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Weekly Wrap-Up – Making Money on the Great Crash of 2007

 

What a crazy week!

I pretty much did a wrap-up yesterday morning (I think I stopped myself at Thursday) but I just put up a blow-by blow account of Wednesday which we will put in the educational archives as an example of how to remain calm and rational while the markets are falling apart.

I think the great advantage of having a community like ours is that we can always have someone to talk to when things get tough.  It's very hard having to deal with tough weeks on your own, with no one but an overworked broker to talk to about your account…

Luckily our game plan for the week (hedged and ready for a drop, weighted heavily on oil sector and HB puts) was pretty much exactly the right way to play the market.  On Tuesday I used the China Syndrome to describe the market and either it wasn't that original or a lot of media people read us because that was the phrase that paid for the rest of the week.

We pulled most of our big winners off the table last week as I said at the time: "Keeping the bulk of the virtual portfolio fairly even as we cherry pick the winners and sell them in a nice non-greedy fashion…     The ripples are spreading and starting to affect the people who lend money to the lenders like LEH and BSC, who both took 5% hits at the end of the week but don’t think the buck will stop there in this very tangled web of sub-prime financing.. "

Maybe I was a little too prescient on Monday when we talked about the margin calls and the new SEC regulation and concluded "We are gonna party like it’s 1929 as this is a rollback of laws that were put in place during the great stock market crash in order to prevent this sort of nonsense…

I maintained my grumpy attitude despite the markets flying up in Monday's pre-market futures and I cautioned: "With all that money pouring into the markets you would think we should be heading up from here but let’s make sure we are really breaking up before we all go and drink the Kool Aid."

(At this point in the article I'd like to point out to the Wall Street Journal that I have used just a single exclamation mark to convey my thoughts today – criticism taken constructively thank you!) Oops, make that 2..

 

We closed Monday very worried and I said: "We didn’t hit one level!  And after having such a nice open – not a good sign…  On the whole, nothing to celebrate.  Al Gore won an Oscar and in his film he said Antarctica was "a canary in the coal mine" - I wonder what he would think of today’s market?"

"Markets are not looking that good – still on my IWM puts – way too dangerous looking.  That was a terrible pullback off the morning open on the Dow and Nas!  I was looking for oil to buy and I ended up adding to my puts… "

Well, you know the rest of the story, by Tuesday morning it was too late to do much about it as the Shanghai Stock Exchange dropped 9% and I pointed out: "A 9% drop is VERY bad over there as they have a 10% limit down on Individual securities so that indicates a pretty broad and nasty sell-off."

What was the strategy that morningSince we were well covered on the downside we decided to go shopping: "In a move that may finally goose our AIG leaps, French reinsurer SCO is attempting a hostile takeover for Swiss reinsurer Converium.  Any time something like this goes on it draws analysts attention to industry fundamentals and I’m be adding to our AIG Jan ‘09 $70s at $8.50 or lower, hoping for a move here, still a light position until we’re ready to sell against it."

My Tuesday morning position statement:

============================================================

We’re going to be careful today but there is no reason to panic:

Let’s watch our FXI puts and try to bracket down our caller.  From a virtual portfolio perspective I’m pretty excited about this as we only have 41 uncovered calls against 40 straight puts and 8 calls we sold in our short-term virtual portfolio.  Only 7 of our uncovered puts are March and, other than AAPL, which we already got half out of, those were already in bad shape anyway (that’s why we were stuck with them). 

The worst hit might be our new GOOG $480s and it will be interesting to see if I did save us some damage by moving more out of the money.  Like I always say, if you’re going to lose money – at least try to learn something!

============================================================

Zman's

Zman gave us the go-ahead to short more oil, despite the push up as he pointed out that EPS growth is slowing for the component companies who are hammering the E&P companies with cost increases anyway.  "Something’s got to give" he said and I wholeheartedly agreed.

I think I picked a better bottom call on PTR than Warren Buffett, who bought a heck of a lot at the $125-130 range but we waited for the retest of the $115 mark, which failed on Thursday but we started a hedged position anyway.  I made my best or worst call of the week on Tuesday (remains to be seen) when I said:

"Gold still needs to break $690 if it’s going to get to $700 (duh…) but it better do it soon or momentum will evaporate.  If gold follows stocks and the dollar down then we know we are watching a deflating commodity bubble rather than a global equity panic – the two are very hard to tell apart with commodity stocks making up over 20% of the markets!" (that's 3)

That is the basis on which we went long into the weekend – wish us luck

 

Tuesday was, by far the best day we've had since I started this virtual portfolio! (that deserves an exclamation point)  The last time we had a day this good was in the little collapse back in March of last year, which I called on the button, but that one took weeks to drop 600 points – we did this in just 1 day. 

