Jul

25

Snippets of the Week

Teresa Lo @ 2:40 PM | | 4 Comments

In case you’re in the mood to check out a couple of videos and podcasts over the weekend, the trio from PIMCO were all over the media this week. Paul McCulley talked about how the deleveraging process has become corrosive, comparing it to the dreaded paradox of thrift. Bill Gross talked to Bloomberg about U.S. interest rates, while colleague Mohamed El-Erian had a conversation with Charlie Rose.

In other matters, Scott Brown from Wired Magazine discussed the workings of his Nostalgorithm equation. Traders will instantly recognize that he is describing the formation of a speculative bubble. Last, but not least, Barack Obama gave a 25-minute speech in Berlin on the power of hope.

  • Pimco’s Paul McCulley Says Plosser Wrong on Rate Hikes [WATCH VIDEO]
    Paul McCulley, a portfolio manager at Pacific Investment Management Co., talks with Bloomberg’s Kathleen Hays from Newport Beach, California, about U.S. deflation and property values, and the outlook for Federal Reserve policy. McCulley said Philadelphia Fed President Charles Plosser was wrong in saying that the central bank should raise interest rates “sooner rather than later” to keep inflation from accelerating.
  • Pimco’s Bill Gross Says Fed Can’t Raise Interest Rates [WATCH VIDEO]
    Bill Gross, who manages the world’s biggest bond fund at Pacific Investment Management Co., talks with Bloomberg’s Sal Giangrasso about the outlook for Fannie Mae and Freddie Mac, Federal Reserve monetary policy and the U.S. economy.
  • A Conversation with Mohamed El-Erian [WATCH VIDEO]
    A conversation with Mohamed El-Erian, co-CEO co-CIO for PIMCO, the world’s largest bond investor.
  • Part 2: Nostalgorithm [LISTEN]
    Scott is a contributing editor with Wired Magazine and in June 2008, he sat down with an old college buddy to work out a mathematical formula that would predict the success potential of pop culture retreads based on their nostalgic value. He calls it the “Nostalgorithm.”
  • Barack Obama in Berlin [WATCH VIDEO]
    “This is where the two sides met. And on the twenty-fourth of June, 1948, the Communists chose to blockade the western part of the city. They cut off food and supplies to more than two million Germans in an effort to extinguish the last flame of freedom in Berlin. The size of our forces was no match for the much larger Soviet Army. And yet retreat would have allowed Communism to march across Europe. Where the last war had ended, another World War could have easily begun. All that stood in the way was Berlin. And that’s when the airlift began — when the largest and most unlikely rescue in history brought food and hope to the people of this city. The odds were stacked against success. In the winter, a heavy fog filled the sky above, and many planes were forced to turn back without dropping off the needed supplies. The streets where we stand were filled with hungry families who had no comfort from the cold. But in the darkest hours, the people of Berlin kept the flame of hope burning. The people of Berlin refused to give up. And on one fall day, hundreds of thousands of Berliners came here, to the Tiergarten, and heard the city’s mayor implore the world not to give up on freedom.”

Jul

24

Podcast: Looking at the Half-Glass

Teresa Lo @ 5:30 PM | | 1 Comment

  • Right click ON THIS LINK and select “Save Target/Link As…” to save the MP3 file to your computer.

Well, well. Pretty much as we expected, the S&P 500 hit some resistance after trading back up into the March lows.

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Just when they thought it was safe to come back, WSJ reports, “The Dow Jones Industrial Average dropped 280 points and other major market indexes saw similar losses after worse-than-expected readings on home sales and initial jobless claims painted a gloomy picture of the economy. Many investors unloaded financial stocks, which had enjoyed a week-long rally powered by better-than-expected earnings reports and regulatory efforts to crack down on short sales of certain names. Washington Mutual shares fell by 13% and Fannie Mae and Freddie Mac ended down nearly 20% each. Outside of the financial sector, General Motors dropped 11%, the worst performance on the day among the 30 stocks in the Dow. Airlines also saw dramatic losses. Delta Air Lines shares plunged 21%.”

A classic.

Thoughts on Stock Selection

Rex is my guest today on the podcast. We talked about a number of issues faced by traders, starting with a question from a subscriber:

SUBSCRIBER
Teresa, I subscribe to Portfolio Strategy and use the RMI stops for eSignal. The problem is locating those stocks when you initially go short or long. Any suggestions?

