Asian Markets Selling Off over Night

Today will be an interesting day in the market with the Asian markets selling off rather strongly last evening. If you were to listen to the news, you would think that all was sweetness and light. And the CNBC anchors were absolutely giddy, though I give Bob Pisani credit for tempering that.

What I've noticed during this cycle (I have to say I've not noticed previous cycles having been otherwise engaged), that castigations abound for those with a hand wringing bent (like me). Somehow if you've failed to drink the proverbial this-is-the-greatest-bull-market-ever kool aid, then you are pegged as a contra-weirdo. So be it.

I do regret that I have in my CNBC portfolio China Life. That will likely get hit hard. And I also regret that in my E-trade account I was not able to unload my CBAK (bought with cash, not margin). I think that I have enough short exposure to cover any losses.

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1:03 p.m......well look at the market: Strong Like Bull.

VA Tech -II

Today's Richmond Times Dispatch had pictures (where available) and a summary (where available) of the slain. The students, with their young, smiling, fresh faces reflecting all the hope and promise that they would reasonable expect, are extinguished. Four professors--people dedicated to educating inquiring minds--two early in their careers, one in the apex of his career and another at the end of his career. Not that each of the people didn't have compelling stories, but I was particularly struck by this story, the story of Liviu Librescu, 76--the professor at the end of his career.

Liviu Librescu was from Romania. He was a world renown expert in aeroelasticity and composite structures. When the shooting began, he remained calm and guarded the door while his students went out the window.

He had survived first a German concentration camp, and then later lived under the Romanian regime of Nicolae Ceausecu. Eventually he was able to immigrate to Israel, and later came to Tech in 1985.

My neighbor's son is home. I'll visit with him tomorrow to see how he is doing. He knew one of the young women who was killed. He's a very sensitive young man, who is greatly interested in the plight of socioeconomically disadvantaged people. He's spent time in Africa and Costa Rica. He will spend his life helping others.

Sometimes we are overwhelmed with a sense that we need to accomplish something big. But if we were to help just one person shoulder his or her load in this life, that is a wonderful thing. And here we have a quiet, resolute man-- Nicolae Ceausecu--who has experienced most of life's indignities, carry himself with grace and courage amid mahem.

So rather than find the next big thing to do, I'm going to concentrate on the next small thing to do.

Market Close: 04.18.07

Fantasy Portfolio

I'm in the top 3% now--ranked 26,445. Perhaps I can get a top 10,000 finish.

Market Close: 04.17.07

Halter Index

Joey asks about the Halter index. You can find the above at Seeking Alpha here.
The listing of stocks that I provided came off of a Fidelity news article that lists the composition of the fund in terms of membership, not weighting.

FMD and other "Stuff"

Well, my $1M FANTASY Portfolio, benefited from my FMD selection. It's value is $1,226,210. They'll do the rankings overnight. Who knows what 10,000 decile I'll be in! (I'm doing this for fun and on a whim--and readers can feel free to throw me a bone here!). I wallowed into that mess yesterday in my personal-far-below-$1M-portfolio.

For whatever reason, I have a strong pull for buying into these horrific drops. I know the admonishment that you shouldn't catch a falling knife, but when I believe that (1) fundamentals trump emotions (and technicians would throw darts at my saying that) and (2) when the stock price reflects emotions RATHER than fundamentals, you have an opportunity. Oh, it is not an opportunity without risk, though. (And this is exposition, not advice. Never take advice from me!).

So I bought some FMD (First Marblehead Bank) on investor's concerns that their student loan business would suffer on the Salli Mae deal. It may very well suffer, but that's a longer term issue. That sort of action attracts me like a bug to the light. And in keeping with that metaphor, one could also experience a ZAP! The sound of capital evaporating.

