The Tasgall Group

With oil on everyone’s mind these days (and since Jason breached the topic), I’ve had one question nagging at me. Everyone seems to think that oil and gas have nowhere to go but up. If that assumption holds, then why wouldn’t everyone just buy all the oil futures they can, hold them and become rich? Or to put it another way, why doesn’t the supposedly efficient market just spike price all the way to $200-300/barrel if that is really where we are all but destined to go. Why the steady daily grind up? It’s the basic contrarian question: if everybody thinks it’s going up, doesn’t that put it into question that it’s going to happen?

Like all speculative bulls, they have to go through the motions. Rarely does a market have an instantaneous bubble rise. It takes time. But I can’t help but wonder if the minute everyone thinks it can’t ever come down that it will. If oil were destined to go up until it is replaced, then there really isn’t any point in even wasting one second investing anywhere else, is there?

The equity markets right now are extremely volatile. The VIX has more than doubled just in the past few months, and this presents some opportunity if you’re willing to buy during the dips. Before I go further, let me be clear that I’m only considering buying broad market indexes when buying dips - not individual stocks or niche ETFs or mutual funds. I feel buying into dips is only advisable when considering a broad basket of equities. So, to simplify the discussion below, assume that we’re talking about the S&P500 only (although this should apply to any index funds, ETFs and mutual funds that focus on a large basket of equities) and that we’re discussing using market dips to augment long-term holdings only.

The 3-part question I’ve been grappling with is: (1) what constitutes an actionable dip, (2) when to exploit this dip, and (3) how much to invest in the dip. Volatility helps create really nice dip opportunities, but it requires some speed, available funds, and some previously determined strategy to effectively capitalize on volatility. (more…)

I just finished reading Why Stock Markets Crash, a book that has been on my radar a while and I finally found it at the library of all places. Have you ever heard of this place? They have tons of books you can read for free! Anyway, the basic thesis of the book says that markets, while normally holding to effcient market theory, become highly predictable when herding behavior creates bubbles. These bubbles often take a shape that can be fit to a non-linear model of log-periodic oscillations that results in a critcal point in time or singularity. Ah, there’s that crazy, kooky word again!

Ever since I was at university (that’s Euro-trash for “in college”), I’ve been reading and pondering this concept of the singularity. I first heard of the idea in The Physics Of Immortality and later in The Singularity Is Near. If you’ve read any of these books, then you know what I mean by the Singularity and, if not, then basically it is a point at which greater-than-exponential growth leads to nearly vertical growth and a paradigm shift occurs that alters the system beyond recognition. (more…)

Ok, so here’s another attempt at a discussion…  feel free to comment below or do your own post as a trackback to this one.

Almost all financial plans promote the concept of building a pool of “safe money” to cover emergencies and unexpected expenses.  This is certainly a good idea, though to think about it critically, we need to look at the real requirement behind the idea.  The idea isn’t just to have cash in a bank account, the point is to have immediate access to funds if/when you have unexpected situations crop up.

The traditional place for safe money would be a savings account or money market account.  Keeping this pool of money in such a safe place gives you many benefits — almost instant access, near zero chance of loss, etc.  You also have the benefit of knowing exactly how much you have available — maybe enough to cover expenses for 3 or 6 months were you to lose your job/income.

In many respects, you can consider your lines of credit (credit cards, home equity loans, etc.)  as part of your cash reserve.  You have nearly instant access to it — in some cases even quicker than getting money out of a money market account.  You have a near zero chance of losing the credit line — unless you sell your house (for HEL) or close your credit card account.  You also know how much you have available in the form of your credit limit (and your credit score can actually benefit from having a lot of unused credit available).  You can also potentially build a larger pool of safe money if you have good credit — in effect having a credit line that exceeds the same amount you can/would keep in cash.

So, allow me to posit a question — is there a real difference in keeping safe money in cash versus keeping the same amount in available credit?  (more…)

I just saw an ad that Investor’s Business Daily is having a “free pass” for the next week (Feb 26 to  March 4) on their online subscriber services.  I haven’t been dying to read IBD, but if it’s free I might look around a bit…

I know John has subscribed to IBD in the past…  what’s your take, what’s worth using, and does anything justify the subscription price when it stops being free?

If you’re a hippy and are interested in lowering your carbon footprint, you might find an unexpected place to do so in the stock market and be able to profit at the same time… consider investing in timber. Both Rayonier (RYN) and Plum Creek Timber (PCL) are publicly traded companies that own significant timberland, and if logic holds, the timberland absorb enough carbon dioxide to offset your own personal production. (more…)

It seems that the financial news lately has been full of stories like this (via the FT):

Oil producers shun dollar - Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

The cover of The Economist last week even taunted a falling dollar: (more…)

So the conspiracy nut inside of me wants to talk about Amaranth, and how they are the first domino in a long line of dominos…

Maybe pension funds and other less aggressive investors will realize that they don’t really want the added risk that comes from investing in hedge funds, and start to pull their money out of hedge funds, broadly and without any distinction… With decreasing assets in hedge funds, many have to start liquidating their positions and de-leveraging… Prices start to fall since most hedge funds have a long-only bias (a side effect of the Bernanke/Greenspan Put?), and their selling causes prices to fall despite the lock-up periods they have forced their investors into… and prices begin falling across the board with stocks and commodities (remember, pricing happens at the margin)… we see liquidity disappear more convincingly than a David Copperfield magic trick… spreads widen, and a sharp downturn begins…  The markets panic, and the bottom falls out… (The sky turns to fire, the sea turn to blood…)

But then I snap myself out of it, and realize, Amaranth was a HUGE fuck-up, but they still met their margin calls. Sure, they lost $6 billion or 65% of their assets, but their brokers cut them off before they presented a risk to the entire financial system… unlike LTCM where the brokers were blindsided by how much exposure they had, and had to have the Federal Reserve twist their arms until they dealt with the situation.

The risk of failure was born by those that could bear it. The failure wasn’t paid off by the public at large in the form of higher taxes like the Savings & Loan crisis back in the early 80s… The burden wasn’t hoisted on unsuspecting employees who had all their 401(k)s invested in the company stock (Enron)…

So, have we progressed to the point where we can survive the failure of a significant player in the markets? Can we rest easy knowing that we’ve learned a lot since 1998 when LTCM imploded?

Or maybe, just maybe, those who are currently bearing the risk will realize that it might be more risk than they originally anticipated… and then they start to pull their money out of hedge funds…

You can see the last 20 years of the Nikkei on Yahoo.com.

I also found this chart in Financial Reckoning Day, where the authors try to draw parallels between the Japanese situation 15 years ago with the one in the US now (or was in 2003 when the book was written). (more…)

The subject of stop-losses is such an intensely difficult topic to discuss.  I’ve had many latenight debates in trading forums and chatrooms and I’ve been through every camp in my experience as a trader.  The best answer I’ve ever been able to come up with is that answer famous and frustrating for its truth: it depends. (more…)