Tag Archives: ETF’s

Required Reading for All Investors

President Obama just finished speaking about the economy from Nellis Air Force Base in Las Vegas, NV. Very positive, uplifting, well-laid speech – something we can finally say about our President again. If you don’t know how the markets have been responding to our President, then you probably don’t know what’s been going on in the markets in general. This post would be a novel if i tried to go over just what’s happened this week, and Monday was a Holiday. So, thankfully here’s an article that kind of sums everything up nicely and in such a simple manner, my 10 year old little brother might be able to beat the average investment manager after seeing this. I like how the article was published kind of in tandem with The President’s speech today. Enjoy!

Oh, just in case you didn’t know, the 20-day simple moving average on the Nasdaq crossed over the 200 yesterday. Let’s see if that GDP number on Friday can help the Dow and S&P catch up. Happy Trading.

Great pic from The Huffington Post

Great pic from The Huffington Post

Campos vs. Asensio: More on Short-Selling and The Uptick Rule

This past Tuesday afternoon, April 7, Bloomberg News featured two prominent figures in the world of finance to discuss and debate the SEC’s proposed reinstatement of the traditional uptick rule, or the imposition of a modified version. It sure was a showdown in the world of market regulation. Here’s the recap and analysis…

 

In the Blue Corner arguing in favor of the uptick rule, we have Roel “Jor-El” Campos -Former SEC Commissioner, and advocate of more regulation in the area of naked short-selling.

In the Red Corner arguing against the uptick rule (and, it turns out, any and all short-selling restrictions of any kind) we have Manuel “Lex Luthor” Asensio – Managing Director of New York based Hedge fund, Millrock, (and best Lex Luthor look alike I’ve ever seen!)

 

Slightly resembles Campos, No?

Slightly resembles Campos, No?

Campos does a great job of actually explaining what the uptick rule is and, later in the interview, the difference between legal short-selling and illegal “naked” short-selling. In case you missed it, the uptick rule or uptick “test” would mean “that a short sale [order] cannot be executed [in the market] unless there is some evidence…[by either] a price test or a bid test…as to whether the stock is rising.” Essentially, this means that stocks can only be shorted when they are actually going up at the moment you place the short sale order. He also explains that the uptick rule is a bit of “Chicken soup,” meaning it’ll make the activists and congressional members that have pressured the SEC about it feel a little bit better about the prospect of abusive short-selling being less prevalent in the markets. However, with the markets as computerized as they are today, and with more advancements on the way, it’s still very easy for savvy, sophisticated, investors to “manipulate the tape” – create the appearance that a stock is experiencing buying or selling pressure by placing strategic large orders on the order book – and still get away with the type of dubious activity that the uptick rule is essentially looking to at least hinder. So, Campos actually even concedes to what he also believes as fact, that even restoring the uptick rule or something like it really won’t do much in the way of stopping illegal short-selling activity.

In response, however, Asensio starts off throwing wild accusations at Campos. He references a letter Campos wrote supporting the regulation of short-selling by imposing the uptick rule or some modified version, which was supported by many “main street companies.” Asensio says these companies that Campos represents are “very questionable companies…that should be the targets of the investigations themselves.” He then calls for more deregulation of the markets in regard to short-selling, stating “there is no economic reason why America should cause and force short-sellers to borrow stock.” He tries to make all short-sellers look like they are all some kind of investment superheroes that short stocks purely for the purposes of stopping price manipulation on the upside and to discover true price parity, or the true value of a stock. He even advocates for the legislation of whistleblower protection for members of public companies that are sued by those companies for blowing the whistle, and tries the old guilt-by-association tactic of trying to say Campos “represents” these types of companies. This guy is some piece of work, but if you keep an eye out for the signs and read between the lines, it’s very easy to see the wolf in sheep’s clothing.

Asensios a dead ringer!

Asensio's a dead ringer!