Remember my mentioning BAMM and the stupid increase in their shares due to a pukey report that clearly investors had not read or understood? Well, I shorted that stock. And let me tell you with a basis of $17.58, I was mighty uncomfortable when it went as high as $19.45 yesterday. My sphinctometer (no, it is not a word, but we coined it at my last, highly stressful cannot sleep at night job) was pegged. There are still a few shorts in that position, and it is clear that they are getting milked.

But today, I was greeted with that stock opening down. It was a time to act, not think. I guess the shorts out-lasted the whomevers. I closed with a profit--$650--not worth the capital that I had at risk, but given that I was down as much as $1600, it seemed like a fortune. Though I fully expect that stock to drop further, for I feel that the price is STILL foundationed on ether (which is not part of the universe) I do not have the visceral fortitude to see that through. That Damoclean sword is gone. As Joey points out, that New Moon was favorable.

Over the weekend I printed out all of the Yahoo profiles on Chinese stocks. Please see the composition of that list on my Halter Index that I published here. This a.m. , I printed off all the charts. I looked at the charts in relation to the opening action, and I made a buy of CBAK at $3.378 because the chart looked good (to my amateur eye--you will only see my posting charts for very specific things, but never for techinical analysis. Go to Tim Knight's excellent site, listed on the right, if you want good technical analysis.)

CBAK is up a ridiculous amount today (9.78% and I caught 6.3%). I bought it through an E-trade account that does not have margin. So, I'm feeling mildly regretful that I did not buy it through my Fidelity account, so that I could just flip it. My E-trade account was leftover from my last job. They used E-trade to manage their stock options and ESOP. What a great way to offload administration and what a boon for folks like E-trade to attract (or keep like me) customers! Well, my options evaporated when I walked away, but I had a little money in there. I decided to keep the account, for there are some research reports and data views that they have that Fidelity does not. So I kept it. I never have more than 1 or 2 positions. And, I think that keeps me very focused.

Now that my nose is not in systemic risk readings and translations, I've dusted off my Behavioral Finance book. I'll bore you with my distillations for the selfish reason of that makes ME comprehend the material better. Jeffrey Saut at Raymond James (DO visit his daily audio commentary--see info mosaic--for it is worth your time. You will find him, Hussman and Ritholtz--I'll throw in Cara as well- to be similar in their market bents.)

So in Saute-esqe style, I'll say, "That's it for me".

Thanks for stopping by.

CSIQ-II

Yesterday I was bemoaning my "early" sale of CSIQ. The stock closed down today giving back all of the gains out of which I felt cheated.

The other stocks that I sold into strength yesterday were all down today. More lucky than smart, but I'll take luck any time.

Market Close: 04.16.07

Fantasy Portfolio

Top 8%...63,417. I'm betting that FMD will snap back a bit after yesterday's plunge. Exited out of ANR.

Non-market musings

Virginia Tech

Above is Burruss Hall at VA Tech. Isn't it beautiful? I fell in love with the campus when I visited it. Majestic, gothic building, replete with gargoles, nestled in the mountains of Blacksburg. I attended VA Tech in 1978 - 1980 until a softball thrown to far afield landed against my head. A tripod fracture to the right zygoma required an operation and recovery. Coupled with my not getting on-campus housing and being engaged (to my current and only husband), I elected to transfer to another school. I still remember my first day on an urban campus. I cried. When I walked to class at Tech, I didn't smell exhaust or hear the honking of traffic. It was a very difficult transition.

Today, it suffered the ignomy of being the location of the largest massacre in the US. I cannot imagine what the student body (>25K) must be feeling. I remember in 'my day' there was a campus rapist. During the week of the rapes and prior to his apprehension (a non-student) we were wary--even fearful. How this community must be feeling is beyond my comprehension--I don't know what the combination of grief and fear feels like. I'm fortunate to have lived so long with such naivety.

My neighbor's son, whom I've known since his birth attends VA Tech. He is safe. And the community of young people in New Kent quickly, through their instant messaging, My Space's and phone calls, ensured that 'their own' were safe. But that small consolation did not prevent their thoughts turning immediately to those who were not safe. Naturally, the phone lines were jammed, so many parents are left in that netherworld of not knowing. It's a bona fide tragedy.

