Saturday, May 24, 2008

Slow Down, Sparky!

Ugly week for the markets, but not for yours truly. Capital One and retail took a beating, while the SRS posted a 10% weekly gain. I love overconfidence. I love 500-point drop buying opportunities. Kicking myself for not buying Cummins on Wed. under 70, I bought it at $68 on Thursday and could've had it for $66 yesterday. But I'm not a market-timer nor should anyone be. I like the price and I like where diesel is going as ag/industry blows up in Brazil, India, and China.

I also went long on Freeport-McMoran on a $10 dip this week. They are sitting on the largest gold and copper mine in the world and have cranked up "Molly" production. Molybdenum is a metal that adds "hardness" essentially to steel and will only see increased demand going forward. Prices are at an all-time high.

Digressing for a moment, the following quote is one I want you to read very carefully. For if you believe what is spouted, you should never read my blog again. This is from Jonathan Hoenig of SmartMoney:

"Winning trades tend to start out as winning trades. Very seldom does an investment start out with a major decline only to turn around and rally 50% — at least within a reasonable period of time. More often than not, traders tend to get bogged down during extended bear markets, exactly why it's usually better to cut a loss quickly rather than dig in and ride it out."

This might be the most ridiculous thing I've ever read. Good thing Paulson didn't listen to this while he was accumulating CDSs and becoming the most successful hedge fund manager in the world. Good thing Bill Ackman didn't listen to this while shorting Ambac and MBIA the last 6 years. I guess it's because of experts like this that most don't see the next big thing, they're too busy collecting 10% losses in their portfolios.....

I've posted more than a few winning trades over the last 6 months. I can assure you that most if not all were down at some point due to the nature of market volatility. As I recently wrote, I regret not having had the courage to add more to positions when cheaper prices were available. This type of drivel is consistent with Modern Portfolio Theory and other crap that economists and mathematicians have come up with that enables them to buy high and sell low. As Taleb wrote in The Black Swan, go from experience(s) to books, not vice versa if you want to hit homeruns. "Pruining" every pick that has lost 10% at some point would virtually eliminate all successful picks unless, as we discussed, you are the best market-timer we've ever seen.

So much to write, so little time. Bill Gross added to the under-reported inflation bandwagon this week, in similar fashion to the Phillips' and Williams' articles I posted recently....

Two gross banks we've discussed previously are at it again. UBS has had to discount its shares by 33% in a recent offering to raise $15 billion. Despite the fact that this will dilute its current shares, the stock went up. NCC has been in a holding patten around $5.80. My strangle needs it to take a dump or skyrocket, not waffle. They are stuck in more ways than one. They're still holding a bunch of subprime assets they can't unload. "Nat City still has subprime loans from First Franklin on its balance sheet. And despite its efforts to run off the subprime portfolio, it still had $5.3 billion subprime loans left at the end of the first quarter, according to Bloomberg."

Dare I add before we go that home inventories increased 10%, in April? Even Larry Yun, master of spin and rhetoric, coudn't save face for the NAR with this data...

IOD: Cummins diesel (CMI), Freeport-McMoran (FCX)

http://www.thestreet.com/story/10417785/1/nat-city-may-shed-problem-assets.html

http://www.cnbc.com/id/24775898

http://www.smartmoney.com/tradecraft/index.cfm?story=20080519-investing-in-currencies

http://www.marketwatch.com/news/story/ubs-prices-156-billion-share/story.aspx?guid=%7BCB7AC7CD%2DF834%2D4F15%2D9A06%2DB66FB3138D2D%7D

2 comments:

Tiger Coach said...

Ax...
Excellent post. Interesting that you would quote Johnathan Hoening as he was one of the snake-oil salesman pounding the table on XLF.

Buffet's comments in Germany will serve as another whack to the beleaguered market. "We are currently in a Recession, whether the economists can call it or not."

Buffet was particularly wary of derivatives trading. Claiming that the Genie is out of the bottle. I guess this is the best way a little guy has a degree of leverage...after all leverage is what is is all about.

However, it is important to note that Buffet said there are ALWAYS opportunities!!!

I made a few moves this week which should be longer term winners. Check my blog with a future update... By the way, you are 100% correct about inflation...however, the bigger and real threat beyond inflation is deflation as what happened during the Great Depression... Regardless of whatever mess is created, guys like us HAVE to stay ahead of the curve!!!

BD

AX said...

Yeah, I guess Buffet left out the part about BH's $1.2 billion derivatives loss last year...

deflation seems to me very unlikely scenario given vast increase in money supply and concurrent commodities surge, would have to get real bad for that to happen.