The great advantage of hedging options vs. stocks is that options have less downside and more upside in a major market move so, if you play both sides and do it properly, your gains can outpace your losses 2:1.

While it may be tedious and seem silly to carry all those bets in different directions, as Options Sage said in our very first educational article: "Warren Buffett famously quoted “The first rule is don’t lose money” and the second rule is “Don’t forget the first rule!”  (that was Buffett's exclamation point, not mine).  "By spreading our risk amongst many different trades we mitigate our risk of any single position detrimentally impacting our virtual portfolio to a significant degree.  History has shown what happens to investors who risk too much on one position."   Ah, it's no wonder we call him Options Sage.

Chinese character ji1 -- in traditional form ?

Wednesday morning I warned against "bargain hunting" and we were all supposed to take a post-it and put it up in the corner of our monitors, where we couldn’t ignore it and write in a nice, thick marker: It is NOT my Job to Save the Market! (and you absolutely NEED that exclamation point)  My daughters' Mandarin lessons are finally starting to pay off as we were able to recognize, not opportunity, but danger and change in the markets – "You will hear many pundits today telling you how real men buy on the dips or some such nonsense and you must ignore them -  These people are up to their eyeballs in positions and they want you to come in and save them."

My morning notes on Wednesday were pretty clear: "If we don’t recover Dow 12,400, be afraid, be very afraid - next stop is 12,200 on the express train to 12,000Since anything down is bad we need to set very tight stops on all March and April uncovered calls and normal stops on longer contracts – including uncovered leaps…    You can take my advice with a grain of salt but members will do well to remember my oft-repeated adage: When in Doubt - Sell Half!" (oh I give up, I've just gotta be me!)

"Don’t get excited unless we break and hold most of our levels!  You will be inundated with messages telling you to hang on.  Nobody wants you to get out of stocks, not your broker (he wants the commissions), not the media (if you don’t have stocks, why watch CNBC?), not the analysts (same ratings issue) and not the newsletter writers who want you to keep in the markets and keep up the subscriptions (if I wrote a truly commercial newsletter that comment would have been edited out by some corporate jackass – long live Electronic Media!)."

You've already got the blow by blow description of how Wednesday went for us, nothing that happened that day made me turn very bullish, especially Bernanke's downbeat warnings on the coming "deficit storm."  I closed "Wimpy Wednesday" saying: "I like to think that not going down was good but it was the end of the month and funds may have wanted to hold out before taking their losses so they could dress up one last virtual portfolio (and what a great excuse the drop is for the underperformers to point to!)."

I let myself get just a tiny bit bullish and sold our DIA $124 puts at $3.50 (up 169%) while holding the June $124 calls of the spread but, had I been really bullish, I would have DD'd on the calls…

Thursday morning Greenspan retracted his recession statement but I said:  "It’s too late to put the fear genie back in the bottle though and it will take a lot more than a "mea culpa" to restore investors to a state of less than rational exuberance."

Both ZMan and I had had enough of the oil shenanigans and I said: "Keep this in mind when CNBC tells you about the rising global demand for oil against as the World’s number one and two economies both just significantly lowered their economic forecasts."

ZMan had my favorite comment of the week on Thursday morning when he posted:

  • Erroneous Comment Watch: from Bloomberg: ``The demand is there and that will underpin prices,'’ said Angus Geddes, chief executive officer of Fat Prophets in Sydney. “Inventories for gasoline in the U.S. have dropped to 12-month lows so that’s having a positive impact on prices.'’
  • Comment: Not Even If I Stand On My Head To Read This Chart (Aussie Perspective) Do I Get “Inventories at 12-month Lows”! Come on Bloomberg!

gasoline-stocks-030107.JPG

Fun and Profits – Just like it says on the banner!

