July 23, 2007

We had a rare weekend in July where there was no humidity. Perfect weather: sunny, beautiful cloud formations-the prettiest I've seen in a long time--and a slight breeze. On Saturday we invited two couples to voyage down to the Chippokes State Park...by water. We put in at the Chickahominy and motored to the James. Chippokes is just east of and across the river from Jamestown.

I've created a link above for any interested, but here's a blurb

Chippokes Plantation, a 1,400-acre farm located opposite Jamestown Island, has been the site of an active agricultural operation for nearly four centuries. Unlike many large plantations along the James River, it was never a family seat during the 17th or 18th centuries, but changed hands frequently, serving as a secondary plantation managed by overseers or farmed by tenants. Named for Choupocke, an Indian chief friendly to early English settlers, early owners of Chippokes included Governor Sir William Berkeley, who acquired the property in 1671, and the Ludwell family, who owned the property from 1684 to 1824. Chippokes Plantation consists of 20 historically significant buildings and structures, including two plantation houses. The River House, the oldest dwelling on the plantation, is a vernacular frame building that was doubled in size in the 1840s. Architecturally, the River House illustrates the continuation of a Virginia Tidewater vernacular tradition, whose beginning can be seen in earlier frame homes, such as Belle Air and Kittiewan.

The park is open all year, but annually, they host the Pork, Pine and Peanut Festival. It's an amalgamation of arts and crafts as well as food that includes barbecue, pork loin or pork chop sandwiches, peanut pie, and fair-food such as blommin' onions, elephant ears and such. The barbecue is always wonderful.

They also have entertainment. Our last visit, there was an Elvis impersonator and some guys playing banjos on a small platform. This year, The Marshall Tucker Band was the featured musical event. The place was mobbed! There were about 3 times as many folks there this year than my last visit.

Lots of folks like ourselves went by boat and anchored in the shallow waters to wade in. Mark said there were about 500 boats, but it looked like half that many to me. However, I do not pretend any skill in estimating crowds--of people or boats. The ride was a wee-bit rough as the wind was blowing a bit. But it was not bone jarring. The day was just one of those wonderful weekend activities that totally takes you out of your element and allows you to be with friends and other people.
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My posting of late has been sparse, largely due to my not having any real focal point to write about. I'm trying to find a more balanced perspective about the market---meaning I'm trying to find the right way to weight the obvious hand-wringing items with the obvious possibilities. I know for a fact that I've overweighted the hand-wringing items. While these worries are real, they do have an incubation time by the market.

Here's my mental model:

• Worries are identified (subprime, recession, overvaluations, fill-in-the-blank).
• Average investors embrace these worries; seasoned investors commit capital in knowing that the worries are real, but early.
• Market carries along with no manifestation of the "worries" in stock prices or performance, but the average investor still harbors the worry and stays on the sideline. Seasoned investors continue to commit capital.
  
• The average investor begins to question validity of his/her worry, but this is the time that the seasoned investors know that the worry is coming to fruition.
• Average investor is "in" the market, worries abated; seasoned investor is out of the market because the worries are now manifesting.

I'm going to work on ensuring that (1) I understand the worry (so far I've done a good job of this); (2) I refrain from letting the worry dominate my thinking and activities (grade D); (3) I do not lose sight of the worry, but outline what I would need to see to know that market activity is now reflecting the worry (the arrow that points forward).

I'm sure that this is so straightforward to many of you, but it was not straightforward to me. And, in fact, I've not seen that anyone has really stated it this way. But it makes sense to me.

Bear Stearns

No doubt by now you've read the update on the two beleaguered BSC hedge funds. If you've not been updated, here's a blurb:

"The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007," according to the letter. A copy of the letter was obtained by Reuters.
Separately, a source familiar with the funds said the net asset value for the High-Grade Structured Credit Strategies Fund is about 9 cents on the dollar.

There are two critical questions. There both obvious, so you're not getting anything new or insightful here, but it bears repeating.

• Question I: WHO IS invested in these funds? Since pension and retirement funds have become more adventurous, and since the insurance companies (I went back to HIG's 10-K and looked at their investments in MBS/CDO's). I'm sure that we'll see this stuff popping up. Interestingly, I've not seen any press talking about the WHO (e.g insurance companies, etc). I find that odd. Wouldn't that be good investigative journalism?
  

• Question 2: Which other hedge funds are invested in this stuff? There are two things at work. First, you have people who knowingly invested in these instruments. Second, though, people people invested in hedge funds but did not understand the types of investments (activities) in which the fund were in engaged. There will be an interesting parsing out of these two groups in the weeks and months to come.
  

In the end, I think that we'll have (1) some surpised investors; (2) a call for greater hedge fund transparency; and (3) a lawsuit or two due to misrepresentation of investment risks etc.

Rev Shark/Jim Cramer on TheSreet.com

Jim Cramer interviews Rev Shark at The Street.com.

I keep my subscription to Real Money largely due to Rev Shark's column and that of other contributors. His focus is on market psychology and building awareness around that for both yourself and that of others. There are several videos, I referenced one for your convenience. I hope that you'll take time to view them.

Today's Market Close-WOWSA

(Click all images to make larger).

From the WSJ's Market Data page:



All I can say is wow. Surprising? I don't think that I've ever witnessed a relief rally first hand. The shorts were murdered. I closed out of some of my positions early a.m. JogyP asked if I were in DXD. I wasn't when he asked, but I started a position yesterday. Thankfully, I had the presence of mind to close out early. Yes, it was a loss, but that loss would have only become worse. I still have my 136 puts.

In my E-trade account, I re-established my WZEN position. (Oh, it is worth noting that DEPO went up again today--but who really knows what a stock is going to do?). Anyway, I had a little bit of money left, so I bought some EGO-Eldorado Gold. It was smashed today on what may be a temp closure on a Turkish mine. Here are my current holdings in this account:
RTK is so up and down!

My Chinese stock (that I found that weekend I spent with the Halter Index), SEED, broke out big time today. I have 1000 shares of this in a retirement account. I bought early June....one lot on June 1 and another lot on June 8.

Here's a one year chart.

I'm not giving you any advice to go buy this stock. They report next week. But what is interesting about this stock is that there is a reduction if not elimination of subsidies that the Chinese gov't has been giving on hybrid seeds. Now this makes for some interesting market dynamics. I also surmised that this would be a nice target for someone like Monsanto. I was doing some research and I saw that someone had written this very thing more than a year ago. I don't typically buy stocks for takeover; I bought this stock because it (1) appeared to be coming out of a base; (2) had fundamentals that I could understand; and (3) had the added kicker of being an attractive target. I will hold this through earnings, and I realize that might be dangerous.

I hope that you had a good day in life and the market--they are two different things.

Stock Stuff

Last week I did a "thinking" out loud on Bill Cara's blog about the SLM deal private equity deal. Specifically, with the amount of debt that had to be raised, the waning appetite for bond investors for high risk without higher compensation (meaning that the costs would escalate) it would not be surprising to see this as a failed merger.

Yesterday's news (Flowers' stating that current gov't legislation may derail the deal) brings some confirmation of that out-loud musing. Every now and again I have an idea that pans out. I own FMD--I'm long the stock and I have some SEP $45 calls. I bought those calls with the profit on my $40 calls. So, I'll call it "free money". Basically, it allows me to leave it alone an play out my thesis which is as follows: FMD would (1) be bought out by a larger bank who wanted to add FMD's product to their overall loan portfolio; and/or (2) something would happen in the SLM deal. In fact, just last week, upon writing my on-line musing on BC's site, I was looking at buying some puts on SLM, but decided that they were too expensive.

