July 2006

It looks like White Mountains (WTM) is shaking off some of the cobwebs… with today’s high, WTM was up about 12% in the last two days. It’s been a value stock that I’ve watched off and on (and owned briefly), and it looks like it might just have the energy to buck the gruelling 2 year downtrend it has been in. The 12% run is a good start…

White Mountains is an insurance company that took a bit of a hit last year with Hurricanes Katrina and Rita. They paid out about $200 million for claims. Despite the fact that they had (and have) a huge cash position that more than covered the claims ($900m then, $1.1b now), their stock price was hammered. In theory, they survived the claims and should have been able to raise insurance rates, thus making this year more profitable.

The current strength is based on their recent earnings release so it could lose momentum quickly. I’ll be watching to see if a new uptrend starts to form and thinking about buying again.

Check out the latest price performance of Natural Gas. It’s at $8, up almost 33% since the mid-July low around $5.50. It’s still well off its 52 week high of $15 last December. (An end-of-day continuous contract chart is here.)

Goodness, I knew natural gas was a bargain at $5.50, but damn, that’s a bit of a price spike. You can see the payoff in natural gas stocks like Chesapeake Energy and Encana.

I’ve devised a new test for traders to weed out the losers before even seeing an account statement.? It’s kind of a taste test, so to speak.? Show them two equity curves for a couple of trading systems and have them pick the one they want to trade.? One has a steep upward slope and the other a milder, upward slope.? Otherwise they look the same with about equal volatility etc.? It’s a simple choice between more profit and less.? The secret is that the system with more profit is actually the result of a random buy-sell rule that was selected for its pretty chart.? The other, less fruitful?curve?is the result of a planned system that attempts to index to a benchmark and was successful in doing so.? In other words, one curve was most certainly luck and the other was most likely not.


Here is one of the best breakdowns of our current situation that I’ve read.? It is very “Kessler” in style, linking seemingly separate areas of the?world in a tangled web.? I’m particularly struck by the mention of buybacks (time to dust off that research again) and the possible leading strength of multinationals who can gain profits from a weak dollar.? Hmmm.? How to get a list of those companies?

It seems that the picture both of his models paint is one of swift movements both down and back up in a relatively short period of time.? I see the scenario of both playing out in sequence as being perfectly plausible given the sense of spring-loading that I get from the markets now.? It’s getting tighter and tighter.? I wouldn’t be surprised if the net outcome for the next two years is breakeven for “buy and hold”-ers of equities.? But with some timing, there could be great inflection points for positioning a portfolio.

Entertaining?article from the editor of Maxim about becoming rich.??

Most memorable quote from the article:

If it flies, floats or fornicates, always rent it ? it?s cheaper in the long run.

I wonder if that applies to the billionaire heiresses?? Surely they do a lot of…flying.? Also, 1-2 million?GBP is considered “the comfortable poor” on his scale of wealth.? Ah, perspective.

Some clever guys (NowAndFutures.com) figured out how to reproduce the M3 statistics using public data sources. (Not a big surprise: it’s still going up.)

They also have what look to be good articles on CPI, commonly held false data, some forecasts, a good definition for bubble, plenty on real estate, a short note on the Amero (a common currency for Canada, the US, and Mexico), and even causes of death. They also have a couple of pages that aggregate charts and quotes from other sites that look to be quite handy.

On a personal note, I’m surprised that CPI doesn’t include taxes… it’s currently my largest expense.

They also have a very amusing off-topic flash bubblewrap and smack the penguin… as well asthe disclaimer, “Do your own research and make up your own mind, as usual. If you think we’re conspiracy nuts, that’s fine too.”

I didn’t realize it, but just found out that Rydex actually has an equally weighted S&P 500 ETF — the ticker symbol is RSP (complete with options, though they don’t seem very popular).

In case you’re wondering about the releative performance, take a look at the 3 year comparison of prices: RSP:SPY. ? When the market was going up, RSP handily outperformed the SPY…? but when the market turned down in May, the equal weighting index underperformed, giving up its relative gains for the last 12 months.

So, it looks like RSP is a good choice during market strength, but might give up a lot of it’s leadership when the market becomes choppy…

I’m wondering if the under/over performance of RSP can act as any sort of indicator, like the NYSE Advance/Decline Ratio, or the NDX:DJX ratio…

Investing or Trading are interesting activities in that just about everything you do or don’t do can be looked at in concrete terms as some type of “failure”.

If I bought AAPL stock last month, I might have made money… but I was wrong because I didn’t wait to buy as the price went lower before finally perking up 2 weeks ago.

If I sold XOM in May, I may have avoided a 10% drop in the price that quickly followed… but I was wrong because I would not have owned it as the price is above the high set in May. (more…)

Given the bond flavor of our recent posts, I thought it might be interesting to talk about the bonds of other countries.? The US isn’t the only stable, developed nation offering bonds but I think we tend to forget (surely it’s not patriotism) that.? In particular, check out?this post about the potential for UK bonds or being long the Pound in general.? If the macroeconomics of a government are part of why you do or do not buy a bond, then why not look for better macroeconomics for your money?? I can understand that it requires more research to learn about someplace so far away but it might be well worth it.? I need to look into the correlations however with the US bond market because you should never underestimate the power of the US influence on the globe.

More on the yield curve…

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