solar and other renewable energy sources.
Compared to other associated technologies, the science of batteries has seriously lagged. Your television and phone have undergone radical transformations over the last few decades. Batteries have not, yet.
Modern batteries work well enough to power your devices, but that’s not what I’m talking about. We need batteries that will store large
by ilene - July 26th, 2014 12:00 am
By The Banker
Wow. I mean. Just, wow.
You gotta love these guys.
Two phrases came to mind when I read the headline today about CIT Group taking over OneWest Bank.
First: “History does not repeat itself, but it certainly does rhyme.”
Second: “Madness consists of doing the same thing over and over again and expecting a different result.”
The casual reader of financial headlines will neither recognize nor care about this acquisition by a middle-market business lender (CIT Group) of a California retail branch banking institution (OneWest).
But it’s not the relatively anonymous companies that matter, but rather the people behind the takeover, and the historical provenance of the companies, that matters. This acquisition involves some of the key chess pieces of the 2008 Crisis and the worst excesses of that time. Let me go through some of the key names and highlights.
OneWest Bank – This is really IndyMac bank with a new name.
“A rose, by any other name, would smell as sweet.”
You haven’t heard of IndyMac?
IndyMAC was kind of a ground zero mortgage lender in the 2007/2008 time period. Before failing, it was the seventh largest mortgage originator in the United States, and when it was taken over by the FDIC in July 2008 it was the fourth largest bank failure in history.
Of course it was originally founded by the later notorious Countrywide founder Angelo Mozilo, who spun off IndyMac as an independent company in 1997.
IndyMac did the usual thing as everyone else, borrowing with short-term debt, and lending out in the form of illiquid dicey mortgages.
IndyMac in particular was a leader in the intermediate “Alt-A” mortgage lending segment – mortgages too risky to be considered ‘Prime,’ but not entirely as shaky as Sub-prime either.
OneWest Bank became a newly formed bank in March 2009 when it took over the remains of IndyMac, via an FDIC auction of the failed mortgage lender.
Leading up to this transaction, the CEO of OneWest is Steve Mnuchin, a former Goldman Sachs partner and member
by ilene - July 25th, 2014 11:48 pm
By The Banker
In the bad old days of the 2008 Crisis, a casual reader of the financial news might have been fooled into thinking that “short-sellers,” those financial firms that bet on the price of some financial instrument (like a stock, or bond, or currency, or commodity) going down, rather than up, ranked on the financial attractiveness scale somewhere between Renee Zellwegger and Quasimodo - simpering, disfigured, unpatriotic, and untrustworthy.
For a brief time in the midst of the October 2008 panic, the financial regulators nearly outlawed short-sellers, as if there was some moral difference between short sellers and their counterparts “long buyers.” (We don’t refer to them of course as “long buyers” but rather ”investors,’ but finance folks do use the ‘shorts’ and ‘longs’ monikers when describing market participants.)
Only people who have never participated in financial markets could reasonably argue that ‘short selling’ has any better or worse effect on markets than ‘long buying.’ In fact, brokering most markets absolutely requires short selling, both to offer a product to a client that the broker does not currently have in inventory, as well as to hedge purchases from a client that a broker can not immediately dispose of in the market.
When a client needs to sell a block of a stock, or a pile of bonds, the broker will often sell (sometimes selling short) a similar-characteristic block of stocks or bonds right away, to minimize the market-directional risk of holding the client’s recently dumped position. The ability to sell short, for a hedge, is a key tool in the arsenal of brokers.
Short-selling by hedge funds
The ability to short sell is also the fundamental differentiating tool of 80% of hedge funds vis-a-vis mutual funds: Namely, the former can sell short a stock (or bond, or currency, or commodity) whereas a traditional mutual fund may only deploy money on the ‘long’ side, by buying a financial product. Financial products tend to go both down and up, but your typical mutual fund may only be able to deliver a positive return when the markets go up in aggregate.
A hedge fund by contrast – in theory at least – can deliver positive results regards of
by ilene - July 25th, 2014 11:44 am
Courtesy of John Mauldin
Growing geopolitical risk is on everyone’s mind right now, but in today’s Outside the Box, Michael Cembalest of J.P. Morgan Asset Management leads off with a helpful reminder: the only time since WWII that a violent conflict has had a medium-term negative effect on markets was in 1973, when the Israeli-Arab war led to a Saudi oil embargo against the US and a quadrupling of oil prices. And he backs up that assertion with an interesting table of facts labeled “War zone countries as a percentage of total world… [population, oil production, GDP, etc.].”