As to the markets themselves, my Thursday outlook was still bleak:  "I hope I was clear yesterday when I said:   "If you drop a ball from 5 feet and it bounces 1 foot do you bet 10% of your virtual portfolio that the next bounce will be 2 feet?  No – you get the air pump!  Today is not a day for market heroics – today is a day for Duck and Cover!  If we break these levels we have a lot of protective puts we can add to and I will be putting up a list of index plays on the member site this morning that we can jump into if the sell-off gathers momentum.  I hope the lunacy of oil rallying into a global market melt-down doesn’t escape you – this marks 45 days of unfounded gains since crude tanked to $51 in early January.  We’ll see how they hold up today but let’s keep an eye on SU, who have been a more realistic indicator of direction."

 

Nonetheless we decided it was an excellent day to pick up QI for $14.52 but I never filled on my June $17.50s.

Thursday afternoon we had simply made too much money and we dumped most of our puts after running the entire virtual portfolio up 115% for the week as I said:  "It seemed to me there was more risk in leaving our recent successes on the table than reward in letting them ride (as they were generally shorter positions).

Since 2/3 of the value of the virtual portfolio was on the short side, it seemed like a very good idea to not risk a sudden recovery taking back a big chunk of our profits.  While we could have done better riding it out another day – it's hard to look at our numbers for the week and not smile…

12 of the 37 positions we closed Thursday had gains of 200% or more with another 12 doing better than 66% – when you have a week like that you really do need to know when to quit – even if it is a bit early.

 

By Friday we were ready for a break and I started the day intending to throw in the towel at the first sign of trouble saying:  "I’ve been spending the morning reviewing the week so I could decide what stance to take over the weekend and it looks like that stance will be cash if we don’t get ositive ahead of the weekend."

I did give a potential positive outlook for the market in the morning saying: "Am I painting too rosy a picture? I don’t think so, I’m a fundamentalist, not an artist and I just don’t see anything I can really point to to say "this has changed this week."  We knew about the debt, Iraq, Iran, the deficit, the semi glut, the oil "crisis", the option scandal, dollar weakness, the housing glut, the sub-prime mess, the unwinding yen carry trade and It Just Didn’t Matter!  Why should it matter now, what has changed?"

"If all this starts to matter, we’ll be talking about Dow 10,000 soon enough but I cling to my new global paradigm and I think we will weather this storm in the near future.  That doesn’t mean I’m going to bet real money on it – just that I’m looking for it to happen and ready to climb on board when it’s ready to go.  Our post-it for today:  There is NOTHING I Can Personally  Do to Move the Markets!  Let the big boys have their fun, we’ll pick our spots as things develop!"

I suppose it was oil bouncing off my $62 target and failing into the close that kept me from selling, playing into my commodity bubble premise.  That and the fact that our virtual portfolio really didn't suffer all that much damage, even with most of the puts gone.

The day ended miserably though and I am VERY mad at myself for letting it go into the weekend underhedged, once I removed the puts I left the remaining virtual portfolio far too vulnerable to damage on a major drop as we do not have enough coverage to ride it out.  Monday will be very interesting but I will say now that, even if the market gaps up 200 points that I will be lucky – not smart.   No matter how far ahead you get, there is never a good reason to take foolish risks.

I hit the trifecta on the Three Vices of Trading: Perfectionism (I wanted to make money on both side of the virtual portfolio), Ego (I was giddy with success and feeling invulnerable) and Overconfidence (I just called a top so I made myself call a bottom without waiting for it to properly form).

The only hedge I took (aside from our remaining puts and covers) was a bear call spread on the DIA $124s, as I was already stuck with 250 of them at .63 from a series of double downs, hoping to catch the market turning up.  In an attempt to make lemons out of lemonade, I sold 150 $122s against them for $1.35, which has a potential gain of just $4,500 and a potential (but unlikely) loss of $9,750 if the Dow hits 12,400 exactly but, since I have few remaining puts, the top half of the virtual portfolio "should" more than make up for it.  As it's a spread, it does make good weekend insurance, hopefully I can exit for a dime if things are fairly flat.

Like I said, I'll be very lucky to escape this one without a spanking but hopefully it's a lesson that will stick – my instincts were to scrap the whole short-term virtual portfolio on Friday morning, take a breather and watch the markets and I'd be sleeping a lot better this weekend if I'd stuck to that plan

================================================================

My ego and overconfidence came from simply having too good of a week and forgetting that profits are real money too and need to be protected properly, no matter how obscene they are.