I have the fondest memories of Tech. My husband claims it is the coldest place on earth. I still remember waking up to go to my 8:00 a.m. lab class and having to stop over the steam grates to get warm. My favorite memories are those of the football games at Lane Stadium. There were many die-hard fans. I particularly remember the older men (>60) festooned in their orange/burgundy, shirts/pants beaming with pride and love for this beautiful land-grant school nestled in the mountains.

Remember how when you reached a certain age your Mom and Dad sort of embarrasssed for being seemingly backward? Well, the colors of orange and burgundy along with a mascot that was a turkey no less, was a bit embarrassing. However, today I feel especially privileged for being part of that community. I know those burgundy and orange festooned men, part of the founding student body in those early decades, now have a tear in their eye and a glass in their hand mourning the tragedy that unfolded in that community in front of our nation today.

What Matters

Events such as today remind us how important the small things are. My SIL's birthday was on Friday. I forgot. I remembered on Saturday. They came over last night for dinner. I fixed homemade chicken enchiladas (and they are wonderful!), refried beans (semi-homemade), and rice (out of a box). For dessert, I fixed a beautiful, homemade Mexican flan. If I could invest as well as I cooked I'd be a gazillionaire! But cooking has brought me great wealth. I adore feeding people things that (1) they would not make themselves; (2) they may not be exposed to.

My point of this post? Make sure that you reach out to the people who matter in your life. Broken fences in your life? You can mend those.

CSIQ

I purchased CSIQ at $10.05. Above is today's chart. The little turbo boost you see was due to an innocuous news story that came out to explain why all the solar plays were going zonkers. I sold it around 2 p.m.

Why? I'm going to refrain from calling myself a name. Seriously, though, I think that this market is too frothy for the fundamentals. But I say that recognizing that I have a distinctive bias. An interesting question to ask yourself when you are steeped in your own bias is what would you have to believe to be true to change your current mindset. I'll make a stab at that. I would have to believe that...

1. jobless claims would not increase. I think that they will increase due to the effects of the slowdown in builders and all of the other supporting industries to that critical sector.
   
2. interest rates would be stable or decline. I don't see stability in interest rates. I see upward pressure due to USD and inflationary pressures. Also, that commodities are increasing is troubling to me for I think that puts pressure on the consumer.
3. the consumer would have to remain strong. Income growth is not keeping up with the price of things: housing, gasoline, food and healthcare--the things that we mere mortals have to buy to keep our families fed and sheltered with some measure of safety.
4. corporate spending would have to backfill for the consumer (presuming of course that the consumer falters). So far, corporations have been tightfisted except for buying back stock and compensating the heck out of their CEO's.
   
5. all of the things that I think are going to be an issue really will be an issue, but much later, and there is still some juice to goose. Okay....I'll give this one a tepid thumbs up.
   

I don't believe that 1-4 are going to happen. I do know that market pundits were touting the capex resurgence due to Vista--hear that thud?. Nonsense. Lending was being spun into a subprime issue, but it is an overleveraging using specious vehicle issues. Given the structure of many of these loans, problems (which to be fair I must say if there are going to be any problems) may be deferred--for several quarters. And remember the retail sales number; it was punk.

So this is the backdrop in which a stock run up of 20+% (and then later go on to be up 38% in a matter of an hour later) just a few days makes me nervous. If I felt more positive about the overall market, I would have stood steadfast. And understand, if I cannot feel comfortable with holding these types of gains, I'll never hit the proverbial home-run stock.

I also did another hard thing. I picked up some FMD on the debacle. It looked like a genius thing to do at one point during the day; then its IQ regressed. We'll see in a couple of days. I've generally had good luck stepping into the fray.