Personally, I think that the buyers are using the congressional proposed legislation as a red-herring. That legislation has been a known quantity. I think that the buyers are caught in a deadly bond sandwich (a pooh-pooh sandwich!). Bread Slice 1: The bonds that they have to sell to fund the buyout are likely going to be expensive and/or investors' appetite has waned for such. Bread Slice 2: the bonds already issued (to fund the loans) are going to get more expensive with downgrades. Neither slices are bread are palatable. Both are being pooh-poohed by investors.

I also have to wonder if the bond holders for already issued debt for securitizations have some sort of recourse. I'm not expert, and I've not read any underlying docs to possess an informed opinion. But in general, when you issue debt instruments, the debtor has obligation to not do "stuff" that would harm bond holders. Accordingly, you have to wonder if the very act of selling out to private equity and potentially impairing the interest of the bondholders could possible prompt some sort of suit. I may have to see if I can find some information on this.

I sold my WZEN. The stock may be consolidating, but I cashed out. I bought some DEPO on their crash. I bought it at $2.00 and flipped it for $2.31 the next day--a 15.5% gain for 24 hours. It actually went as high a 2.47, but I was happy with the gain. My account is now at $15,379. I broke the $15K barrier!

RTK had some odd activity--run up--toward the end of the trading day. It will be interesting to see what caused it. I didn't see any news.

BAS, my oil services holding is being quite stinky. But I like this company and I'm going to hang in there. The 6.5% loss, though, is an oucher. But, I'm going to ignore it. This is a well run, high quality company.

The Financial Times reports about credit derivatives, and I'm lifting a quote which I found disturbing:

JPMorgan observed that swings in derivatives prices were so extreme they implied “scenarios in which the core of the global liquidity system suffers a serious assault”. But it stressed “the meltdown in the credit indices seem completely at odds” with trends in the real economy, implying it should be reversed.

If you'd like for me to e-mail you the FT article, you can e-mail me at leisa-va@cox.net

Greta

The above picture was taken on 04.04.07 and I posted it on my blog. Pulling it out made me realize just how quickly Greta (right) had gone downhill in her health from that photo until now. She was still active and pain free. In fact, I didn't know anything was wrong with her.

Last night I was up wrestling with the decision of going 2 weeks to try a drug therapy. I came to the conclusion upon awakening, that I should not. My decision cemented after hearing her make a sharp bark due to pain--a new development. So I got up and dug a grave under the red bud tree shown in the blog post. I'll not post it again here.

I called the vet--warning them that I likely would be unable to finish the conversation. So I took her in (my daughter drove). I had to pick her in and out of the car, and that process was painful to her. But the procedure was quick and painless--for both her an I.

So now she is in permanent repose under the redbud. I have Lucy under another redbud. My two beautiful bird dogs are gone, and I cannot quite believe it. I now have two dogs. Macy, who you see above, and Chloe, a miniature poodle. It's been many, many years since I've only had two dogs. I think Macy (1/2 American Bulldog: 1/2 houndish mix) will make up for it.

Thanks for following along with me and your expressions of kindness.

For Wine Lovers

I'm listening to Gary K, so can you tell that I'm engaging in a bit of free-form blogging. Sorry if it seems self-absorbed; I'm not really that way.

But, if you have not treated yourself to a rose wine made from 100% grenache (or garnacha) grapes, then please go to your favorite wine store and treat yourself to a bottle. My current beverage is a 2006 Las Rocas. I think that you will fall in love with a Spanish, grenache rose. Allow yourself a little romance this summer! There are some wonderful French rose's, but try a Spanish one--very dry, strawberry overtones. You'll love it, love it, love it!

Short ETF's --Today's performance

Here are the Short ETF's sorted by daily performance.

A Sundry Post

Greta: The ultrasound confirmed our worst fears, that Greta had a tumor. She has a mass at the neck of her bladder. The worst possible place. There are no real options. One of her groin lymph nodes is swollen which means that it has likely spread beyond the bladder. I'm going to try a therapeutic treatment for 2 weeks that has shown some success. If her quality of life does not improve (meaning more energy and movement) then we'll have her euthanized. I hope that if and when I get some sort of debilitating, untreatable condition that I might have that choice. (This is not an invitation to debate the subject, but merely an expressed wish).

The internet is a wonderful thing, for I was able to read about the options prior to talking to my vet. It made the conversation more productive, as I felt that I could ask specific questions and draw conclusions. What I've learned, took, is that the incidence of bladder cancer in dogs has increased. It is attributed to herbicides and insecticide usage. And....Scottish Terriers have a many-fold rate higher than other breeds. Likely because their lawns are manicured. But it's worth noting if you have animals and you use the likes of Chemtreat or an EPA-banned substance to give you a beautiful green lawn or to rid your lawn of pests.

Dryer. Our dryer stopped working. Well, though I'm religious in cleaning the filter every darn time, there was a huge blockage--both in the vent external to the machine as well as the machine itself. Please make a note to yourself to check your dryer's external vent and ensure that it is clean. Such a blockage, particularly on older machines that do not have an automatic shut off (as my machine did), can cause a fire.

Asia Market: Will watch carefully to see the response. There is higher trade deficit news, weaker dollar, higher oil, concerns about sub-prime and the consumer (to include the warnings by HD and SHLD). No real good news, frankly. Those Asian Markets pay close attention to those issues. I believe that if the Asia markets take our market performance in stride, then we may have a chance to bounce. Otherwise, we may just be catching our breath on the way down further.

May your portfolio and your sanity weather whatever the market brings.

Capitulation?

It seems that all of the bear holdouts are capitulating, beginning first with Richard Russell. I listened to R. McHugh (on Saturday's FSO broadcast) and whose "jaws of death" chart I still have. (We have since cleared the highs then predicted prior to the potential great plunge; he stated on Saturday that he expected the market to reach higher highs). One of my favorite bloggers, Tim Knight, is not registering a blip on the market fun-o-meter.

I have no idea what the market will do. I found it interesting that Bob Pisani seemed to be priming the earnings pump with the "lowered expectations" comment. I'm not sure how 4% earnings growth is terribly positive given the valuations as a whole. That's merely a CPI adjustment to your contracts rather than any true organic growth. Even if earnings growth comes in at 7%, that's still modest if you factor in inflation. I'm just not buying these "good news" stories.

AA's earnings were in, and the reaction was negative then neutral in AH. I don't follow the stock. They kick off earnings season, as I'm sure that you know. With the market at all time highs, I would surmise (not prognosticate) that the market will be a wee bit nervous. Personally, I'm watching the banks most particularly for revision to their loan loss reserves as well as writedowns.

I did note that Fitch is warning of downgrades to SLM's bonds given the amount of leverage required to do the proposed buyout. I have to wonder (1) at what point do the bond investors begin to turn up their noses; and (2) with lowered bond ratings that beget higher interest rates, what will that do to SLM's financial metrics. As risk gets repriced into the market, that repricing (if it operates the way I believe that it does) has the effect of reducing liquidity. Liquidity is what has fueled this market; reduced liquidity will wash it away.

Post Holiday Post

Things have been a bit muted around our household. On Friday, I received unfortunate, but expected, news about my dog, Greta. They were unable to grow a culture from her urine sample--that means that even though she has pus in her urine, it is not from a bacteria that can be treated. (Apologies if I'm grossing any of you out). Tomorrow I take her for an ultrasound that will likely confirm that she has a tumor. It could also show (here's the hopeful news) that she has something treatable like kidney stones, but that is a lower probability (I should say low probability) prognosis. She's on some kicked-up pain pills, so that is helping her. It is likely that you'll see little in the way of substantive market posting by me next week as I deal with these difficult issues. But, that is part of the business of having dogs whose life expectancy is a fraction of our own.