TERESA
Could you tell me exactly what problem you’re having? Are you looking for some sort of alert with the RMI stops? Which “those stocks” are you looking at?

SUBSCRIBER
On company news releases and earnings reports I’ve got crushed following your indicators. How do I avoid those traps? Otherwise I am very pleased.

TERESA
Could you provide me with a few examples with the following information:

  1. What did you buy and why?
  2. When did you buy?
  3. Did you ever trade that stock before?

SUBSCRIBER
The most recent one was AMZN on the short side. Earnings came out last night and the rest is history. I shorted it based on consumer pullback and your indicator.

TERESA
What date did you go short?

SUBSCRIBER
July 10@ 70.75.

First, the subscriber’s assessment of the fundamental outlook and the earnings estimates for AMZN turned out to be incorrect; therefore, the premise for taking the short position was invalid.

Second, the stop indicator can be used two ways: exit longs OR enter short. A trader must decide which one to take, because it is not advised to trade each and every swing due to high whipsaw potential. In other words, the trader must use additional filters to make a final decision as to whether a stock should be played or not. The trader must coordinate the logistics of trading.

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Third, stock screening/selection is very important. Why did you select this one out of the thousands of stocks that trade? One should not expect to simply “point and shoot” any indicator and hope that it “works”. Choose your stocks carefully.

Fourth, taking positions in front of earnings is highly risky. If you are long, consider buying some puts for protection. If you are short, consider buying some calls for protection.

Last, but not least, one should take signals as they appear. In this case, a sell signal was given for AMZN on June 26, 2008. The subscriber went short nine days and $8.00 lower.

Reference

Charts related to the Louise Yamada discussion are as follows:

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The Dreaded Double Top

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Or Something Else?

The Larry King UFO video is at online at CNN. Former astronaut Edgar Mitchell agrees that there is a cover up.

Jul

24

Trading Ideas for Friday

Teresa Lo @ 4:45 PM | | Leave a Comment

The stock scan conducted after the close on Thursday found 64 winners and 56 losers. Click on the column headers below to sort the entire list.

The scan is designed to find stocks that are current “in play”; criteria includes price movement, range and liquidity (500,000 shares on the day, 20-day average volume of 1.5 million shares). The entire list has been ranked and sorted relative to performance against the S&P 500 and the NASDAQ 100 indexes. Please refer to the podcast for background information.

Read more

Jul

23

A Note From Teresa

Teresa Lo @ 4:12 PM | | 2 Comments

I’m writing to let you know that we are using the dogs days of summer to gear up for the launch of our High Net Worth model portfolios and Prologue for TradeStation. If you are interested in the long version, please read on.

Reading Proust

Marcel Proust wrote, “On ne reçoit pas la sagesse, il faut la découvrir soi-même après un trajet que personne ne peut faire pour nous, ne peut nous épargner, car elle est un point de vue sur les choses.”

I translated it to read, “We do not receive wisdom; it is necessary to discover it for ourselves in a way no one else can do for us, that no one can spare us, because it is a point of view about things.”

proust-letter-handwriting.gif

The definition of wisdom as “a point of view about things” that can only be formed by learning the hard way applies not just to the stock market, but to all aspects of life. Some of us are lucky enough to climb the learning curve quickly. While most of us occasionally need a helping-hand, a sizable portion of people who could actually use some help either don’t know it or don’t think they need it.

Perhaps they have already made a heavy investment in a certain worldview or they wear blinders that prevent them from making a fresh start. They faithfully persevere in a direction that wisdom knows to be a dead end, making the entire process an exercise in frustration for all involved.

Those who want to help have problems too. For example, even though I founded one of the earliest trading-related websites back in 1998, I was always rolled over a barrel as a non-programmer, a handicap that culminated in my completely missing the Web 2.0 boat.

As our public profile ebbed, I traveled, spent quality time with the family, studied quantitative methods, learned to write all sorts of code (so I would never again be defeated!) and to my surprise, became a professional trader’s trader, doing special projects.