First of all, I’ve been searching for this supposed letter by Campos, which is supported by these “questionable companies,” and I haven’t been able to come up with much. The two that are fairly recent and deal most directly with the issue at hand that I did locate, can be found by clicking the links in this sentence. But neither really mentions nor is endorsed by any public companies…unless Asensio was talking about the companies through which the letters were published? That doesn’t make much sense either though. So, what underhanded, “questionable” organizations is he talking about? To be honest, I don’t even think he knows what companies he’s trying to implicate by saying that. His entire performance is nothing more than the typical cloak and dagger tactics you would expect from a perfidious, villainous, Lex Luthor-ian salesman, especially now, and especially in the finance industry. Is it really a wonder why we are in the mess we are in right now with guys like this running hedge funds?

Secondly, the calmly arrogant demeanor that Asensio maintains throughout the interview is simply an extension of this surreptitiously evil mind trying to maintain this bogus façade of nobility and humility, trying to lure the viewer into seeing it his way, or at least see that he is perhaps much more credible than he obviously is in reality. Saying that short-sellers shouldn’t have to borrow any stock at all and should be able to sell shares at will with absolutely no regard for the downside and the possibility of that trade going against them, is just like saying buyers shouldn’t be forced to actually pay for the stock they buy, and should be able to buy at will. If this were truly allowed to happen, the current economic recession would feel like utopia compared to the economic situation we would be in as a nation if Joe the Plumber and his band of brothers could actually participate in the market without having to actually pay for any trades that went against them. The market would have dropped to 0 if these were the rules for investing, because once the market started to drop from 14,000+ in October 2007, no one would have paid for their trades! Anyone that pretty much bought stock from then through November 20th 2008 – some until March 9th of this year – has been losing money on that trade every day since they bought it! Why the fuck would you pay a trade they were down in by 2, 5, or 10% by settlement, especially if they didn’t have to? NOBODY!

Finally, it’s obvious that borrowing is what got not just us but the entire globe into this trouble in the first place. The fact that on many stocks, mostly very volatile ones, the extent to which you have to “borrow” (to cover for settlement) is as high as 75-80%, is a means of keeping that same type of out of control leverage that was prevalent in other markets and helped get us into this, away from these markets. All trades are based on ifs, and if that trade goes against you, you’ll be glad that the higher requirements saved you from getting crushed on the entire position, because you “were forced to protect” 75-80% of that highly speculative position. Now you’re only getting crushed on 20-25% of it, but at least you’re still in business. It’s tragic when going the wrong way on one trade in Volkswagen could cause a short-seller to take his life, so I’d say this type of protection is critical on all investments, but especially on ones that are tremendously high in speculation.

The uptick rule is like warning labels on cigarette boxes. Shorting, like smoking, is the other side of a 2 sided coin. Buyer’s, like non-smoker’s, and proponents of selling (smoking) restrictions. Non-smoker’s recognize the health risks that smoking poses to the overall community, as buyers recognize that deflating prices, by shorting stocks, brings the overall economy down thereby threatening the economic health of the overall community,  along with the markets. Regardless, shorter’s are gonna short, and smokers and gonna smoke. The uptick rule, like a warning label, simply makes it a little less attractive to do it, and has been proven to have the overall effect of discouraging an action (naked short-selling and smoking) that has proven to at least inject more potential for unhealthy activity.

At the end of the day, it is clear that this was a very poor attempt by Manuel Asensio at trying to maintain the shroud of secrecy around what short-selling actually is and the market manipulation that can and does occur due to abusive naked short-selling. He does great job looking like one of the most diabolically evil genius’ of all comic book history, but is too transparent with his chicanery to truly pull off the full impersonation. In my eyes, Gene Hackman will always be the best Lex Luthor!

The one and only...

The one and only...

The Power of A Dollar

What a ride it’s been for the past couple of weeks. There have been a number of measures taken by the Fed, the Treasury, the Administration, and Congress to prop up our nation’s economy. There has been even more criticism from all angles. I myself am even skeptical of many of the recent moves made by our Government in response to this crisis. Despite that, the big picture for investors is this: more money being pumped into this market to stabilize it, along with a few “better-than-expected” economic indicators showing that at the very least the decline is subsiding, certainly creates a nice environment for making some solid profits!

Here are the numbers:

On Monday March 9th, the low on the Dow Jones was 6440 according to yahoo.finance.

A little over two weeks later, on Thursday March 26th, the Dow hit a high of 7969.

That’s a move of 23.7% from trough to peak, in just over a payment cycle!