Just to keep things spicy around here, I'm finding new ways to injure myself. Mark and I took Macy out for an inaugural boat ride yesterday. The last dog that was on our boat was my beagle, Suzy. She's been dead for more than 15 years. I'll say that have a 20lb dog is quite different than having a ~60lb dog. But Macy did beautifully, and we'll take her again. Thankfully we have a top for the boat. It would have been hateful otherwise. While we were waiting at the boat ramp to put our boat in, I settled under the shade of a largish boat (probably a boat in a perennial state of repairs) on jacks. This was a nice respite from the sun. Unfortunately, I was not paying attention and when I stood up, I cracked my head on the v-edge of the bow. While I didn't not knock myself out, I'm still suffering a rather nasty headache and of course have a nice sore spot on my head.

My husband, though sympathetic and solicitous, expressed amazement (and amusement) over the various maladies and injuries that I have subjected myself to over these last few weeks. I generally have an uneventful life. I hope that I'm not soon telling you that I'm pregnant.

I did not make any advance plans for the 4th given Greta's fragile health. But at the last minute, I invited my BIL/SIL over. We had delicious hamburgers with blue cheese and bacon, homemade potato salad (courtesy of my SIL, it was her Nana's recipe) and squash casserole. I made this wonderful German Blueberry cake, which is more of a tart than a cake for you foodies out there. Thank goodness for the food processor. I literally came home at 3:30 and was able to have dinner ready by 6:30--that includes doing some of the EPA cleanup necessary to make our home presentable to outsiders (even if they are family!). We were able to eat out on the deck and be grateful for our great nation's independence.

Squash is the preeminent vegetable in my corner of the world. It is running out of everyone's garden here, though ours is just getting started to bear. I just attempted to make some squash bread. I monkeyed with the recipe, and despite extended the time, I still managed to end up with underdone loaves. Oh well. I've also monkeyed with a squash casserole recipe. This time, I'm using blue cheese (only because I have no more cheddar, and I have blue cheese left over from July 4 that I do not wish to spoil). I also elected NOT to scrape out the seeds of the jalapenos (from our garden). This is likely to be a spicy concoction. But, you gotta experiment in the kitchen--it will keep you from experimenting other places that are likely to get you in trouble or arrested.

I did dig up some potatoes out of the garden. Thankfully, I was not attacked by any serpents, but my head hurt from bending over, so had any serpent shown itself, it likely would have been a surprise ingredient in my squash casserole.

Oh....our weather is not turning to be the hateful kind of summer weather you'd expect in Virginia. I think that it hit 100 today.

My beautiful, beloved Greta has had the most wonderful life that a dog could have. She has also been the most wonderful companion for me. She is MY dog. She has never bonded with either of my kids and she tolerates my husband. She adores me. But with that, she comes up to me truly expecting that I can help her. Alas, I'm not much help. I do lay with her on her dog bed, and comfort her as best I can which in truth is not very much at all.

Please don't read any of this as any sort of lament. I take all things in stride. And this is one of more sad moments that punctuate each of our lives. I'm fortunate to have so many other blessings that manage to tilt the scale to the green. I'm well aware that so many have scales tipped the other way.

Play Doh

Here's a YTD performance of one of my accounts. It's an old employer account they used to manage stock options, employee stock purchases. I started with about a $5,500 remainder balance in this account about a year and a half ago. Rather than close it out upon my leaving, I elected to keep it open and consider it purely speculative money. It has been fully invested all of this time. My current positions are RTK, WGDF and WZEN. As you can see the account performance has been rather heart stopping good and bad. It now is valued at $14,600.

Given that it was such a small amount of money there were only just two options: (1) have one holding; (2) buy lots of shares of <$10 securities. I've employed both. Now I don't show you this to brag or make any claim to genius or special knowledge. But rather to introduce the concept of speculative money. No fear money. Money that you can lose. And have the discipline that if you lose it, you give yourself a mandatory time out before having a speculative carve out. Whatever the amount you choose, it should be an amount that you are prepared to lose. And if you lose it, give yourself a moratorium on having any more speculative money at risk. Remember, I'm not recommending anything here. No one could be less qualified to make any recommendations than I. But this is a real account, with real money and real performance. And, don't think for a moment that when the account dropped in March that it didn't give me some pause. Here's the account detail:
RTK is a coal to liquids company. I'll tell you that I bought it completely wrong.
WGDF I picked up from Bill Cara's website (after doing DD). It sat and sat for some time and then broke out. Here's the chart.

WZEN is a stock that I found on my own. I've had it on a watch list. Here's the chart. As you can see it has gotten jiggy over the last three days. I was watching the saw tooth pattern carefully as support was holding. Had it broken, I would have sold.



Anyway, I wanted to give you a little voyeurism for the speculative portion of my portfolio. I'll give periodic updates--even if it turns ugly--as there will heuristic value in that. Each of these holdings could turn ugly fast.

Have a great 4th of July. I'll likely not be posting much.

Picture Time

__Some pleasant images from my pleasant life___

This is Lacy, Macy's best friend. Lacy is 1 month older than Macy. Macy just turned a year old on June 29. When my daughter brought "her" dog home at six weeks, we had three geriatric dogs. They wanted no part of Macy. At the time we had Lucy (deceased), Macy and Lacy which made for difficulty in calling out names. Lacy would come over every day to play with Macy. We had to supervise at first, for Lacy would grab Macy by her ear and drag her. Macy quickly started to hold her own. The photo below is one from last year when they were both babies. The stuffed baby still exists. It endured many a trip from our house to our neighbor's home. Lacy would playfully steal "baby". Macy would reclaim it.

It's really neat that they are such good friends. My dog, Lucy, used to be best friends with Tim's (Tim is my neighbor and owner of Ginger and Macy Lacy (I really had to make this correction!)) dog , Dusty, a beautiful collie. Both are deceased, with Dusty dying sooner by a few years. Lucy was quite affected by Dusty's death for a short while.

(Lucy/Macy and stuffed Baby)

One of the terrific things about where we live is that we have had the same neighbors (mostly) for the last 22 years. That's a long time. I was but a wee lass at the time. So we have "grown up" together during this time, though there are some age differences. My kids have grown up with Tim's kids. It's really special to have that sort of closeness with your neighbors. They become your extended family.

Below are photos of Macy (L) and Ginger (R) on a joint fetching mission. I had two bumpers, but Macy was so excited to get it she chewed the end off of one of them. I attempted to use it anyway. It sank, but no surprise. Ginger is the "big dog" I mentioned in my post. I call her Gingus Khan.

The pond is Tim's. My kids have spent many a summer day swimming there. It is also stocked with fish. My son had two embedded treble hooks one summer--one in his calf, one in his head. Emergency room visits required! Lucy (my English Setter) also had an embedded treble hook in her mouth-- Lord only knows how. We heard her yelping, and she came home dragging a pole with a hook lodged in the back of her mouth. We clipped the two showing barbs that we could. That act alone is a testament to the extraordinary trust that English Setters have of their owners and their calm disposition. Lucy went to the emergency room for the balance of the hook removal. Oh how I miss her!


What's funny is that just a month ago, Macy wouldn't even swim. We were not sure that she even knew how. For any of you saying, "All dogs know how to swim", the folks on Myth Busters said just the other day (per my son) that saying is a myth. Some dogs do not know how to swim. I'll say that once Macy confirmed that she could swim, she's been an addict. Ginger swims all day long. Lacy is a good swimmer, but likes to draft. She grabs G's tail and G pulls Lacy along. Lacy tried that with Macy. That's how I ended up tipping the kayak and swimming with big dogs I mentioned in my previous post.

Below are the "goat people". That's what I call them. Jack, the black and white goat, is ancient--about 13 years old.

Here's a picture of pure joy--getting a little assisted scratch.