“The Kirk Effect”

I wrote the first entry to my blog this year thinking that 2008 would be the right time to pack it in and return to the investment industry. The defining moment came on April 25, 2008 when Charles Kirk published a Q&A with Teresa Lo. Thanks to him, individual investors found us again.

This time, the fruit of my labor was able to immediately help many people weather the storm during a period of considerable market upheaval. Readers sent tons of email related to trading the market, questions that fell into two camps. One group wanted to try their hand at it, but didn’t know where to start. The other had already paid “tuition” but were still far from trading profitably on a consistent basis.

I have now come full circle from the day my first website launched ten years ago this month. The journey has been a long and difficult one, for it has taken all this time to realize the promise of technology and to gain the wisdom required to be a resourceful helper. The people who had a hand in my evolution are too numerous to list. I owe them a debt of gratitude that can only be repaid by helping others achieve their goals.

Jul

23

Trading Ideas for Thursday

Teresa Lo @ 4:11 PM | | 1 Comment

The stock scan conducted after the close on Wednesday found 64 winners and 56 losers. Click on the column headers below to sort the entire list.

The scan is designed to find stocks that are current “in play”; criteria includes price movement, range and liquidity (500,000 shares on the day, 20-day average volume of 1.5 million shares). The entire list has been ranked and sorted relative to performance against the S&P 500 and the NASDAQ 100 indexes. Please refer to the podcast for background information.

Read more

Jul

22

Trading Ideas for Wednesday

Teresa Lo @ 5:33 PM | | Leave a Comment

The stock scan conducted after the close on Tuesday found 48 winners and 25 losers. Click on the column headers below to sort the entire list.

The scan is designed to find stocks that are current “in play”; criteria includes price movement, range and liquidity (500,000 shares on the day, 20-day average volume of 1.5 million shares). The entire list has been ranked and sorted relative to performance against the S&P 500 and the NASDAQ 100 indexes. Please refer to the podcast for background information.

Read more

Jul

21

Portfolio Review: June 2008

Teresa Lo @ 8:46 PM | | Leave a Comment

June 2008 capped a quarter that most mutual and hedge fund managers would like to forget. According to Bloomberg, last month saw “the Dow Jones Industrial Average to its worst June since the Great Depression, as record oil prices, credit-market writedowns and a slowing economy threatened to extend a yearlong profit slump.”

Portfolio Performance

By any measure, our portfolios have weathered the storm, performing well in a very difficult environment. 2008 has affirmed our investment policy: a disciplined and diversified portfolio strategy is the light that shines on an otherwise barren investment landscape when markets experience a protracted downturn.

Opportunities for Nimble Traders

June 2008 was a gift for traders. The volatility and range seen in most markets was breathtaking, providing endless opportunities for aggressive swing and intraday trading. As the market came to life, I personally had the most fun and exciting month in a long time, all the while knowing that capital set aside for my retirement was preserved.

Tough Sledding for Managers

For mutual funds, the slaughter was across the board: value investors were stung by financial stocks, Bill Miller’s Legg Mason Value Trust continued to take a pounding while the 40 largest public pension funds had a tough fiscal year.

Hedge funds posted a decent second quarter even though June was a rough month. Morningstar reported that June marked a bad end to a good quarter.

Most hedge fund indexes managed to beat other indexes. In particular, nervous investors flocked to “so-called hedge funds of funds, where managers prepare a portfolio of individual hedge funds aimed at reducing risk.” Yes, that’s right; even in the hedge fund universe, diversification saved the day.

Defy “Collective Ignorance”

The lesson investors re-learned is that while cowboys have their day in bull markets, bear markets separate the men from the boys. The key, as Yale University’s Chief Investment Officer David Swensen put it so eloquently, is to “diversify against the collective ignorance”:

For most people, he recommends a very basic approach: use index funds, exchange-traded funds and other low-cost instruments, and stick to your long-term asset allocation — even when the markets are in tumult. Don’t be distracted by market forecasts, he said. “You have to diversify against the collective ignorance,” he said. “I think nobody is in a position to react to these big macro-issues. Where is the dollar going to be or what is G.D.P. growth going to be in China? For every smart person on one side of the question, there is another smart person on the other side.” — Keep It Simple, Says Yale’s Top Investor

Reference

Here are a collection of videos and articles to memorialize the quarter that was (or wasn’t).