Having gotten that worry out of the way, he takes on the dire warnings that have recently been issued by the BIS, the IMF, and even the Fed, about a disconnect between market enthusiasm and the undertow of global economic developments. (He gives this section the cute title “Prophet warnings.”) Let’s look, he says, at actual measures of profits and how markets are valuing them; and then he goes on to give us a “glass half-full” take on prospects for the US economy for the remainder of the year. He throws in some caveats and cautions, but Cembalest thinks we could finally see another 3% growth quarter this year, which could create room for further profit increases.
There are good sections here on Europe and emerging markets here, too. Cembalest gives us a true Outside the Box, with a more optimistic view than some of our other recent guests have had. But that’s the point of OTB, is it not, to think about what might be on the other side of the walls of the box we find ourselves in? I have shared his work before and find it well thought out. He is one of the true bright lights in the major investment bank research world. That’s my take, at least.
I write this introduction from the air in “flyover country,” heading back home from rural Minnesota. I flew to Minneapolis to look at a private company that is actually well down the road to creating hearts and livers and kidneys and skin and other parts of the body that can be grown and then put into place. It
by Phil Davis - July 25th, 2014 7:55 am
If you read yesterday's post and took action on our trade idea to short Oil Futures (/CL) at the $103 line, then you were able to pocket $1,000 PER CONTRACT in just 3 hours. In the Morning post (delivered to our Members via Email at 8:35 am), the trade idea was:
"We're still shorting Oil (/CL) Futures at that $103 line and we hit it again this morning and, hopefully, we'll get a nice pullback around 10:30 – after the natural gas report shows a nice build."
That's about on par for our Futures trading as we demonstrated LIVE in Tuesday's Live Trading Webinar $300 of Futures profits in less than an hour (replay available here). We'll be doing more Futures Webinars for our Members aside from our usual Tuesday Live Trading Webcasts (sign up for your Membership here so you don't miss our trade ideas).
How to trade the Futures is one of the many things we learn at Philstockworld – another thing is PATIENCE! Patience has kept us from chasing this rally as we once again top out the market. On Tuesday we took a nice, speculative bullish trade (but did not officially add it to our Portfolios) - just in case we do have a breakout – but, otherwise, we've been working on our downside protection.
We are FUNDAMENTAL traders who just so happen to use Options and Futures for leverage and hedging – simply because they are convenient and profitable instruments when used correctly. What we teach is not all that complicated – but it isn't easy either. That's why not many people trade Options and Futures – it requires discipline and takes time and practice to master – not really the kind of thing our education system prepares our students for these days….
YOU, however, should not be intimidated away from making money. Our basic concepts are VERY SIMPLE and the concepts are explained in quick videos like "How To Buy a Stock for a 15-20% Discount" and "The Secret to Consistent 20-40% Annual Returns" – something we are demonstrating this year in the 5 Virtual Portfolios we track for our Members.
by ilene - July 24th, 2014 7:21 pm
Courtesy of SoberLook.com
In spite of weakening economic growth, persistent credit contraction, and dangerously low inflation rate in a number of member states (chart below), the ECB continues to resist calls for Fed-style outright securities purchases. Instead the central bank is betting on the recently announced TLTRO program (see post).
The key reason for avoiding outright quantitative easing is, supposedly, the ECB's fear of creating a moral hazard. With a ready buyer of government debt and low market rates, some member states would no longer focus on cutting deficits.
Natixis: – The ECB’s problem is that it does not want to create incentives for governments to refrain from correcting fiscal deficits or avoid improving their public finance situation. What is rejected by the ECB is the moral hazard that would result from the central bank buying government bonds.
Fair enough. But a recent report from Natixis argues that the combination of the TLTRO lending and the OMT backstop program creates conditions that are nearly identical to quantitative easing.
Any QE program aims to increase the monetary base (by raising banks' excess reserves) and to push down longer term interest rates via securities purchases. As an extreme example of this, consider Japan's massive QE effort (see post). Both objectives have been met: long-term rates are at ridiculously low levels (0.53% on 10-year JGBs) while the monetary base is at a record.
|Source: Investing.com, BOJ|
Similarly (though not to the same extent) the ECB's programs will mimic QE without actually buying any government securities. Here is how:
1. Long term rates across the Eurozone are already at incredibly low levels. The ECB's forward guidance, weak growth, and recent geopolitical risks have pushed German rates to new lows (see chart). On the other hand the OMT program, often called the "Draghi put", has suppressed periphery yields. Furthermore, with short-term rates near zero and low capital requirements to hold sovereign bonds, the euro…