We finished last week with a 35% average gain on 93 open positions in our short-term virtual portfolio but on Thursday the gain was 115%, despite us having taken a lot of winners off the table on Tuesday and Wednesday.  This threw it completely out of whack with the long-term virtual portfolio and just made me very uncomfortable as the ratio is supposed to be 75% long and 25% short-term investments. 

The quick solution was to take most of the short side off the table as the market ticked up on Thursday and, unless it really falls much lower, I still don't feel bad about that.  When all the smoke cleared on Friday we were left with 67 open short-term positions with an average gain of 11%, which is really not bad after pulling out 57 positions with an average gain of 135% with a total cash return of 120% after 15 average days held.

Don't forget that this is a very distorted return as we left all our bad trades on the table but the entire remaining balance is additional profit as we are well in the money on the trades we closed.

Now money management comes into play as we want to get as much of the remaining $121K off the table as possible but that works out perfectly as Options Sage and I have decided to dedicate this quarter to teaching good cash management systems – which is the reason we are starting a new virtual portfolio next week.

We'll be using a virtual account set up in OptionsXpress to test our mettle against the CNBC Challenge which runs from Monday through May 25th – we will start with the same $1 Million they are using but we will make the plays mainly in options, employing various strategies from our members site but with a slightly more aggressive attitude.

Obviously, if we like an option we like the stock so our members should sign up to CNBC as Zman, Sage and myself  will be gearing some picks to attack the challenge as well as trying to maintain a sensible, winning virtual portfolio.

Speaking of sensible, winning virtual portfolios – our Long-Term virtual portfolio was well tested last week as we virtually ignored it while trying to manage our gains off the Short-Term list but it came through with flying colors, gaining 2% in net profit, up 106% or $137K after we closed out just a few positions during all the fuss.

Image:Superman 296.jpg

We find ourselves left with 49 open plays (up 7) with an average gain of just 62% but, as I said last week, the nature of the virtual portfolio (selling calls against leaps) means we expect fluctuations like that during the month.  We should have done better, we did not have enough puts nor did we sell enough cover calls as we were still fairly bullish into the week.  Again, we had become a bit complacent from too many consecutive up weeks so this was just the splash of cold water we needed to get this virtual portfolio back on track and producing a monthly income like it's supposed to.

All in all it was a pretty super week but we are left with the wimpy Clark Kent market and I really hate to go all bearish so we'll hope for a bounce but I'll be going into next week with eyes wide open, looking for a good opportunity to weigh in on the plus side but armed with a long list of short ideas just in case this turns out to be a protracted downturn.

If you were on the wrong side of the markets last week, don't worry, Jim Cramer is right when he says "no one ever made a dime by panicking" but, on the other hand, there are plenty of sad stories out there from people who didn't know when to call it quits either….

Don't buy more stock on the way down, dollar cost averaging is a dangerous game.  We sometimes double down our options because it costs us SIGNIFICANTLY less to buy another round on a dip but chasing a stock down is a very dangerous game that ties up a lot of capital for a long time.

See last week's article on KMP for some ideas on what you can do to cheaply protect a stock virtual portfolio:  Our 100 shares of stock for $5,050 finished the week at $5,080 while the Jan '09 $50 puts we picked up for $400 dropped to $370 keeping us neutral for the week (but remember we're in this for the 6.5%dividend).  The March $52.50s we sold for $35 have already dropped to $25 as another bonus, even though the underlying security went up.  Needless to say the XOM Jan $72.50 puts we discussed in the same article are doing quite nicely!

Our other open educational play, on SHLD, is doing very well indeed:

We bought the June $185s for $12 and sold the March $180s for $7.80.  Although SHLD did have great earnings, it wasn't enough to push them higher and the $180s quickly dropped off to $2.30 while the Jun $185s have dropped down to $8.60.  While it's sad that we lost money, we lost FAR less than our caller and our net gain (so far) on our $4.20 net investment is $2.10 – a neat 50% gain since 2/12 if we were to take it off the table right here (but we won't because we will sell April and May calls too!).

There is always an option if you know where to look for it!

Have a very good weekend,

- Phil

 


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  1. Thanks, Phil!

    I’m in on the SHLD educational play, and some long dated puts on several of the subprime lenders, which someone said this week was ‘the gift that keeps on giving’.


