Market Talk

Discussing everything from the macro market to stocks to strategies.

I plan to slaughter, not today, not tomorrow, but the future

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My thoughts on the past couple weeks is what this is about. I manage money, investments, or conceptualy people’s financial futures. Personally I feel managing money for folks is tightly linked to how one conducts life itself. In simpler terms it is completely psychological.  Compare it to a game of chess or poker it is all about strategy and decision making.

The masses always overreact and panic. It is what they do. The bigger something becomes the more dumb and slow it becomes. Feeble becomes the mind. Money is emotional for people and my job in handling their assets to strip the emotion from it. When emotion is introduced into decision making it becomes skewed. Remaining objective is always key. The media and masses have been calling for a market top. Comparisons to the internet bubble, crash of 87 and 1929 are made.  Regular people tell me in conversation “this market has to be topping out” and I waiver my head. I choose my words wisely because I do not want to insult and come off to brash. The answer to them in simple though. If everyone expects an outcome, that is not the outcome they will receive.

The truth is I do not believe this. What has changed? I have bought this blood over the past two weeks and have had to add because it has kept bleeding. I will not deny this is ugly. Its borderline horrific on my end. I am what professionals would say is a “bagholder” at the moment. In conversation some of these stocks I mention deliver looks as if I told people I have the AIDS.

The truth is most of companies that participate in the blood bath are the very best companies of the future with business models that keep growing. Its almost a crime or rather gift this has happened in these stocks.  Your prerogative.  I am normally an active guy constantly rotating in and out of names taking nice sized gains parlaying them into something new and fresh ready to move. Taking risk off the table selling into strength to find more strength to sell into.

However, I am of the cloth that you trade the tape in front of you. There is no trade on the long side here. The trade is short and I do not do that for my clients. I am in standing strong. Pounding my fist on revenue growth, enterprise value, cash flow and future prospects. I am harnessing my inner Rothschild and buying all of the weakling blood that is filling up the streets.  To sell here is to give in. To sell means you have been had. That’s what the average Joe would do. Hedge funds got caught over leveraged and are dumping the stocks they own. Its atrocious and I need to ride the wave out of it. I am not a bitch and I know these stocks which are being slaughtered will go higher. If every fighter quit when they got punched in the face there would be no champions.

Multiple algorithms I use say we are oversold. Just simple math on percentages say we are oversold. Fuck naysayers they can lick my ass cheeks and the sick bastards that call this healthy are liars and do not have money in this market. Its a bloodbath of hedge funds. They want to shake the weak hands out.

I am positioning myself and clients for greatness.  Sour puss people are looking for negativity in the best of businesses. They harm these stocks but do not realize when it is all said and done these stocks will have there vengeance ten fold.

Haters gonna hate. Haters will be slaughtered.

Long-Term Thinking: 1800-2013

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A great satirical piece on the horrendous reporting of financial markets and is a must share.

Morgan Housel – January 3, 2014

Long-Term Thinking died on Tuesday. His last true friend, Vanguard founder Jack Bogle, was at his side. He was 213 years old.

Long-Term Thinking lived an illustrious life since the start of the Industrial Revolution, when for the first time, people could think about more than their next meal. But poor incentives and the rise of 24/7 media chipped away at his health. The final blow came Monday, when a trader on CNBC warned that a 10% market pullback — which has occurred on average every 11 months over the last century — could be “devastating” for investors. “That’s it,” Long-Term Thinking whispered from his hospital bed. “There’s no more room for me here.” He died soon after Bloomberg published its daily tally of how much the net worths of the world’s billionaires changed in the previous 24 hours.

Long-Term Thinking endured the Great Depression, world wars, and spiking interest rates in the 1980s. But the last five years proved too much, as he fought for relevance with cable news, Twitter, and derivatives. He was hospitalized in May 2010 after pundits lost their collective minds over a “flash crash” that made a few stock prices freeze up for 17 minutes. “Computers froze for seventeen minutes and they literally think American industry vanished,” Long-Term Thinking told his psychiatrist. “These people are insane.”

Fifty years ago, the average stock was held for more than eight years, according to LPL Financial. By 2010, the average stock was owned for five days. Fifteen years ago, S&P 500 companies spent more than 40% of available cash flow on capital investments. That fell to just over 25% by 2007, with the difference going mostly to share buybacks, likely to boost option-based compensation. “Our culture has an endemic problem of short-term thinking,” Long Term said in his final speech in November. “Years have become months, months have become days, days have become milliseconds, and milliseconds have become careers. However much you think you’re winning in the short run, you’re losing in the long run.”

Long-Term frequently blamed media. Louis Rukeyser’s Wall Street Week went off the air the same year Mad Money, Jim Cramer’s daily investment show, debuted. The number of important financial events hasn’t changed since Rukeyser could cover a whole week’s news in an hour — just the amount of drivel, gossip, nonsense, and hyperbole. It was too much for Long-Term Thinking to handle. Once the bastion of rational thought, he became the laughingstock of the financial world, repeatedly teased for his indifference to candlestick charts and the 50-day moving average.