Hypothetically, if you invested $100 in a stock that moved directly in-line with the market, that $100 was worth $123.70…on Thursday, March 26th…at the peak of the day.

Of course, unless you sold at that very moment, it would now be worth less, but still roughly $116 today, with the market around 7500. Not bad.

Now, here’s the kicker. I bet there are a lot of investors that were sitting on some nice profits this past Friday, when a slew of reports hit the news regarding negative sentiment for upcoming earnings and economic indicators for the first quarter of ’09, along with some very public “infighting” at AIG, all stirred the pot of selling pressure. I took profits on some of my investments, but I bet there is an extremely large number of investors out there that didn’t. Even with today’s blood-letting of 254 points on the Dow, there are still a ton of investors that are still up 16% on investments made within the last few weeks, but still will not sell anytime soon. They would rather let those profits disappear in the hope or belief that given time, the investment will give them another opportunity to net an even higher return.

My philosophy is, if you believe the stock will not only go up again (after it moves lower from where it is now), but that it will rise higher than this previous peak on the next go round, why not book the profits you have, (16%) and then buy back in when you think this current downward move is coming to an end? Following my philosophy and still using the $100 hypothetical from earlier, you would have $116 after selling your investment today. If over the next 2 weeks, the market went back to 6500-6440 (to test the “bottom”) and you got back into your hypothetical investment (which in our example moves directly in-line with the market), now you’d be reinvesting $116 instead of just holding the original $100. If, following that re-investment, the market and your stock proceeded to make the same move upward, (another 23.7%,) back to these past highs, well then at that point, your original $100 that you booked profits on and reinvested at $116, is now worth about $143…so far! The guy that held on the whole time and never sold for the re-buy on the dip, he’s back to his original $100 being worth $123.70…if he sells tomorrow.

Some might say that this philosophy would be akin to trying to “time the market” and “no one can accurately time the market over the short term.” This is a statement I wholeheartedly disagree with. On a very basic level, if this were true, then a logical conclusion might also be that no one could accurately make money in the market since doing so directly involves timing. No matter what direction the general market is moving, all good situations have bad times. If you get in at a bad time, you’re done. Therefore, timing is the most important thing when it comes to making any investment. The intent behind any and all research done and reports read about investments is to determine whether or not it is the right time to buy, sell, or continuing holding the asset. To say you can’t “time” the market accurately demonstrates a defeatist attitude, which typically leads to the self-fulfilling prophecy of most investors not making money with their market ventures despite their best efforts, but if it were true, it would also mean that any and all research done on investments is all for naught since it won’t help anyone “time the market accurately.” Obviously, this is not true, so the former must not be true either.

In order to be a successful investor, especially now, you need to know, understand, and believe that not only is it possible to “time the market” over the short-term, it is fairly easy. Let me say that again, because it goes against everything that the perceived “Wall Street wizards” want you to believe and have told you since the markets were created. It is easy to time the market over the short-term! Money managers have lied to us from the beginning of finance and commerce about this fact for a simple reason. If society and therefore the investment community actually knew how easy it was to track, follow, and predict the movements of your investments, they wouldn’t need investment advisors and those guys wouldn’t make any money. They wouldn’t even have jobs. We need to believe that it is hard to make money in the markets in order for us to believe that we will not be able to do it without their help. That way, they can charge us just for talking to them, no matter how good or bad their advice!

What do you actually pay your investment advisor for? Being a former registered representative, I know exactly what it is, and what your advisor wants you to believe it is, and let me tell you, those are two very different things. He wants you to believe you pay him mainly for his speed and availability of financial information, and for the resources his organization may boast having access to, such as analysis, which he wants you to believe you certainly cannot do on your own without the “training,” “experience,” and “expertise” he or his colleagues may possess. Well, if the current state of our economy is the result of their “training, experience, and expertise,” I think it’s fairly safe to say we certainly could have lost our own money – and probably would have had a lot more fun doing it our way at that.