  2. Hi Phil,

    This is more a question for the educational part of the site, but I’m going to ask nevertheless. When you open a LEAP option position, or a stock position with the intention of selling options against it, when is the best time (in the option cycle that is) to sell against it? You mentioned a few weeks ago that options become more scarce a week or so after expiration, presumably because folks are rolling over their options from the previous month. I know that there are a lot of other factors involved, like the general market direction and earnings announcements and so forth, but all else being equal, when is the optimal time? Thanks for sharing your knowledge with the rest of us.

    Clare


  3. I’m not sure there is an optimal time but I do tend to look to sell the week after expiration (which I guess means that’s all-in-all the worst time to buy an option!).

    The real optimum time is to use the 5% rule for buying and selling. SHLD, for example has fallen from $190 to $175, the 7.5% rule so it could go either way but $180 is also forming up as overhead resistance so I’m not keen to spend $2.25 to buy out my $180 caller nor do I want to trap myself into selling the Apr $180 calls just yet.

    So right now, at $177, I will wait as my caller loses .25 a day but we all know SHLD can move 10x that much in an hour so, since I sold those contracts for $8, I put a $2.65 (20%) stop on them. Once I sell those contracts, I would much prefer to sell the April $185s for $4 or better so I target a sale there (soft stops) but put a sell stop on the downside of the April $180s for $6 in case it runs the wrong way on me.

    By the way, I come up with these amounts as the premise is I’m being forced to buy out my caller so both of the April contracts SHOULD be going up in price.

    So there’s no real textbook time or amounts to do these things at as you constantly have to weigh that against your capital at risk. In the case of SHLD, we bought the shares for a $4.20 net but buying the $180s out early brings us back to $6.85 at risk while getting at least $5 back on the next sale brings us back down to a much more relaxing $1.85 at risk (you can see why the LTP fluctuates so rapidly). This is very comfortable as we still have a 2 month advantage and, even if we sell the $180s, the worst we are likely to have to do is give him his $5 back as a rise past $185 puts us in the money where we should be back at $10 or more for our calls and can quit the deal with a double or, at worst the 50% gain we have now.

    Don’t forget that we now have $4.20 at risk and rolling a forward contract puts $2 of that money (we hope) back in our pocket. This is effectively getting half out, freeing up capital for another, hopefully profitable play. This is why we should keep 75% of our money in a more conservative portfolio though, it may not seem sexy at first but it buids up VERY nicely over time if you manage it right.


  4. Hey Phil, check this out! :) http://www.turnkeyhedgefunds.com/


  5. I signed up for the CNBC Million $ Challenge. Now I wish I listened to what kind of strategy Thomas Ko (winner of last year) used in order to win. I guess I need to find a very cheap volatile stocks with huge percentage move or a drug company with some approval that will spike up fast. I guess I better go research.

    I had an awful dream early this morning. The dow plunged 800 points on Monday! Wheww… it was only a dream.

    j


  6. Phil:
    I have the SPN Sept 35C bought at 1.65. It went up to 2.35Bid after announcement that they will be added to the S&P Mid Cap 400. Usually can we expect another run when the Index funds add them to their portfolio or is it better to sell after the first excitment as we can expect a drop of the volatility?


  7. Zman/Phil –

    Trying to figure out the play on unleaded (Refiners, others). Looking at the very steep incline in unleaded prices

    http://stockcharts.com/h-sc/ui?s=$GASO&p=D&b=5&g=0&id=p05584632604&a=99945216

    I am trying to better understand your take on it.

    Quotes from 3/1 offer aruments for bull and bear on gasoline – and the market is saying ‘bull’. Best to stay on the sidelines here ?

    Thanks –
    —————————-

    Erroneous Comment Watch: from Bloomberg: “The demand is there and that will underpin prices,’’ said Angus Geddes, chief executive officer of Fat Prophets in Sydney. “Inventories for gasoline in the U.S. have dropped to 12-month lows so that’s having a positive impact on prices.’’
    Comment: Not Even If I Stand On My Head To Read This Chart (Aussie Perspective) Do I Get “Inventories at 12-month Lows”! Come on Bloomberg!

    (#Days of supply of gas chart)
    The above chart could be a problem if you’re a bear as it definitely would lend strength to gasoline prices. That is if they hadn’t already priced this in. Retail level gasoline prices are up 10% ($0.22) nationwide over the last month and have risen even faster in areas in close proximity to one of the handful of refineries currently experiencing technical difficulties.