So I write this to share my quandries--and by sharing my quandries, you'll be sure to always remember that none of this is ever investment advice, but rather an exposition.

My thesis on mortgage banking

has proved wrong. (Early=wrong). My expectation was that loan losses would begin to percolate down up, but that has clearly been NOT the case.

While my expectation is that interest rate resets will continue to be at issue, it is likely not a problem that will reverberate through the investment community until the "if" or "when" unemployment begins to rise.

Halter China Index

Here's the Halter China Index. I've created this in Stock Charts, but I don't keep public lists. If you are interested in watching the 'action' in a slice of China stocks, this might be a good place to start. I picked up my CSIQ from this list.

Fantasy Portfolio

I've moved up (after having moved back) to the top 9% at 71,567.

Special Sector updates A/O 041307

Here are my specialty sector updates. I'll try to do a better job of posting these each week. I find having these watch lists helpful. It builds a radar screen. I look at these each day, and I particularly read the news items. Occasionally I hit myself on the forehead and say "I could have had a V-8".

Over last weekend I spent a fair amount of time looking up the coal stocks. This is one of the few times that I was able to "get in" to the action. I never chase action--I still regret not chasing AKAM when it went from 18 to 25--(I'm pretty sure that is a pre-split price too). But, you cannot get them all.

I also picked upped some CSIQ @10.05 this week. I closed at $10.84. I found it on the "Halter Index". I'll make a watch list this weekend.

Happy weekend.

Market Close: 04.13.07

I know that anecdotal information is passingly worthless--but like good gossip, far be it for me to let that stop me.

Local carpet contractor says that business is slower than he's ever seen it (he's been in the business for many, many years). Neighbor who works in transportation--no body is shipping anything.

So, from my small corner of the world some passing tidbits.

Today's market strength is a bit of a surprise. It is worrisome that energy stocks and gold are so strong. Partly due to a weak dollar and partly due to inflation worries.

Marc Faber

Mark Faber's new post at AME.

I like reading Marc Faber. You can find an abbreviated 'blurg'--hey I'll take a crumb.

MTG-II

If MTG had tumbled, I would have said that I expected that. But I also said (in my honest, cannot benefit from hindsight post) that I had a short position (via puts) but that MTG had held up so strongly, that I closed my position. The green line above is $56.39. That was previous support. It may prove to be current resistance.

I don't really count aftermarket activity on stocks such as this, because after market is a netherworld. You can see that MTG tanked down to $53, but quickly regained. I do not know what will happen with this stock. I don't think that there is much upside, and we may very well see it drift down.

My sold puts would have gained just a bit. What's interesting is that when the stock is all in a muddle in the a.m. like this one is, you cannot get a bid/ask on options. I don't know the reason for that

Anyway, the promised followup. Not much insight. I think that they are having their conference call now. I may listen and see how the stock reacts.

Hedge Funds and Systemic Risk - Conclusion (III)

This is my final installment on this paper. I wanted to lift something out of The Hartford's 2006 10K:


"Limited partnerships increased by $363 or 84% during 2006. HIMCO believes investing in limited partnerships provides an opportunity to diversify its portfolio and earn above average returns over the long-term. However, significant price volatility can exist quarter to quarter. Prior to investing, HIMCO performs an extensive due diligence process which attempts to identify funds that have above average return potential and managers with proven track records for results, many of which utilize sophisticated risk management techniques. Due to capital requirements, HIMCO closely monitors the impact of these investments in relationship to the overall investment portfolio and the consolidated balance sheet. HIMCO does not expect investments in limited partnerships to exceed 3% of the fair value of Life’s investment portfolio excluding trading securities.

The following table summarizes Life’s limited partnerships as of December 31, 2006 and 2005.