Some mourned his passing. Peter Burton, a hedge fund manager from Greenwich, Conn., said, “It’s sad to see him go. Everyone in my field knows he was right. With our own money, we think years out in the future. But with clients’ money, I have three months to be correct, or I’m out of a job.” Shaking his head, he continued: “The dirtiest secret in finance is that few of us are incentivized to do what’s right. Your pension fund, your 401(k), and your kids’ college funds probably have a time horizon measured in decades. But you pay me based on how I perform against my peers every 90 days. It’s such a joke.”

In lieu of flowers, his family asks that you turn off CNBC and stop checking your brokerage account.

No Pitch

(The Motley Fool)

Carl Icahn Tells It Like It Is

Carl Icahn tells it like it is.

On the US Economy

“I’m not telling you that we’re not a great country. We have great assets. I just think it should be much stronger. You have a real problem in this country today. You have a major unemployment problem in this country. And frankly, I don’t really think this economy is growing all that quickly. I think it’s growing because (Ben) Bernanke keeps pumping money in and I’m not saying that’s a bad thing, but I am saying you can’t do that forever.”

On Media perception of activism:

“The reason guys like me I think are covered is because it’s fascinating that we do so well. You know, Why do you cover a winning athlete? I think it’s just that the success breeds the coverage, to some extent. But the real interesting thing is that even with that coverage – and some of that coverage, by the way, is not positive. I don’t have to tell you guys. A lot of the coverage that I get is certainly not positive. I mean, here, we are saying Apple should do a major buyback, which to me is self-evident and yet you get a lot of umbrage about that. How can you tell Apple what to do and all that stuff?”

On his legacy

Carl Icahn: “I haven’t really thought about it really that well. Be a real force in changing corporate governance because I know it sounds completely corny, I grew up as a poor kid from Queen’s. And I was lucky enough to get into Princeton because I did well on the college boards and I came from a tough neighborhood. No country in the world could have done as well as I did and you feel like you owe the country something. You’re giving back most of the money you made. But the real issue I think you could do to change this country and what is almost outrageous is the corporate governance is the pay. I mean, it is completely, totally reprehensible that a CEO makes 1,000 times what a worker makes and then he’s playing golf all day. I am not saying every CEO plays golf. And on top of that, the stock of his company has fallen and he’s still making a 1,000 times what the guy makes and when you finally get him out he gets a huge severance package. This is outrageous. There is no corporate governance. I think it’s time the big institutions start paying much more attention to what their obligation is. My legacy can be to change (the structure) somewhat. In some way, I’d like that to be my legacy.”

(Reuters Interview)

#RealMenTakeLossesLikeBosses

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Trading story.

Road my favorite momentum trade YELP into earnings. The earnings report which was a slight miss on expectations but upbeat on the revenue side saw the stock drop after hours but recover immediately looking like the street accepts the report and its back to the races. Whilst listening to the conference call they decide to be caviler for growth and announce a $250mln offering and stick it in my trade.  Sold out at the open for a 4% loss.

That is called damage control. Swing the cash into something else. Losses are like bugs swat them.  Important to always have an exit point where you are alright with losing that amount of money. Define your risk. When you let it ride the house always wins and in this world the market is the house.

(Note  Adding the loss into my previous YELP trade I am still +21%.)

Earnings Season: The Devil is in the Details

Earning season is hear and all the clowns are out an about. Everybody is yapping what the move is going to be. Settle down and relax. The news media on the teevee tries to make it sound like beating estimates and guidance determines the fate of the stock price. Wrong. They take micro events of one stock try to say its a glimpse to come for the others in the same space. Wrong. Earnings is all about individual stories at work. Sometimes we are looking to catch the mopes that are the Wall St. analysts off guard. Sometimes we are looking for it to come in just right. Anyone who tells you they can foretell a price movement after earnings is a liar. A quality earnings report can be interpreted by traders negatively and the initial reaction could be a sell off and then the next day the stock is ripping higher. The tale to tell here is to do your homework.  The devil is in the details

Today and yesterday (that’s the day before today if you didn’t know) momentum stocks such as YELP, TSLA, GOGO, GRPN are all being created equal and brought to slaughter. As to why they are begin created equal beats me because they are all apples and bowling balls. There is an all out assault on momentum because Carl Icahn decided to take PART of his NFLX position off the table. He decided to lock in some of his 365% gain (because he is a smart man) and still keep money in NFLX (because he still likes it, ).  Trading 101. Today losers on CNBC like Scott Wapner are calling it the death to momentum. I would appreciate it if someone would rock him in the face, preferably in the nose or jaw area. I don’t have time to seek him out I am too busy making money. People are forgetting momentum stocks thrive on momentum and even the most erroneous piece of information can send people running to the doors. NFLX has been trading up all day today.  Momentum stocks are volatile in nature so when they go up a lot they go down a lot and everybody knows the laws of the universe things always come down faster than they go up. There is nothing ground breaking here.

Its almost predictable to see these stocks YELP, TSLA, GOGO, GRPN sell off into earnings because its wise to lock in gains and take some risk of the table because of the sundown earnings brings to the table. To start citing valuations and earning multiples as the reason the party is over is ridiculous because they haven’t meant a damn thing on the way up. If valuations and multiples meant anything to these stocks they should never have gone up in the first place so shut your mouth.  Momentum trading is not for the weak stomach. Buckle up and follow the price action all momentum is not created equal. No trigger, no trade.