    Voice Of Reason Watch: “While prices will rise into the summer, the pace of recent gains, and a likely increase in gasoline production, could see the market pull back as much as $4 a barrel before moving higher. We have a slew of clients wanting to buy into this market and we’re telling them to wait. Refineries are going to start coming back on line and you’re still going to be well within the normal range for gasoline supplies.’’ ~ Bloomberg quoting Excel Futures CEO Mark Waggoner.


  8. General question/discussion topic

    What’s up with the “tire” business — LBO in the works ?
    --Any ideas on how to play, or has ‘train left the station’ ?

    GoodYear Tire up
    http://stockcharts.com/h-sc/ui?s=GT&p=D&b=5&g=0&id=p81200771907

    Cooper Tire up 27% last week
    http://stockcharts.com/h-sc/ui?s=CTB&p=D&b=5&g=0&id=p81200771907

    CTB dipped earlier, but neither are working off lows – have been climbing for a while


  9. Chris – Nice gig they have but I’d hate to say to an investor who wants to see my team “Oh we just outsouce all that.”

    ==================================================

    SPN – yeah you know how that rule says “Always” somewhere around the first word? That means you should have sold it at 9:35 on Friday (especially in a bad market where you’re lucky to get a profit). Of course, with a leap, sell doesn’t mean only sell the leap. You could have sold the Apr $35s for $1 or the very safe Apr $30s for $3.30, a nice, protected .60 premium that would have you dancing a jig if the markets keep crashing.

    After that huge $1.50 gap on the news (and it was already up $1 on the rumor) the secondary reaction is likely to be “big deal, we’re being added to a rapidly declining index.” Don’t forget they were weak after earnings, before this S&P thing started going around.

    ==================================================

    Refiners – I’m wary of these guys. After this drop I need to go back to the Valero rule as it could really go either way right now. I’m looking more for directional laggards than making sector bets atm.

    =====================================================

    Tires are a very strange business. I wouldn’t touch GT up here, even though they are a good company. CTB, on the other hand, I would be interested in if it retests $15 but not $18.50. Also, did you see that uber shake-out ahead of earnings – that screams manipulated stock!


  10. Phil,
    Sometime over the next week would you set up a leap income play on NYX. I do quite a few short term plays but would like to have more of these as income.
    Thanks
    Bill
    I also went to a presentation by DVN this weekend. I’ll write on it tomorrow but it was quite interesting


  11. Phil,

    Great scott, man! Are you going to offer a “Cliff’s Notes” version of this weekend’s articles? :)
    Just checking in before taking the kids to the beach today, no way I can read all of that!

    juliet,

    Believe it or not, my first thought waking up last Tuesday, Feb 27th was “I wonder how much the Down Jones average will be down today?” …. even before I had heard about the China sell-off. I’m sure your sub-conscious is reflecting the fact that you are worried!


  12. Who wants to bet the Nikkei doesn’t hold 17000 today/tonight in Japan?


  13. I will take that Nikkei bet and raise you to 17,400!

    ============================================

    NYX – If I’m right on the Nikkei (might just be wishful thinking) then remind me on NYX. They are down a very critical 15% for the month but less (12.5%) over 3 months and up 33% over six months.

    I would call $97.50 their median top so the 5% rule has them at 92.50 and $88 and $83.50 and $80

    Since $80 is a powerful Fibonacci 50 retrace of the gain from $60 to $100, that would seem to be the life and death line for these guys, otherwise they go to $70 or worse.

    There’s no way these guys fight the market but they could be a nice gainer if we have a rally.


  14. Hey! in “How to Hedge…” there was a link to videos on ARPS fear Greed indicator — is there free access to this tool anywhere?