Now you might find the start of my post an odd thing to say. But two years ago, on a beautiful Sunday like today, I would be in my office (at job) slogging through all the stuff that built up during the week, so that I could face Monday without tearing my hair out. Or, I'd be in an airport. So my life is so much more pleasant now. But that pleasantness brings with it a certain level of sadness of all the beautiful days such as today where I never romped with my kids, dogs or goats. However, if I had to do it over again, I'm not sure that I would make any different choices. I've not caused my husband or kids any harm, or even myself for that matter and was able to enjoy a career that afforded me the luxury of having a more flexible schedule now after so many years of inflexibility. Perhaps I enjoy these things all the more now because of then.

The point is. . . living in and truly being in the present moment, whatever that present happens to be, rather than wallowing in the past or fretting about the future, is really an art form. I cannot say that I've perfected it, but I'll say that the pictures above are a tangible reflection of my doing that and feeling great joy. I'm not trying to sermonize, rather share with you a moment of my personal reflection.

I hope that you did something fun and relaxing over the weekend.

It's not the snake you see. . .

--Non market post-------

well I had planned to have a picture here of the snake that I just saw. It's blackberry time. I had just picked one blackberry (quality test) and was turning the corner when I saw the silky black sheen of a black snake entwined in one of the bushes that I was passing by. I came in to get my camera and snap a picture to impress you with my bravery and pushing aside fear for the sake of art and entertainment.

He was gone within the 3 minutes it took me to fetch my camera. I wasn't going to go search for him/her, for surely I wanted to avoid being surprised. If you know what wild blackberry brambles look like, you will know that they are quite overgrown with all sorts of things. This particular area was no exception.

One of my favorite things to do is make fresh fruit cobblers: plums, blackberries, peaches, cherries. What better way to herald in summer than a warm cobbler with vanilla bean ice cream. Perhaps it is a Southern thing, and to that I plead guilty. Two summers ago, I did my own test kitchen "thing" combining this recipe and that to find the best homemade biscuit topping for cobbler--even experimenting with putting the topping on the bottom. There was nary an unedible result, but biscuits made with cream and White Lily flour (or any type of lighter bisquit --NOT BISQUICK--flour) will do.

Side note on waffles---For any of you waffle lovers out there, consider making waffles from scratch during the weekend and freezing them. Then when ready to eat, defrost them slightly in the m-wave and then pop them into your toaster oven. It will be a lovely way to enjoy a fresh breakfast--top them with fresh fruit. Here's a recipe for you to try. It's one of the few waffle recipes that do not require your separating the eggs and beating the egg whites.

HOMEMADE WAFFLES

Printed from COOKS.COM

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2 1/2 c. flour
1 tsp. baking soda
2 1/2 tsp. baking powder
1 tsp. salt
3 eggs, beaten
2 c. buttermilk
1/2 c. salad oil

In large bowl, combine all dry ingredients. In small bowl, beat eggs and buttermilk. Add to large bowl and beat together. Slowly beat in 1/2 cup salad oil.

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Here's a neat substitution. Substitute 1/4 cup of the flour with cornmeal--either white or yellow. It provides a crispier waffle. This is also something that you can do with your biscuit topping for cobblers. You could also add some oat/wheat bran (experiment with amounts, but start with 1/4 cup), to beef up the fiber.

On Becoming a Lurker

A bit of a variation on a previous theme. I think that this will be a longish, rambling post, so I'll apologize in advance for being a wind bag.

Banker notes that these markets have not been easy and 2nd_ave notes that he has become less rational with better success. As the market is frequently (perennially?) at odds with what any of us thinks, our efforts need to be re-directed. There is a common market aphorism that the market can stay irrational longer than you can stay solvent. Well, I’m arrogant enough to be unable to check my noggin and all of its (yours too!) extraordinary powers of perception, deception, cogitation, agitation and realization at the door. Rather, I’m going to adopt the persona of a lurker. Though being a lurker suggests benign activity (and didn’t I just post about thinking v. doing?), I’m going to suggest that lurking is more appropriately channeled activity. Let me explain.

Nothing is more illustrative of the delayed reaction in the market than the subprime issue. All that is coming to pass (BSC/UBS hedge fund blow ups) you have read about here and other places. We were cutting on teeth on that realization back in mid-March, 3 1/2 months ago. Did the market care? Hell no. I was expecting the market to have it's epiphany and have an "Oh $hit" moment then in April/May. Not so. It is only beginning to happen now. Why so? Because there is evidential matter--hedge funds blowing up--that is making a shadowy fear in the market psychology more of a stark (and scary) reality. This delayed reaction was also manifested in the homebuilders—the market did not react to its misconception that a bottom had formed until the evidential matter of asset write-downs, wrong and then withdrawn guidance acted like the proverbial smack in the forehead. This issue is but one example, but it is a useful example for explaining the benefits of being a lurker.

What/who is a market lurker? It’s going to be me. I’m going to be a shadowy figure peeking into alleyways, jiggling doorknobs and peering in windows (insert your own lurking behaviors here). Lurking is a way to channel and satisfy my hand-ringing, nit-picking, weeping and wailing tendencies. I’m going to revise my view of my investment notebook, and I’m going to retool it a bit. First, I’m going to rename it my Lurker Log. By taking my lurking findings and documenting them in my notebook, I’m creating a basis for informed action.

Do you not have a notebook? Get one. Every genius keeps a notebook, and you should to. Make daily/weekly observations of what you read/hear and reduce these to some thought on how you might be able to make money on that idea. My notebook is about 18 months old. Your notebook will help you distill your thinking and that of others. It will help you create an investment theme--the context for making your investment decisions. Also, it will help you capture your thoughts for you to later evaluate with the benefit of hindsight.

This process is critical to your developing trust (or realizing that you need to cultivate your insights more). When you travel back through your notebook with the benefit of hindsight (or foreknowledge), do so equipped with a highlighter/colored pen and make notes. Stocks to watch—note the price when you thought about it and when you go back put the current price. Is the price action what you expected it to be? Why or why not? If you do this, I guarantee that you will amazed you how well this process will cultivate your insights. You will also see how fallible many of the experts are when you do this process, and it will help you not misplace your confidence in the prognostications of others or even yourself.

To translate this concept into a workable process, first, get a notebook (I know that I’m repeating myself). Second, consider creating a watch list of those stocks that you think will benefit or suffer if your prognostications (theme) come to pass. I generally do this starting with a stock and then looking at all of the stocks in the sector. For example, with subprime, you would create a list of the subprime lenders. I use Fidelity, and S&P's Compustat (Reuters does the same), generally lists the other stocks in that sector/sub-sector. I use that list to create a watch list in StockCharts. You could also look at the ETF's that represent these sectors. Personally, I like to buy stocks rather than the ETF's, but the ETF's are a good way to analyze if your time/expertise prevents your performing a more detailed analysis. In your notebook, you could simply create a section of stocks to watch.

For those of you who pooh-pooh technical analysis, I believe that you are depriving yourself of an important tool in your stock/sector evaluating arsenal. Technical analysis gives you an objective tell on where money is moving through price and volume patterns. Call it voodoo if you like, but ultimately, return is based on price and volume. By the time you hear about it on TV or your favorite paid subscription(s), you will have missed some of the easier money. I have had my VERY BEST success using this process. I, like you, read a lot of opinions by others. But it is YOUR money; accordingly, you would do well to develop a process to inform, develop and evaluate the quality of your opinion. At the very least, make a list of the stocks that fit your investment theme, and watch them however you wish to do it, and decide WHAT criteria need to come to pass that will move you from lurking to acting. This stock/sector watch is the penultimate method in evaluating your investment theme, developing acumen and developing trust.