No, what you actually pay a broker for is simply to gain access to the markets. Your broker is in direct competition with TD Ameritrade (my personal choice,) Etrade, and all the other onlinebrokerage companies, because with online firms, you pay a low flat-rate commission per transaction, and have general access to the same information your broker holds over your head as “unattainable, unless you’re on Wall Street.” There are also extra informational services offered through most online trading firms that can be earned through consistent trading, or you can pay for it. Regardless, the only real way for you to get your money from your bank account and into shares of a company that trades on the market is by going through an investment or brokerage firm. Either you make your own trades, or you pay someone else at the firm to manage your portfolio, and do all the work that goes along with it, for you. It should be obvious now that since brokers get paid by charging you a commission, whether you make money or not, they have an inherent incentive in not doing all the work that goes along with managing your money.

First, let me preface this by stating that in order to be confident on your own ability to do anything, you must educate yourself  as much as humanly possible in the intricacies of that arena. In order to be confident in your own ability to time the market and make investment decisions without the direct, commission-generating assistance of a broker, you first need to know what makes the market move. Economic indicators, like GDP or monthly unemployment stats, legislative action from the Government, such as Healthcare reform, or tax changes, Interest rate changes from the Federal Reserve, all of these events can have a serious impact on the market. If the news is, or the numbers are in line with what most investors are expecting, the impact is usually positive, and if things happen unexpectedly, the move usually goes whichever way the unexpected news favors. Over time, watching and observing the markets, and watching closely during these times and around these events -among many, many others – you should notice certain patterns begin to emerge. Once you are able to recognize a pattern, making a prediction becomes a lot easier.

The next thing you need to know is how the overall moves in the market can affect the moves experienced in your investments. Do your investments tend to move with the market or against it? Once you know if your assets move with or against the market, you need to determine if they move more, less, or as dramatic as the market moves. (In stocks and finance, this relationship is quantified as the “beta value,” and measures a stock’s volatility in relation to the overall market. A thorough understanding of the underlying information that lies within this single number is essential to being able to accurately predict the short-term or long-term direction of your investments.)

Now once you know what moves the market, and how those moves in the overall market will impact the moves of your investments, you need to know what events that are not specific to the overall market will also have the affect of moving your stocks in any one direction. Earnings announcements, contracts, buyouts, law suits and litigation, all of these and more are big events that are stock-specific, and can have a dramatic impact on where your investments are headed. Not only that, there is an inherent pattern of movement within each stock that is directly linked to the frequency of these events. That pattern can be seen by looking at the stocks chart. Each reversal in movement, every time the stock turns upward after moving down, and vice versa, can pretty much be attributed to either a single occurrence of some event, or a cumulative result from the combination of a few. Good earnings send a flat or down stock upward. Law suits tend to be like cinder blocks wrapped around the ankles of previously rising stocks. A company receives a large unexpected contract, the stock is going up, especially during the next earnings announcement, because that’s when that large unexpected income should hit the balance sheets.

These are just a few small examples of events that occur within stocks, (stock -specific events) that will either send the price significantly higher or lower. Since the legitimacy of that statement for each individual will depend on their definition of the phrase “significantly higher or lower,” I would consider it to be $1 or 2.5% or more in any direction, whichever is greater. A move of $1 is equal to 100% to 2.5% on anything trading between $1 and $40 per share. It’s exactly 2% or less on investments of $50 or more. (That’s the power of a dollar!)

Now that you know what moves the market, what moves your stocks, and you’ve been watching for patterns of how deep the impact on your investments can be based on the occurrence of these events, you need to know how predictions about the market are made in the first place. Tracking various indicators on the chart of a particular investment – volume, moving averages, relative strength, etc. – is the science known as Technical Analysis, and is one way financial “professionals” try to make predictions about the overall markets as well as specific investments. Looking at a company’s balance sheet and analyzing their debt situation, growth numbers over the past and projections for the future, operating and profit margins, etc. and using this company finance data to predict how a company will perform in the overall market is known as Fundamental Analysis. Many people think that these two disciplines clash, and choose to utilize mainly one or the other. I think that’s the hugest, most costly mistake many investors and investment managers make.