  15. Ut ohhhh, Nikkei 16,897! Hope Japan recovers before the end of the day.

    j


  16. GOOG
    Don’t know if this means anything, but, caught my attention:

    **************************************************************
    Mar 03, 2007 (Vickers Stock Research via COMTEX) — Document Processing Date: March 02, 2007
    Stock Name: Google Inc Stock CUSIP: 38259P508
    Filer: SEQUOIA CAPITAL X Position: Director
    Stock Symbol: GOOG Exchange: NASDAQ Stock Type: COM

    Transaction period: February 27, 2007
    Trade amount: 274466 shares Trade type: Acquisition (Non Open Market)
    Trade price range:

    Shares still held: 941027 shares Own Type: Indirect
    **************************************************************

    This was from Fidelity. There were a whole bunch of them acquired by Sequoia that finally added to this total of 941027. There were aquisitions done by Schmidt, but, he’s also sold a lot. Seems like he is just cashing shares out and getting new ones. Don’t know what sort of agreement Google has Sequoia. But, that’s a lot of shares. Hope they hold on to them for a while! =)

    If GOOG doesn’t get a bounce, it could easily go to 420. And, unless there are some big, positive, news, the bounce would probably be contained under 470. So, I’m going to watch my APR calls carefully, and either cash out (hopefully, with some profits), and/or hedge my postion if GOOG can’t seem to bounce above the MAs on the daily chart.


  17. Pretty bullish news this weekend across the board. Positive talk from Japanese officials about the economy. Bear Stearns says the Yen carry trade is insignificant in global capital markets. Chinese parliament was “seen as positive” for their market, according to Shanghai Securities. “Chinese research note from CITIC Securities saying the injection of assets by the parent companies of their listed units could whip the Chinese stock market into another bullish run…report contends that the slump was similar to what happened last June when the market nosedived as goverment-inspired reforms came to an end.”

    I consider all of this to be talk and very little more (none of these people want anyone to start selling…). I still think we’re in for another leg down here in the US although I’m very ready for short-term longs if it looks like a bounce is imminent.
    I was thinking about some short oil and long gold plays, as oil has been stable here while gold has sold off. If we’re in for some economic woes than oil should see selling pressure (and gold, which is nearing oversold, may even go up). On the downside, I don’t expect oil to run up as fast as gold if we have already seen the worst of the “commodity bubble” correction. GG, ABX, HMY, NAK vs. BHI,APC and maybe SWN,DVN? Just a thought I’ll be looking at tomorrow. Might be one more day of selling in gold before we bounce. Anyone have a take?
    What’s with MGM? I’m tempted to short it up here.
    On the Surety and Title play I was thinking about a while ago, FAF hasn’t downticked -though MBI and PMI both have. SUR looks like it’s about to tank, but a la Tom2oc I’m waiting for a break of that range support (which is right above the 200dma as I have it.
    PJC is looking like a technical short, having come down from a double top, broken the bottom of it’s range, and crossed south over the 200dma line.
    I have my eye on BSC, GS, and the other brokers. When “risk” suddenly shows up with a sledge hammer I’m tempted to guess that these guys have taken some hits. I’m not conversant in these matters, but a general thread I’ve seen over the last long time is that “risk” is supposed to be significantly less these days. The buffers of a global marketplace, plenty of liquidity, transparent central banks…In any case, consider Credit Derivative Swaps. See the wiki: http://en.wikipedia.org/wiki/Credit_default_swap -the example is comprehensible. You own a bond, so you agree to pay a certain amount to transfer the risk of default to someone else. Less “risk” = more attractive to sell swaps. Furthermore, less “risk” = less movement, which means you have to lay it on thick to make the same profit as before…
    But I know we’re not too keen on shorting these brokers anymore, since it seems like they must have clandestinely acquired several U.S. mints over the last few years.
    Go read this guy, his blog is on my daily hit list (and make sure to scroll down and read his post about the selloff, entitled ” Dow Falls 666 Points on Fire, Brimstone”): http://accruedint.blogspot.com/


  18. Talking about the financial sector, check this link out. http://www.lenderimplode.com/

    Wonder how many banks will get hit next few quarters?

    Also wondering if anyone has any thoughts on long-term puts on banks in that list.


  19. Okay, speaking of CDS’, now I’m going to short the brokers.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=azrxhCZbHMLk&refer=home
    Absolutely hilarious. Where is Henry Miller when you need someone to explain just how hilarious (and surreal) it is that their own traders are effectively reclassifying their employers debt to worse than “junk”?
    Cosmodemonic finance for you.

    “Morgan Stanley and Goldman were among the top five traders of credit-default swaps in 2005, a group that represented 86 percent of the market, according to a September Fitch Ratings report. Lehman, Merrill and Bear Stearns were among the top 12.”
    The top five players represent 86 percent of the market?? I can’t imagine that there is any way that these guys get out unscathed. Who is there to sell to?