If you've done your homework, worked on increasing your investment skill, then you have to trust your work. The single most difficult factor that I have to contend with is lacking trust in my thesis. You could call it lack of conviction. While strong conviction can make you money, MISPLACED conviction can lose you a lot of money. The trouble is we are bombarded with the concept of "smart money" (the proverbial "THEY"). So if the smart money is not talking about our idea, it's hard (at least for me) to hang onto that idea when there seems to be no interest. It's like when you throw a rod into the water, and you are waiting for a bite. There could be tons of fish below the surface that WILL bite, eventually, or it could be a dead hole. You just don't know for sure which it is--but therein lies the concept of risk v. reward.

Here's a coulda, shoulda, woulda story that will bring a tear to your eye. Last year I was one of the few people who owned TNH. It was a teenager at about $18. It only traded less than 20K shares per year day. I was scared out of it because (1) it was very thinly traded and (2) NO ONE was talking about it. I was early in my investor education and very thin on trusting my work. I think that it closed over $125 this week. I owned 1,000 shares of that baby. A perfect example of my not having trust in my thesis. Now, it could have gone the other way, certainly. The antidote? For your investment decisions, document your theme, your risk reward and the catalysts that you are looking for to have that investment belt out a song that will have the house standing and clapping.

I want to close this post with a cautionary statement. It is about the proverbial "THEY" which Selden notes (click for link), to whom we confer omniscient, omnipotent powers. For a moment, let's think about this notion of "THEY" affects OUR PSYCHOLOGY. We can have two reactions. First, we can believe that despite all of our efforts we will be thwarted by "THEY" who we characterize as something dark, evil and emanating from Mordor (Lord of the Rings reference) under the Dark Lord, Sauron, intent on parting you from your money. Well, there may be some truth to that! But conversely, we can adopt another view where we are content with being a parasite on Sauron's corpulent body-so we can be tick-like (hey it's summer in VA!) and get fat.

I sincerely believe that too much hand-wringing over the “they” results in investment inertia. It has been for me at least, and I’ll be honest and not project that unfairly upon others. But I do observe that behavior, and I know that you do to. I’m not suggesting throwing caution to the wind. But I sincerely believe that transforming my investment notebook to a Lurker Log with specified action (as opposed to sinking into thinking without doing) and documentation of objective evidential matter against my investment thesis will enable me to overcome some of the obstacles that I’ve created for myself over these last few months. My apologies for sounding pendantic in this post. I don’t wish this to come off as telling you what to do—most likely you know better than I--but rather as it is…a confessional of sorts of my own continuing evolution as an investor.

June 29, 2007

Here's a chart of today's Dow. Who needs to go to a theme park and ride a roller coaster when you can view one from the comfort of your own home? I bought some DIA 136 puts yesterday before the FOMC at market. I never buy at market. The price was $2.35. I unloaded them today at $3.20. The highest price for the day was $3.40. It closed at a $2.35B/2.7A. Pretty wide bid/ask range.

I had also purchased (pre fed) some DXD at $49.99. That tanked early and I unloaded, then I reloaded. I closed that position almost at the bottom of the Dow (meaning profit!!!).

This week has been a terrific week for me in the market. I don't say that to brag, for I'm not an arrogant or boastful person. I've had plenty of blah and blech weeks--too many of late. To be frank, psychologically, I needed this week's success. Everything that I did this week was golden (which is unusual). I'm really embracing my thinking v. doing mantra. More importantly, I'm realigning my activity with my time horizon. What am I saying? I'm simply saying that I'm not looking short term at some of my longer term holdings. Oh, of course I'm LOOKING, but I'm going to quell my urge to ACT so long as I think that the underlying reasons for entering the transaction remain intact. I'm not saying that I will not continue to trade some short term positions. Using some of the 2x +/- ETFs on trending indices is a good way (for me) to do that. But I don't plan to hold these overnight. Those gap ups/downs (depending on your leaning) can really dampen your results.

The other thing that I did this week was rely more on my instincts. This week was one of the few times that I let my intuition have a greater rein. I also watched the technicals very carefully. I know some of you who read pooh-pooh technicals. That's fine. But if you are trading something like SPY, DIA, QQQQ, you really cannot do it on fundamental merit.

My goal for next week is to ensure that I keep the same discipline and not allow this week's success to allow for sloppy decision making next week. I'm also acknowledging that this week's success has more grounding in luck than skill. Accordingly, I will enter next week with the pride of graduating as a Conscious Incompetent!

Most important of all, a good friend of this blog, Nona, had to undergo surgery today for a broken leg sustained in a car accident. Please send healing thoughts her way.

June 28

I had a mixed day today.

The Good: My MLHR puts had a 200% gain today. The stock opened stronger than I expected so I had a momentary dissappointment. But, I've watched this stock on earnings before, so I waited. The high for the day was $3.50; I sold for $3.40.

Watching CNBC today they were talking about STZ, a stock that I've owned before (dead money). But the stock took off because they did "less worse". I went to the short interest site and saw that there was a large short position. I picked up 1,000 shares at $24.43. I sold it at $25--my target. It went up to $25.52. Better to leave the party with money in your pocket. I then took my gain and bought July 25 puts. I'm thinking that the euphoria is going to end.

I bought DXD and DIA JUL 136 puts just before the FED news. There is only more fear, uncertainty and doubt, plus I think that there will be a market denoument after quarter end 'window dressing'.

I do have some languishing longs--my UNG position is down 15%. I'm believe it will recover as soon as some spinning winds hit the radar. But, I've been wrong!

The Bad. My 10 year old bird dog, Greta, has been on medicine for a bladder infection. She's on course two (27 days) without any improvement. Last night I was up with her, and she seemed to be in pain. I took her to the vet. She either has some terrible urological cancer or an antibiotic resistant bacteria. It will take 3-5 days for them to culture. I'm thinking that it is the worse diagnosis. So next week may be a downer.

I hope that you had a good day today.

Thinking V. Doing

There is a very distinctive difference between between thinking v. doing. Thinking for thinking's sake is really not terribly productive. Thinking in preparation for doing is productive; however, when coupled with making a stock transaction decision that productive decision may or may not result in a profitable transaction.

I've found myself doing more thinking than doing over these last couple of months. Given that I was ill for three weeks, it is probably best that I've not done too much doing, for there surely was no productive thinking.

Today I closed out early my DXD (double Dow -) for a profit and entered DDM (double Dow +). I closed DDM too early today, but it was a profit (but I could have doubled it), and I was happy with the combo transaction. I try to be careful about coulda, woulda, shoulda conversations. Those conversations can lead to inertia. Though, there is still much about this market that I do not like and that I think is above and beyond the general "wall of worry", I nevertheless, am trying to find some short term opportunities--either short or long--to "earn my keep".

Yesterday I listened to SCS's (Steelcase) conference call. I had previously shorted the stock and closed it out yesterday for a profit. There's a huge short position underneath the stock and a renewed buyback, so I didn't wish to continue to tie up the capital. Furniture orders are definitely slowing. After dithering and watching carefully MLHR's (Herman Miller) action today, I elected to buy some JUL 35 puts, as they were reporting AH today. The stock dropped from $34.97 to $32.80 in AH's. Hopefully this will hold through tomorrow.

Now what I describe is more trading v. investing activity, but in the end regardless of what one chooses to call it, one has to earn a return for one's capital and one's time. I'm not recommending this activity to any of you, but I'm merely sharing what I've been doing.

Short ETFs

Here are some short ETF's and today's performance sorted by performance. Click to make larger.

Moral Hazards, Kitchen Hazards and Swimming with the Big Dogs

I started this post this a.m., but am only getting around to it now (for reasons that will become more clear).

Friday was certainly an interesting day in the market. I'm still trying to balance my long and short positions rather than just retreat to cash entirely.