In order to successfully make money with your investments, you must maintain excellent awareness of both the technicals and fundamentals, and the changes that occur therein, of any and all investments you make. Why dismiss an entire discipline of information that may certainly prove itself to be valuable when it comes to making money? Knowing and tracking the events that give you an indication of the fundamentals of our economy, combined with the knowledge of those same events and indicators within the specific company’s you are looking at for investments, you will be much more confident and able to analyze information quickly and accurately as it is received, and much more confident in your ability to fire your broker and do this on your own, if you haven’t already. Stay on top of the news, watch the charts, you can even utilize virtual stock trading websites online to test your predictions and trade with fake money to see what would happen without actually risking your own liquidity. Keep learning about the various events and occurrences that can significantly move the markets and your stocks. There are millions of them, so discern which are most important and why. Constantly seek out information that will help you find out how this behemoth system of market finance operates, and always keep building your financial knowledge database. It may sound like a lot of information and may seem daunting to digest it all, but really, how hard is reading and watching? If investors were much more involved in informing themselves, and took more control of their own market-education, a crisis like this, (perhaps even Bernie Madoff), might have been avoided, or at least could have been more mild. Information is Power.

*This post is aimed at investors and anyone that already has funds committed to market investments. Investing in financial products should not be done without thorough research of the markets and products in which you are interested in investing, and at least the consultation of a true professional that you know and trust. As a rule of thumb, take everything you hear or read about the markets or investing with a grain of salt, as most statements about making money in finance will be material conditionals.

The Week Ahead: Weekly Activities For Every Investor

Let me preface this article correctly prior to your hopeful enjoyment. Prior to finding a career path that I felt passionate about, I like everyone else, looked for a “job” in the urban rat race, and found myself as a broker-trainee at a full-service boutique brokerage firm on Wall Street. 3 months and a week after my interview at that firm, I was a Series 7 & 63 licensed registered representative. In 4 years on Wall Street, I made some good money, ran my own team of brokers and trainees, and most importantly, got out when I realized that my goals for my clients and my goals for myself were in direct conflict with each other. Now that’s another post for another time, but I say all that to say that I know how the industry works from somewhat of an inside perspective. Not an insider perspective’s; I didn’t work at any firms that trade publicly, not as a broker anyway, and am not in position to know anyone that would have “insider information.” Even if I did, I obviously wouldn’t be readily advertising my possession of information that would be illegal to disseminate. So, reading this, you will not receive the “golden tip” that will allow you to “corner the market” on anything.

***Also, and this is the most important: I am no longer a registered representative, nor do I work for any organization involved in the Finance, Insurance, or Banking Industry’s. I do not work for any organization for that matter, as I am currently unemployed. All financial information contained herein this article, and anywhere else on this blog is based solely on my opinion, or that of the writer, and should NOT be considered as a recommendation for or against any trading activity in any financial markets. All investors should consult with a Certified Financial Planner or Advisor prior to making any trading decisions and all decisions that could potentially have serious affects on the financial stability of that investor. Any gains or losses in time or money incurred in the financial markets generated based on any information contained herein this article or on this blog is the sole responsibility of the reader. TheRabidWhole’s Blog, and WordPress.com, will NOT be held responsible for any gains or losses incurred in the financial account of any reader and/or investor that directs market activity based on any of the information contained on TheRabidWhole’s Blog.***

 

Now that that is out of the way, remember that this is strictly the opinion of one man. You, the reader, are responsible for what you do based on this information.

The World Bank just announced that they are forecasting a drop in the world economy for the first time since World War II. OPEC also announced cuts, that will potentially push oil prices north of $50 per barrel. This should come as no surprise, as we are moving into the summer months. No matter how the economy is doing, people all over the world travel more during the summer. Kids, buses, and planes, go back and forth from private schools, colleges, and universities. Now with unemployment as high as it is, and with the spread between household income and the standard of living closing rapidly, (already “underwater” for some) there will of course be a lot less travel and therefore oil consumption than last summer. However, the cyclical nature of the increase in oil consumption and prices will still prove valid, in my opinion (IMO). As investor, it is always important to know what is going in the economy on a “macro” scale, which basically means on a very basic superficial, many investment professionals would say on a “fundamental,” basis. For me, a great way to access this public information that every investor should know is by checking out cnnmoney.com every Sunday. The site has an article series, “The week ahead” which provides investors with a glimpse into the important economic information due to be reported on for the upcoming week. (Click here for this past Sunday’s article which gives a glimpse into what’s happening on Wall Street and in Washington this week.)