    And wow is this mortgage think getting a lot worse in a hurry. NEW at a high of 52 in May -now trading at a shade under 11? How the hell did management think their shares were a buy at 40? Or I guess to get to the heart of the matter, how the hell is management not in jail?
    My favorite quote from that site: “Let’s play a game: are pensions or subprime holdings ($57bln) a bigger problem for GM?”

    Apart from the brokers (and now the other financials I’m going to spend the night looking through, such as the money center and regional banks, credit svc. companies, and those surety and title boys), I’m that much more bearish on the market now. It’d be quite a coup for equity markets if this subprime debacle stays contained -what are the chances? I guess it’s a good thing we’ve perfected (Nay, improved upon!) the Pareto Principle. Maybe the 20 (or 15) percent who spend with casual and ceaseless vigor (the “Manifest Destiny” set) will make up for the other 80 who are too lazy to inherit a fortune and support our consumer economy.


  20. “Subprime loans are only 10% of the mortgage market”

    Aren’t only 4-6% of all homes, for sale on the market at any given time?

    So, if only half of the bad subprime loans go bad, doesn’t this double the supply of for-sale inventory?

    Just wondering …


  21. Crikes – Nikkei is down to 16,746 now…16,735…everything in Asia is bleeding out of all sorts of orifices right now. 16,733.


  22. For what its worth, a news letter a buddy of mine gets is touting only one investment for 07/08.
    RKH leaps puts. They are basically arguing that the subprime meltdown, along with rising interest rates that will be necessary to attract foreign investment to support the US debt, and a falling dollar will all hit the fan sooner or later and the banks will get clobbered.


  23. bmb

    As well as holding long-dated puts on several of the subprime lenders, I also have long dated puts on HBC and MER.


  24. The Chinese market seems to be doing ok, even in the positive land for a while. Didn’t they start the whole thing?

    Percentage below 52-wk high (At the moment):

    Asian
    ^N225 8.3%
    ^SSEC (China) 8.3%
    ^TWII (Taiwan) 7.8%
    ^BSESN (India) 15%!!

    vs. Europe & US
    ^FTSE 5.2%
    ^IXIC 6.5%
    ^DJI 5.7%
    ^DJA 6%
    ^GSPC 5.3%
    ^MID 5.4%


  25. Denver,

    RKH leap puts – thinly traded, with wide spreads. Might be worth laddering down on the 08 and 09 to the 140.00 bracket, where there is the most open interest, possibly created by the newsletter.


  26. Hmm. not a good Nikkei result – good call John!

    ==================================================

    Nice bunch of reading Rock – I’m going to use that Bloomberg article this morning, thanks!

    The Implode-O-Meter is up 4 from last week. Should we be concerned about 4 sub-prime lenders shutting down (2 entirely, 2 just the division) in a week? Er…. yes!

    ===================================================

    I’m so angry about the brokers because I predicted they would implode back in the fall and I got spanked so badly it made me gun-shy to short them at this last ridiculous top. I’m still scared to short them frankly as MS and GS handed me 2 of my worst losses of the year.

    ===================================================

    That statistic that sub-prime loans are only 10% of the market – that’s 10% of 100M homes with an average value of $250,000 each or $25T. You can assume it’s lower and that older homes have equity but the reality is that the newer homes are far more expensive and have no equity but even if you assume just $15T in housing debt, we’re talking about $1.5T in sub-prime debt. A 20% default rate costs someone $300B PER YEAR until it stops.

    And it’s worst than that since I borrow $200K from Bank A, who makes a profit and Flips it to Bank B, who makes a profit and flips it to Goldman Sachs, who books a profit and sells those securities back to me (as an investor). So when I default I wipe out my own bonds, crush the Profits of GS, Bank B and Bank A if they have claw-back provisions (lots of internal costs pushing these things around) and, of course, I am removed from the food chain as a consumer as all my credit cards get taken away….

    This is how an economy can collapse and everyone stands around saying “Gee, I never saw that coming…”

    ================================================

    HBC – will be interesting as sub-prime losses there, although terrible ($2Bn+) were not as bad as expected.

    ================================================

    Happy – my current post-it says “Don’t Grasp at Straws” – I was looking at the Shanghai too but can you really trust what goes on in China with the rest of Asia in an accelerating melt-down?


  27. Is today the new portfolio day?