Moral Hazards. Bear Stearns may become a poster child for moral hazard. Looks like they got bit by the hand that was feeding them, but their investors are truly the ones who have been sucker punched. If I were an institutional investors, I would chose my investment banker much like I would chose a certified financial planner--fee for advice, not fee for products. With the push for fee revenue, I'm not sure that I would "trust" the advice of someone that had a menu of products that they were SURE would be right for me. There is a terrific article on Bloomberg regarding the BSC hedge fund demise...if you're looking for a dose of schandenfreude mixed with a bit of poetic justice, do read this.....



Kitchen Hazards. Jacques Pepin (above) ( famous chef, handsome devil) said that you should keep your knives very sharp so that when you cut yourself it will be clean and heal quickly. Yesterday I cut the right corner of my left index finger off. I'm able to type a little, but I'm fading fast here. At least it was a searingly sharp knife, and my finger is healing, but naturally I've managed to bump it about 4 times today with unhappy results.

Swimming with the Big Dogs. Yesterday I took Macy (The Chumenator) for a swim in my neigbor's pond. My neighbor has two other dogs both of whom love me as they do their owner: Lacy (a lab/beagle/bird dog mix--she's 1 month older than Macy who just turned 1 year old) and Ginger (a 100+ lb Golden Retriever), who also enjoy this activity. I throw things out and Ginger and Macy fetch them in. Lacy jumps in and drafts on Ginger--something that she has done as a puppy by latching onto the base of Ginger's monstrous tail and swimming behind. Unfortunately, she tries to do this with Macy who is ill-equipped in every way to do this. (I will try to get some photos and post to include another dog, a yellow lab of one of my neigbor's friends--to watch them all swim, fetch and play is wonderful, and there is some beautiful golden light in the evenings).

Well...I decided to launch the kayak so that Macy and Ginger could swim along with me while I FETCHED the things that they failed to pick up. It was quite pleasurable until Lacy jumped Macy and sent her under water. Macy panicked and desperately tried to get into the kayak. I did succeeded in getting Macy into the kayak only to promptly flip it. WE both went under water but bobbed up quickly. I suddenly found myself with about 220 lbs of dogs and their damaging feet ripping at me. I was momentarily terrified. I managed to fend the dogs off. It took me a little time to get underway so that I was actually moving with Ginger, the overturned kayak my shoes and the oar very slowly toward shore. I was reminded how old and out of shape that I was.

I have three horrible bruises on my left arm from being raked by somebody's claws. (I hope that I'm never mauled by a dog--even when they are not trying to harm you their exuberance can leave marks!). Naturally I was tired after the incident and from continuing to recover my massive 3 week sleep deficit. But after lying down, I realized that I was too hungry to sleep. So I went into the kitchen and found my husband opening tuna fish. Immediately I pulled out shallots and celery and began cutting away. But I was tired and not paying attention (and I really have no good form in cutting where only one's knuckles are exposed) and sliced a good sized divit out of my index finger. Plenty of blood and pain that extended into the balance of the evening. Joey, it must be something with those moon-vibes over this last month! Bad moon for me, for sure!

Lesson: No knife work while tired.

CDO's

For those of you who were kind enough to follow me through CDO's in my series of posts (as well as those by Calculated Risk), you are not surprised, and more importantly, you are knowledgeable about the issues being discussed. I know that I feel better prepared to understand the issues. And if you are hearing "this is contained to BSC" that's BS of the lowest sort. HSBC already had a hedge fund in this area blow up and now BSC. These are hedge funds attached to very well-capitalized firms.

There are hedge funds with bank, insurance, pension fund and other private-held funds that are certainly exposed to these areas. The insurance companies, AXA, HIG also have exposure. Will this be the great unwinding? I don't know, and I'm not trying to engage in hyperbole. But remember the housing recovery? It ain't happened yet--but like the second coming of Jesus (no offense to the devout--my Armenian grandmother predicted every year for that event) it has been oft predicted to be just around the corner. Sub-prime contagion contained? Nope. We later found that Alt-A had similar problems.

I'm out now to enjoy the weekend. It's been three weeks since I've felt well enough to have some fun.

Gary K's June 20th Show

I would recommend your listening to Gary K's show for today. He gives a comprehensive list of sectors that are starting to roll over.

My personal investment style is to be in sectors that are more favorable for the current economic cycle. I'm a big believer that if you pick strong stocks in strong sectors then you reduce quite a bit of the risk of making the wrong stock choice. Regardless of what the market is doing (topping, ramping, declining) there will be sectors that will experience various degrees of benefit/detriment commensurate with that cycle. I'll remind you again of George Dagnino's business cycle (at PeterDag.com)--and you can see that in my info mosaic section.

CNBC Fantasy Portfolio Update

A winner still has not been announced. This is what is posted at their site. Had I not been a contestant (I say that only in the loosest of ways!), I'm not sure that I would have known about this stuff. How sad that this challenge has been marred in this way.

"We have an update on the CNBC Million Dollar Portfolio Challenge. As CNBC first reported on May 30, we were contacted by several contestants alleging unusual trading in violation of rules of the contest, which ended on May 25.

As CNBC said at the time, we immediately launched a thorough investigation of the contest and we are now focusing on three specific areas of concern.

We are investigating whether one or more finalists wrote and executed computer program scripts to bypass the contest's security measures.

Additionally, one or more contestants were able to change their trades after the markets closed at 4 PM ET, but before the trades were processed by CNBC. That way, a contestant could have executed trades after hours, and have the trades priced as of that day's market close.

CNBC has retained two leading consultants in the information security industry to investigate these two computer programming related issues.

In addition, there have been allegations that one or more contestants may have engaged in illegal market manipulation to affect actual prices of stocks represented in their contest portfolios.

We have engaged an independent securities expert to determine whether such activity took place.

As we said previously, the rules state that CNBC has until July 8, 2007 to declare a winner. Although CNBC hopes to announce a winner before that date, it is more important to ensure the individual awarded the Grand Prize is in compliance with the rules.

Integrity is paramount to CNBC. We are taking all allegations of improprieties very seriously. CNBC will provide updates on the air and on CNBC.com as they become available."

June 20 FSO Market Wrap by Frank Barbera

I like Tim Wood and Frank Barbera, both market technicians that seem to be very data dependent regarding their views on the market. I always enjoyed listening to the two of them on FSO's Saturday morning installment, though the recent format changes has their visits alternating.

I thought that Frank's recent market wrap, which you can find here was excellent. I suggest your taking time to read it, and I think it is worth the paper/ink to print.

Retail Estimates

From Bloomberg

"Best Buy Net Falls 18%, Trailing Analysts' Estimates (Update1)

By Mark Clothier

June 19 (Bloomberg) -- Best Buy Co., the largest U.S. consumer-electronics chain, said profit fell 18 percent on sales of less profitable laptop computers and lower prices for flat- panel televisions. The company cut its annual profit forecast, sending the shares down 3.9 percent."

--------------------------------------------------------------------------------------------

Retail has been surprisingly resilient. I'll remind you that last month, most of the retailers were reaffirming their guidance. In fact, CNBC and others were going out of their way to make that notation after May sales came in and underwhelmed. Only a handful of retailers stepped up to the plate and revised their FY07 forecast downward. I found it a bit funny that these folks could unequivocally affirm guidance when there were still eight months or so of unknowable consumer behavior.

I'm sure that many of you know this, but it bears repeating. Executives/managers do not have a crystal ball on the economy that is any more accurate than that of anyone else's. Remember the homebuilders' guidance. They reported a crappy quarter but forecast smooth sailing ahead. In fact, they did that at least twice before the incontrovertible evidence that declines would continue had to be publicly acknowledged.

