August 2006

Despite the fact that my last discussion was received with a deafening silence, I’m going to make another go at it. If you feel the writing juices, post via a trackback your answer to the following query, what is your favorite underappreciated analysis technique? What makes it good, and why don’t others realize it? (more…)

Google has really gone downhill.? I tried a simple, straightforward search, “failure”, hoping to find some useful information to help me fix that thing I have that failed and what to I get as the top result?? Useless.? What good is Google?? I’m switching search engines for the next four years.? Wait.? Scratch that.? I’m not even going to search anymore.? My searches aren’t going to change the system.? They are all corrupt anyway.? Consider it a protest of silence…er…non-typingness.? That will teach them.? What we really need in this country is a third major search engine to finally put Google and Yahoo! in their place.? Our internet is a complete failure.

On the topic of Black Swans, I can think of one experience that would qualify. At the very least, it was an event that I never thought was even possible.

Picture a scene… it’s early 2002 and Jason is learning about options and has been trading options for about three months now. He’s made many of the rookie mistakes, but learned a lot along the way. One morning while at work, he logs into his brokerage account to dump an option that wasn’t performing (he’s an option buyer and was long 1 out of the money call). The day before the option was trading at a bid/ask spread of $0.50/$0.60, yet this morning when he logs in, he sees the price on his screen is at $3.50/$3.60.

Ma-neh-wah?!?! (more…)

You’ve at least heard of the book Fooled by Randomness by Nassim Nicholas Taleb if not read it. The main point of the book is that many people trade in the markets based only on the experiences that are probably, ignoring the possibility of the existence of a black swan.

The definition from Investopedia of a black swan is “An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict.” Most people would consider the crash of ’87 to be a “black swan event”. (more…)

For this week’s discussion, I bring you two long term charts… (more…)

I’m sure we’ll all be watching the market closely to see how it responds to the “W” formation that Mauldin pointed out as a significant technical indicator of the overall market trend in the near-term.? We’re at the tail end peak of the “W” and thus at a tipping point, according to this technical analysis.? I’m wondering if the increased emphasis of 401K and retirement investments over the last 5 years isn’t creating a larger and more consistent influx of cash into the market that has historically been privy to, thus creating an environment where the market has a tendancy to drift slowly and steadily upward.? I was trying to interpret the Fed Z.1 cash-flow data this weekend with little initial success.? The data is clearly laid out and readable, but there’s just so much of it and so much out of context to something actionable and tradable that it was difficult to get my head around how to use this information to profit from it.? The general increase in consumer debt is worrisome, but less so if the typical consumer isn’t likely to invest in the market anyway, but who’s company is automatically investing for them and their debt is used to buy products and services that are driving the economy further into the black (double benefit).? This may just be the ramblings of a non-economist, but I have to think that positive cash flow into the markets will create a general rise in equity prices.

A topic that I played around with extensively over the weekend is trading sector ETFs on a small scale.? Now I know the general guidance is to avoid trading sector ETFs since there’s a great deal of market forces unbeknownst to many when you get into sector trading.? The general guidance is to stick to major classifications, like large-cap, mid-cap, small-cap, etc. since it’s too risky trying to time buying and selling sectors.? While it’s true that the risk is greater trading sectors, I think there’s a higher chance for profit as well and ETFs present an attractive medium for trading sector ETFs.


The new Pension Reform Act, known on the street as the 401K law, will obviously cause major downward pressures on manufacturing and airline stocks which will need to divert signifiant resources into their pensions over the next 7 years or more to meet the new requirements. The law will also be a major lift to firms like Fidelity and Vanguard who offer 401K services (however both companies are privately held, so there’s no equity investment opportunity to be had there). The real question is: will the rise in 401K contributions be a major contributor to a future stock market rally? (more…)

From Bloomberg:

Goldman, Wall Street’s most profitable firm, paid employees an average of $521,000 each last year. The firm earned more than either of its biggest rivals, Merrill Lynch & Co. or Morgan Stanley, with half as many employees. Bonuses are typically paid out at the start of the year and vary from about $50,000 for junior analysts to $5 million or more for investment bankers and star traders.

Damn there’s a lot of money sloshing around out there…

Back in a previous post, I linked to a web page that will calculate the odds of a recession based on research by the Federal Reserve.

The inputs for the calculation are the yields for the 10 year bond, 3 month bond, and the Fed Overnight rate.? Unfortunately I’m too lazy to want to go plug those things in regularly, so I threw together a little script that would automatically download the rates and do the calculation for me.? I’ve created a new page on this blog that contains the script:? Recession Calculator.? I have also added the page to my Daily News Briefing.

It’s worth noting that this model does underestimate the real odds of a recession.? Also, all three rates are inverted right now.

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