Keep Calm and Get Bullish

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Thank God this disaster train wreck in DC is on ice for now. Before this insane ridiculous discussion of jackasses, we were on our way to making new highs. This degenerate douche bags in Congress  had to bother us and interrupt us from this great bull market, to talk about nonsense  not worth discussing. These politicians are like crackheads on the streets asking for money. They refuse to leave you alone or take no for an answer then proceed to annoy the shit out of you.

The Federal Reserve has not started a taper and this whole DC shit show will make sure that Quantitative Easing will stay. Even better Ben Bernanke’s monetary policy side piece, Janet Yellen, will be his successor as Fed chair. Bernanke has her doped up nice and proper on quantitative easing and the magic there in. Now weather or not you agree with QE the one thing that is certain is it makes stock prices go up. If you pick the right stocks, prime for picking, its off to the moon kids. If people want to tell you there is room for concern tell them to hit the bricks pal and beat it, because you are going out.  The freaks down in DC brought us to the precipice of disaster trying to trash the great name that is U.S. Treasuries, which also would have had disastrous ripple effect through financial markets. Disaster worse than people could imagine. Anyone who tells you default is a good idea should be shot in the face. They don’t understand credit markets. That being said guess what folks the S&P 500 is at all time highs heading right into earning season. Stay away from the dog shit and pick some quality.  That is how strong this market is. Raise a glass to Ben Bernanke because he is your daddy at the moment.

ben-bernanke chcukn bills

Managing a Losing Trade: Don’t Have Feelings

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Managing a losing trade is something most people do not know how to do. There is too much emotion in it for them. Leave your feelings at the door.  The most important lesson to learn in trading is how to handle losses gracefully. Most traders will inevitably encounter a string of losses at some point. The best traders might only be right 40-60 percent of the time. The best comparison to make is to baseball. The best hitters in the game only hit one third of the time they see the plate. Everyday, and I mean everyday this a 24/7 thing, large numbers of professional traders experience more losing than winning trades. Learning how to lose small and maximizing winning is essential to making it as a trader.

So for that being said one can be able to lose money. The concept to grasp is limiting that loss so it becomes irrelevant. A lot of experts advocate using stops. The problem with that is sometime they are put on to tight and if there is volatility that order gets spotted in the book, gets executed and the position moves positive again. You’re out of your trade watching it go up like a loser. Stops should only be used in a couple circumstances. Once a trade has succeeded to lock in profits and if you have determined exactly how much percent you are willing to lose.

I recently spoke of losing out on a trade. I was making a big bet on Alpha Natural a coal stock. I did all of my homework and felt like a straight up G that I am nailing it. However as right as I could have been about the company and the stock you are still subject to the effects of randomness. It was brutally oversold and I ended up catching a falling knife. I miss timed it just a bit and ended up sitting on it for too long. Brings up the next rule, a trade never becomes an investment. I broke my rule and had to eat it. I become caught up in my research and did not follow the price action. My discipline in the concept of time-value of money is what saved me which is the other rule. There are many trades to be had and money should be put to work. If the trade is flat or losing out; move on to something else. There is no love in trading.

I’m Back; Snappin’ Necks Cashin’ Checks

Its been quite some time. I chose not to blog for a while. The summer irritated me with the news cycle never changing and recovering from a bad trade. However, like the gentlemen I am I got my hands dirty shut the door on the bad trade and jumped into momentum names. Instead of trying to hit a mega grand slam I am hitting doubles and singles racking up positive points. It is a good story and will be the next post I have in the works on how to manage a losing trade.

As I said here all the time, taper talk was a lie. If you listened to talk out of the Fed you were not surprised, if you listened to the media you were. Going into that decision the theme I had was #BTFD. Buy The Fucking Dip.  Trading strategies deployed were all of the momentum variety because that’s the strength under the hood of this market. If anyone else tells you different they are full of it. This cannot be denied the charts they do not lie.

The financial media loves panic and fear. They scare you with the rips the momentum names have had and go on and on about the hurdles this market has. It was tapering of QE and now the government shutdown debt ceiling debacle. Again, my thesis as long as there is QE stocks go higher. It has been the tested plan. BTFD and you will win.  As crazy as some of these gold bug wannabe businessmen in the House want to “restore order” test default, there will not be one. They are as stupid as stupid can get but the others clowns around are not that dumb and wont let such a shit show happen. I buy that weakness.

If you look in the chart below, you can see at the end of September there is a gap-fill which show strong buying.  That is bullish activity because following the gap fill the SPY moves to new highs. However through the rising wedge drawn out on the chart you can see how many people keep missing opportunity on the dips. With every move higher you then see the effect of overhead supply. People who got in and the market sells off. They care catching sell offs and selling rips when they get back to even.  So you have to be aware of that pattern. A deal out from those degenerate clowns down in DC could really send this market higher.

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Raise a glass to Benjamin Bernanke