My friends, retailers have the SAME CRYSTAL BALL as that of the homebuilders. Perhaps more accurately stated, they have the same MOTIVATION to hold out for the rosiest view (affirmed prior guidance) just prior to the evidential matter of declining prospects becomes so overwhelming that they have to capitulate and say that they were wrong. This is PRECISELY what EACH one of the homebuilders did. Now the consumer may still prevail. But I would hazard a guess that Best Buy is a pretty accurate bellweather for the gadget heads' appetite for jiffy cool neat-o stuff.

My point is simply this--Always be skeptical of guidance from management, particularly when that guidance seems at odds with observable data. The timing could be askew--that I know well. But never look at management's guidance as a salve for any misgivings that you may have for a company's future prospects.

Position: I do own some RTH July 100 puts that are not doing so well. These were up as much as 30%. I broke my own rule on options--to sell at 30% gain--but because I thought the retail decline would be complete by now, I elected to be greedy and wait. I managed to mitigate the pain by going long on RTH and getting a nice pop when it bounced. So, I'm not crying or anything. But you make your rules for a reason; and it's best to be consistent in following them.

Happy Father's Day

Sorry for such parse posting of late. I experienced a relapse in my condition, so last week went downhill fast. Brain power and energy were seriously compromised. I still have not read the Henry C K Liu article. So much for "feeling like myself again"! Well, it did last a day.

Luckily the drugs (prednisone) and antibiotic number 2 kicked in, and I could attend a wedding last evening. So before the prednisone, I couldn't breath and couldn't sleep. With prednisone, I can breath but cannot sleep. I'm trying to contain my sleep-deprived crankiness to those who love me most.

Today, I'm making an old fashioned chocolate cake for a Father's Day (FIL) dinner event. It's a bit of a production. I saw it on Cooks Illustrated. I may not be remembered for much when I die, but I will be remembered for the desserts that I've made--honor enough for me.

For all of you fathers, my best to you in your special day. I hope someone made you a special dessert.

New Article by Henry C. K. Liu

I regret that I've not read this article yet, but it is about real interest rates. There are two parts; I've linked the first part only. As you know, interest rates have been foremost on the minds of investors--eliciting a negative reaction yesterday and a positive reaction today.

I'm not sure if I'll get a post out of it or not. Today, I'm just starting to feel like myself, so I'll have a little brain horsepower if there is something there that inspires me to tackle it.

June 12 Market Close

Market top? Rest before rocketing higher?

I surely don't know, but you know that the airwaves, internet connects will be jammed with opinions that play to our fears and uncertainties.

Horizon Offshore

I've had the fortunate experience to own two oil services companies that have been purchased. First was THE, purchased by HERO. Today, CalDive is buying Horizon Offshore of which I have 500 shares. I had also picked up HERO when it tanked after the news of the purchase. I actually made more money on HERO than I did THE. I also sold THE too soon. The purchase price was a combo (like CalDive) of stock and cash, so part of THE's purchase price was tied to HERO's. So I could have doubled my pleasure by holding both, but there was risk in that, and I didn't want the double jeopardy either!

There's been speculation of consolidation in the oil services area, but much of that has focused on the larger names. Both THE and HOFF have been under the radar. Lehman publishes some excellent industry reports, and oil services is no exception. I always do my own due diligence, and I picked up HOFF based on that work.

It's not the snake you see that bites you. . .

is the lead in to Jeffrey Saut's excellent market commentary. Of course, with my garden encounter this weekend, the aphorism resonated particularly pointedly!

If you are not a regular listener of Saut, you may wish to add him to your resource list. I thought today's commentary was particularly good. His commentary is not daily, but you can count on him for 3 or so days. The written transcript is available the following day.

I hope that you'll take time to listen to today's commentary.

REITS and Interest Rate Hedges

I cannot help but wonder what the real interest rate exposure is for this asset class. Given the burgeoning of interest rate derivatives, you'd have to wonder how much of their interest rate exposure (to rising interest rates) was already covered.

Market Respite

This week should prove interesting for the market. I suppose that this will provide some affirmation or either cast aspersions on Friday's indices relaunch (which Gary K reminds was on lower volume). I'm not sure what to think. Admittedly, I've not done too much thinking these last few days other than my being reminded how grateful I am to be born post discovery of antibiotics.

We've been suffering from hateful hot/humid weather, but such are the character of VA' s summer days. The doctor says that the Spring was the worst one he's seen for allergy sufferers, and even those who've NEVER had problems. It was not comforting news, but it certainly explained a good bit of my misery.

It feels good to be on the uptrend rather the downtrend. I figured it was time to stir around a bit, and worked in the garden. We have this wonderful loamy soil. Everything grows well in it, including weeds. So I took a hand cultivator and worked around a few things. It was quite enjoyable until I disturbed a snake in the ground. He literally jumped out of the hole at me causing me to shriek and jump back. He then coiled up under my sage plant ready to attack. He didn't appear poisonous--likely a garter snake. I was surprised by his aggression (and by HIM)--I'm sure he was as startled as I was. He had his tail just a twitchin' and there was a tiny crimson protrusion that was flashing. He wasn't very big, maybe 18-24 inches. I lost my appetite for hoeing and decided to switch to the watering can. I am happy to report that there were no further incidents.

Trustee Sales

(CTML) As trustee sales have moderated in the past 60 days, I've not posted them. However, today, they were markedly higher. They were the highest since January AND 11 of the listings were more than $200K--unprecedented. Three of the properties were the same last name, but different first names. I'll surmise, then, that they were flippers.

Behavioral Finance--Fundamentals

I found this article on behavioral finance that, for those of you who have an interest in the essence of what it is about, will find an interesting read. Here are the particulars. Click on the title to view the paper.

Behavioral Finance
Jay R. Ritter
Cordell Professor of Finance
University of Florida
P.O. Box 117168
Gainesville FL 32611-7168
http://bear.cba.ufl.edu/ritter
jay.ritter@cba.ufl.edu
(352) 846-2837
Published, with minor modifications, in the
Pacific-Basin Finance Journal Vol. 11, No. 4, (September 2003) pp. 429-437.

Abstract
This article provides a brief introduction to behavioral finance. Behavioral finance encompasses research that drops the traditional assumptions of expected utility maximization with rational investors in efficient markets. The two building blocks of behavioral finance are cognitive psychology (how people think) and the limits to arbitrage (when markets will be inefficient). The growth of behavioral finance research has been fueled by the inability of the traditional framework to explain many empirical patterns, including stock market bubbles in Japan, Taiwan,
and the U.S.

Today's Market Close

CTML

I hope that your portfolios weathered this storm. Here it is June 7, and all of the things that I expected that any reasonable investor would understand about the market and the economy is now coming to full realization. I have no grand insights. I'm like Day 10 into this ^$#!#$^ sinus infection and Day 4 into my antibiotics after my own system failed me miserably! So thinking viscous has been replaced with non-thinking viscous (now where else would you ever read it portrayed that way!).

My portfolio was actually up today, but I'll confess that I've missed out on a big piece of the gains in the market. Trying to time the market is a fool's game. I know that. When you look at the charts and you have the benefit of hindsight it is all so clear. But what you do not have is the asynchronous view of what people were fearing when (collective handwringing, and you've seen it on these pages) v. when the market reacted.

My Portfolio Challenge is still a ????

I wanted to see how I finished in the last round of the CNBC portfolio. Now, I didn't expect to win anything, but I was just curious which strata I ended up in. Here's the message:

The CNBC Million Dollar Portfolio Challenge ended May 25th. CNBC has been contacted by several contestants alleging unusual trading in violation of contest rules among some of the 20 finalists. Once these questions were raised, CNBC immediately launched a thorough investigation to determine who may have violated the rules.
As the rules state, CNBC has until July 8, 2007 to declare a winner. Although CNBC hopes to announce a winner before that date, it is more important to ensure the individual awarded the Grand Prize is in compliance with the rules.