  • Hedge Fund Legends Speak [WATCH VIDEO]
    A look at the future of the stock market and the economy, with Michael Steinhardt, WisdomTree Investments and Paul Roth, Schulte, Roth and Zabel
  • Hedge Fund Pioneers [WATCH VIDEO]
    Insight on the Treasury’s rescue plan for Fannie & Freddie, with Michael Steinhardt, WisdomTree Investments and Paul Roth, Schulte, Roth and Zabel
  • Hedge Funds Suffering [WATCH VIDEO]
    The hedge-fund industry had a rough first half of 2008 with profit proving elusive to many. Ken Heinz from Hedge Fund Research says the June was a particularly bad month.
  • Hedged Hammered [WATCH VIDEO
    Hedge funds turn in their worst first-half performance in nearly twenty years, with Ben White, Financial Times and Ken Heinz, Hedge Fund Research
  • Hedge Funds Face Difficult Times [WATCH VIDEO]
    The pace of hedge fund launches in the US over the first 6 months of 2008 was at its lowest in years, according to, Stuart Feffer, co-CEO of LaCrosse Global Fund Services. He expects European hedge funds to show an even slower launch trend.
  • Hedge Fund Summit [WATCH VIDEO]
    Discussing Fannie & Freddie’s danger of failing, with Mark Yusko, Morgan Creek Capital Management and John Burbank, Passport Capital
  • Hedge Hunter [WATCH VIDEO]
    What it takes to be the best, with Mark Yusko, Morgan Creek Capital Management CEO and CNBC’s Becky Quick
  • Edhec Alternative Indexes see mostly negative returns in June
    In this challenging context, eight of the 13 hedge fund strategies in the Edhec Alternative Indexes posted negative returns. Emerging markets, one of May’s best-performing styles, was the worst performer with a decline of 2.58 per cent, heavily influenced by the poor performance of the stock markets. Long/short equity lost 1.45 per cent and event-driven funds were down by 1.32 per cent. By contrast, short selling outperformed all other styles, returning 8.08 per cent, while other positive performers were CTA global (3.33 per cent), equity market neutral (1.92 per cent), global macro (0.93 per cent) and distressed securities (a bare 0.05 per cent).
  • HFN Averages Performance Report — June 2008
    Equity and credit markets experienced severe conditions in June and 2008 has been one of the more difficult years in recent memory. It is during times like these that hedge funds have historically separated themselves from other asset classes to produce positive long term outperformance. That hedge funds are negative in 2008 is less important than the fact that the average hedge fund has outperformed the S&P 500 TR by more than 1000 basis points through June.
  • Morningstar, Inc. Reports Second-Quarter 2008 Hedge Fund Performance and Asset Flows
    “Equity markets suffered steep declines in June,” said Morningstar hedge fund analyst Nadia Van Dalen. “Volatility returned to levels not seen since March, amid fears of recession and rising inflation. Most hedge funds are not immune to these economic shocks, despite what their name might imply.”
  • Stop Worrying, and Learn to Love the Bear
    When you bought into the gospel of “stocks for the long run,” did you have any idea how long the long run can turn out to be? Exactly 10 years ago, the Standard & Poor’s 500-stock Index was at 1164; it closed Friday at 1239. That’s an annualized average return of 0.63%. At that rate, it will take you 111 more years to double your money in the stock market.
  • Market’s Swoon Prods Investors To Try Options
    Gyrating markets and eager brokerage firms are driving small investors into complex options trades, which can help hedge against stock-price swings, generate income and boost overall returns. But options can also present huge risks.
  • How Bad Will It Get on Wall Street?
    It has been a year since the global credit markets first seized up, and four months since the dismantling of Bear Stearns.

Jul

21

Trading Ideas for Tuesday

Teresa Lo @ 5:18 PM | | Leave a Comment

The stock scan conducted after the close on Monday found 20 winners and 17 losers. Click on the column headers below to sort the entire list.

The scan is designed to find stocks that are current “in play”; criteria includes price movement, range and liquidity (500,000 shares on the day, 20-day average volume of 1.5 million shares). The entire list has been ranked and sorted relative to performance against the S&P 500 and the NASDAQ 100 indexes. Please refer to the podcast for background information.

Read more

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