Regardless of whether or not you are able to keep a close watch of your investment portfolio, every investor should be aware of potential upcoming events that may present opportunities to either get positioned in a stock or security you feel can show you profits, or to take profits on a position in which you may already have profits. I myself have found the week ahead article series extremely helpful in allowing me to anticipate the daily fluctuations of the overall markets. How? Well, on a trading day in which there will be important economic news, and that news is mostly projected to be negative, (February Retail Sales due to be reported on this Thursday, for example, or the Trade Defecit Report due this Friday) chances are that negative news will bring the overall market down for that day. When the market is down, most stocks will be down if only due to the reason that a move in the overall market reflects, at the very least, 50% of the move any individual stock will show on that same day. So, unless you have a particular position that has a great news release or some sort of positive catalyst that will cause that position to “buck the trend” and climb in the face of a falling market, most likely that position will follow the trend. Therefore, forming an opinion about how you believe the market will act overall in relation to any economic news released on any day should sharpen your ability to anticipate market moves on any given day. Now, you won’t become the Nostradamus of the Stock Market, nor will you reach “Oracle of Omaha” status, but knowing what is due to be reported, you should be able to discern whether or not that information will be taken positively or negatively by most other investors. Opinions quite possibly vary most on this perspective, but I personally believe that any day where the overall market is down should be taken as a buying opportunity somewhere. The trick is finding that situation that has been doing well recently, both fundamentally and technically, and still has enough potential (enough positive sentiment behind the stock or security) to fall less than the market falls (percentage wise), on a red day, a down day, and also enough positivity to rise immediately and aggressively at the first sign of positive news, which will lend to even more positive sentiment on that stock.

A great and recent example of this has been Gamestop Corp. (NASD:GME). From September, when our economic armageddon began, to November 20th, (the “November Lows”) GME was falling just like the market, despite some positive news specific to that stock. This is obviously because the overall news regarding the global economy, the entire financial system, and our housing and insurance systems was so dismal, and we were in the midst of a recession already 10-12 months in the making, that nothing could really stop the downfall at that time, not even individual positive news. Just like an individual that had A+ credit at that time, Gamestop as an A+ rated company at the time (or at least BB+ rated according the S&P upgrade of their corporate credit rating on Sep. 18, 2008) was still being treated like every other questionable company out there. The entire system was questionable. However, that company was and still is the world’s largest videogame retailer, and still experiencing significant growth, despite the economic contractions. Nevertheless, the stock price fell from $41 the Friday before the Lehman collapse, to as low as $16.91 on November 20th. This illustrates the importance of having information that gives you a glimpse into what may be coming on the economic front. Just looking at information on the stock itself in September, it looked like a good opportunity to buy and make some profits. But looking also at the information that would have been in those cnnmoney week ahead articles around that time, certainly would have given you a completely different perspective, and might perhaps have provided you with enough insight to see that buying Gamestop in September indeed may not have been the best time to get involved. It’s certainly something, you would have wanted to keep an eye on though. Since those November lows of $16.91, GME has traded as high as $29.08 (reached on Feb. 25, 2009), and is currently back down to $22 and change, due to other video game retailers attempting to enter the used video game market that Gamestop has dominated for so long. Anyone else smell a buying opportunity?

 

Ultimately, it is every investor’s duty to educate yourself on any and everything that could affect your investments in any way. If that sounds like a daunting task, perhaps you should consider keeping all of your money in savings and checking accounts, or the proverbial mattress. But if you want to be successful at investing, just like being successful at anything, you need to arm yourself with the tools that will enable you to do as best a job as humanly possible. No matter how much time you have to devote to research and education on investments, every investor should at least check the news headlines on their positions each week to be aware of what has happened, as well as attempt to gain information on any and all upcoming economic events or reports that could impact your specific holdings, or the industry’s in which your holdings operate. If you haven’t already noticed from the tone of this article, I myself prefer to deal strictly with stocks and stock options, also called equity options. However, that does not mean that this mentality cannot be applied to mutual funds, Bonds, Commodities, ETF’s, and any other financial products in which one might choose to invest. Knowledge is power, and absolute power corrupts absolutely, so never think that you know so much about any one thing that you do not need to know more. Good luck!