Thank you again to everyone who participated in the CNBC Million Dollar Portfolio Challenge. We will email everyone when final results are available.

Today's Market Close

I've been keeping a low profile, as I've been under the weather. Above is today's market close. I've not posted it in a while since we've been up, up and away.

I would encourage you to listen to Gary K's show this evening (I'm listening now--GaryK.com). He's being measured in his discussion of today's market. Here are his numbers to watch for potential breach:

Dow 13423, if breached watch for 13210
S&P 1505

He's not giving numbers yet for Naz or Russell 2000.

Coal Stocks Update

I've been a little under the weather, so thinking much less posting has been a bit strained. But I can operate Hypersnap, so I took a picture of the Coal Stocks as of market close today. Do click to make larger (CTML)

Overall, this hypothetical group has done well, gaining 18% since April 5. I've always believed in the power of the sector in stock valuation. I identified this sector first through my own work first, and then noticed that more folks were writing about them (there is a behavior attributed to this--like buying a white car and then noticing how many white cars are on the road). Anyway....best stock purchase outcomes have always come from doing this sort of winnowing through the stock universe.

It is important to note, though, that with cyclical stocks such as these, while the recoveries are attractive, when they hit their demise, the red ink can flow pretty heavily. The reversals in these sectors can be quite stark--as in 40-50% reversals. I don't like to hold through such reversals, but there are certainly tax considerations if you hold stocks such as these in a taxable v. deferred taxable account. If you have such accounts and you've not thought about allocating different types of holdings among the two, perhaps talking with your financial advisor would be prudent. As they say...it's not what you earn but what you keep.

Retail Pessimism?

(CTML)



Look at the increase in short interest in the RTH--it increased from ~43% from April. I have puts on RTH (Jul 100's). They are not doing so well. I elected to keep the puts, and I bought RTH to soften my short position. Below is today's picture at 11:30 a.m. I'm going to hazard a guess that the buying interest is short covering rather than confidence in the consumer and confidence in the retailers. I elected to close my long position @ $107.63

Addendum:....WMT's recent news is driving this. Their chart shows this identical uptick. Nevertheless, the shorts get squeezed in RTH when good news for a beast such as WMT erupts.

Tempamatics

In college (1980), I was taking a marketing course that required forming groups of 4 and competing in a game called "Tempamatics". Essentially, the group was the company and the collective groups in the class were the industry--competitors.

It was a simulated game where you made routine decisions about your product to include production volume, sales price, stock buybacks, debt assumed etc. Based on your decisions, (entered on key punch cards I might add--ancient technology), and in relation to the decisions of all others, your group was ranked against all others--in your class in and in all classes. The ranking was based on your score earned on about 5 factors. I don't recall them all but debt to equity, return on assets, return on equity were three of the 5. Not all of them had the same weighting.

The marketing professor was not too keen on accounting students. In fact he warned that the worst group that he ever had was composed of all accounting majors. Our group had 2 accounting majors (including me) and a marketing major and a personnel major. He did allow us to keep our weighting of 50% accounting majors, and we did not feel intimidated.

The very first exercise elicited a lecture from the professor about what variable costs were. Apparently more than one group had elected to sell their product for less than it cost them to produce. Naturally, those of us who had a facile grasp (read: accounting majors) of this concept were left with no sales, lots of inventory and red on the income statement.

After the first blow up, our team determined that we would systematically exploit the ranking system by making decisions that would cause a better outcome for more heavily weighted factors. Return on equity was one such factor. Accordingly, among other things, we bought back stock--including borrowing money to do so as debt factors were not weighted so heavily. We consistently climbed higher and higher in the rankings by maintaining a ruthless commitment to maximizing our scores and testing our decisions that would get us there.

To give you an idea how successful our team was, we finished with a score 97. The second place team had a negative number of like -25. (This was among all classes, not just our class, and I don't recall how these numbers were generated). Our lament, though, was that we were NOT making good long-term decisions, but rather short-term, highly rewarded decisions. This M. O. stood in stark contrast to the Japanese style of business decision making (much discussed at the time).

Businesses have to survive for the long term, and they cannot do it with short term thinking--such as unsustainable debt, declining sales or margins, runaway administrative expenses. So as you look at your investment candidates, make sure that they have a management team and product line that positions them for long term success. It's also a good perspective to apply to your personal finances.

China

Hey, if you are looking for something interesting go here.

You can click on the China map and find all sorts of interesting things. Cocktail party this weekend? (I don't have any, but surely you do). Arm yourself with titillating information.

Short Interest

I mentioned some time ago that I had a major "duh" moment. Specifically, that when the market (or stock) advances more than I would expect it to, look at the short interest. JOYG had a terrific day today. Their short increase had also increased rather markedly from APR - May.

I'm wondering if the juice for the market today was real exuberance or the fact that short interest overall has been increasing across the board by people in the 'money know'. The FOMC minutes were not comforting with respect to the drag of housing on the economy. Now, as you might imagine, I was not surprised by that statement; I doubt that any of you were either. So I did garner some comfort that my thinking was not so out of line in that respect; but was discomfited that there was not a more forthcoming worry earlier.

Thunderstorms and Such

Around 8:30 p.m. Monday evening we had a violent thunderstorm--blinding rain, powerful winds and chip-sized hail, lightening ground strikes. Greta, my orange belton bird dog, is deathly afraid of storms. She shivers like perennially jiggled jello. I put her in the utility room and turned the dry on to mute the thunder. She also does not like flash cameras--she knows that a flash is the precedent of thunder.

That trick worked until we lost power. Luckily our dinner, courtesy of my son, was on the table (yeah, we eat late!). He grilled bratwurst and onions. So we ate by candlelight and with the wonder of when power would be restored. My neighbor said that the power company said by 11:30 p.m. With that information, we elected not to go down to the woodshed to get the generator.

Tuesday a.m.. Still no power. So yesterday I was sans internet, though I could connect through my Open Wave through Verizon to see what the market was doing. Good, bad, then good it seemed! Power/cable was restored around 5:00 p.m.
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It looks like today there may be a market thunderstorm with the Chinese govt's tripling of the stamp duty. You can read the story here on Bloomberg. One half of the Shanhai's stocks dropped the daily drop limit of 10%. Naturally, analysts are not concerned. I'm not suggesting that they need to be, for I truly do not know. But we can always be assured that no matter how dire the news, MOST analysts will not be concerned. I at least believe that it is a correction. Whether a healthy one or not remains to be seen. Watch FXI today. It will open at least $2 down.

SRS is the 2x inverse of IYR. IYR was up about 3% due to buyout news and speculation. SRS was down 6%. I'm sure that there were many investors in SRS thinking that REITS had rolled over and more was to come. It was a beautiful H&S pattern--THAT FAILED. At least so far. I had exited my position in SRS profitably (because I watched the technical pattern in IYR), and I was glad not be exposed yesterday. Buyouts must release some trader pheromones--they get a whiff of it and go into a buying frenzy for all stocks in a group. I imagine that frenzy will buoy the REITS for a little while--at least through a merger Monday. But the double ETF's can double your pleasure or pain.

I know that some of you dismiss technical indicators, and there are certainly arguments for that. But there are technical indicators that I believe that are separate from the seeming voodoo chart patterns that have increased my transaction success. Most particularly, overbought/oversold as well as RSI have been useful to me. I also watch the Aroon up/down indicators. That has helped me understand whether a price is trending, changing trend or consolidating. Given that I've not wanted to be long this market (call me chicken), I have found that these tools have helped me find some attractive short-term positions, so that I'm earning some return without feeling too exposed on the long side. Stated another way, I feel like I'm making an 'informed gamble'.

May your portfolios persevere today.