Composition of Limited Partnerships
		2006								2005
		Amount				Percent				Amount				Percent
Hedge funds [1]		$	427				53.8	%		$	127				29.5	%
Private equity funds [2]			211				26.6	%			179				41.5	%
Mortgage and real estate funds [3]			46				5.8	%			6				1.4	%
Mezzanine debt funds [4]			110				13.8	%			119				27.6	%
Total		$	794				100.0	%		$	431				100.0	%

[1]		Hedge funds include investments in funds of funds as well as direct funds. The hedge funds of funds invest in approximately 40 to 90 different hedge funds within a variety of investment styles. Examples of hedge fund strategies include long/short equity or credit, event driven strategies and structured credit.
[2]		Private equity funds consist of investments in funds whose assets typically consist of a diversified pool of investments in small non-public businesses with high growth potential.
[3]		Mortgage and real estate funds consist of investments in funds whose assets consist of mortgage loans, participations in mortgage loans, mezzanine loans or other notes which may be below investment grade credit quality as well as equity real estate.

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The point of the paper is that it is particularly this inter-relatedness that poses risk. Rather than try to paraphrase the authors, I'm going to include their Current Outlook lifted directly from pages 81, 83)
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The Current Outlook

A definitive assessment of the systemic risks posed by hedge funds requires certain data that
is currently unavailable, and is unlikely to become available in the near future, i.e., counter-
party credit exposures, the net degree of leverage of hedge-fund managers and investors,
the gross amount of structured products involving hedge funds, etc. Therefore, we cannot
determine the magnitude of current systemic risk exposures with any degree of accuracy.
However, based on the analytics developed in this study, there are a few tentative inferences
that we can draw.

1. The hedge-fund industry has grown tremendously over the last few years, fueled by the
demand for higher returns in the face of stock-market declines and mounting pension-
fund liabilities. These massive fund inflows have had a material impact on hedge-fund
returns and risks in recent years, as evidenced by changes in correlations, reduced
performance, and increased illiquidity as measured by the weighted autocorrelation.

2. Mean and median liquidation probabilities for hedge funds have increased in 2004,
based on logit estimates that link several factors to the liquidation probability of a
given hedge fund, including past performance, assets under management, fund
ows, and age. In particular, our estimates imply that the average liquidation probability for funds in 2004 is over 11%, which is higher than the historical unconditional attrition
rate of 8.8%. A higher attrition rate is not surprising for a rapidly growing industry, but
it may foreshadow potential instabilities that can be triggered by seemingly innocuous
market events.

3. The banking sector is exposed to hedge-fund risks, especially smaller institutions, but
the largest banks are also exposed through proprietary trading activities, credit arrangements and structured products, and prime brokerage services.

4. The risks facing hedge funds are nonlinear and more complex than those facing traditional asset classes. Because of the dynamic nature of hedge-fund investment strategies, and the impact of fund inflows on leverage and performance, hedge-fund risk models require more sophisticated analytics, and more sophisticated users.

5. The sum of our regime-switching models' high-volatility or low-mean state probabilities is one proxy for the aggregate level of distress in the hedge-fund sector. Recent measurements suggest that we may be entering a challenging period. This, coupled with the recent uptrend in the weighted autocorrelation , and the increased mean and median liquidation probabilities for hedge funds in 2004 from our logit model implies that systemic risk is increasing.

We hasten to qualify our tentative conclusions by emphasizing the speculative nature of
these inferences, and hope that our analysis spurs additional research and data collection to
refine both the analytics and the empirical measurement of systemic risk in the hedge-fund
industry. As with all risk management challenges, we should hope for the best, and prepare
for the worst.
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I hope that my objective of creating awareness without insanity has been met. Keep your eyes and ears open for exposures, particularly if you have a DNA quirk that has you nosing around 10-K's of financial institutions. Keep in mind the example of HIG.

Thank you for reading this and your comments (both public and private) on the material. Because I wrote (regurgitated) this information, it forced me to wrestle with concepts that were both foreign and complex. Nevertheless, I understand the risk--so if we ever have a meltdown, you can say, "Yes, I've read about those auto-correlations and this event is not a surprise to me."