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A brief look at the situation in Libya

In terms of recent events, the on-going chaos in Libya has been causing quite a stir. Its president has resided in the position for 42 years (!!!) and not surprisingly has resorted to violence and military power to suppress the people. This has been causing quite the stir in the markets and I thought I’d just add my two cents on what kind of impact it has / is going to have.

One thing that is interesting to me is the momentum the Middle East has been on in terms of protests against the government. Even if the situation in Libya stabilizes, another incident may not be too far away. Most times, these sorts of events tend to be negative indicators for the market but most of the drop I feel is due to investor fears and mainly not following from the fundamentals. Because of this, I think volatile events like this are a good time to buy, particularly during a day where a decrease in the market is likely due to news associated with Libya.

There are certain scenarios that can play out though that may throw this for a loop. For instance, trade sanctions currently being enforced against Libya will cause spikes in prices of commodities and the situation can even worsen. This will cause downward pressure on the US economy and it is unknown when prices will go back to normal if at all even if Libya’s situation stabilizes.

Another cause for concern is how the armed forces, in particular for the US, will react to continued violence and armed resistance. By itself it may not cause much impact on the global economy but it’s possible that its influence in the Middle East may be enough to send other countries around it into chaos. So the black swan in this case is the particular set of events that have catastrophic consequences for the global economy. Personally, I wouldn’t put too much merit in this sort of idea unless the situation remains stagnant or continues to get worse over an extended period of time.

Overall, I would still say that this situation creates more investing possibilities and one should not be hesitant to participate even if the outlook may seem bad.

1st Post

Hi my name is Daniel Esposito and I am a Rutgers Business School senior majoring in Finance and Economics.

I am on the Rutgers LIBOR Equities Desk. On this blog I will discuss trading ideas, wall street interviews, and anything finance related.

The undergraduate Rutgers team has been actively managing money for about a little under a month for now. It was difficult at first getting the logistics of managing a pool of money amongst eight students in a coordinated manner. But right now, we have pretty much streamlined our process down to 1 conference call per week with additional emails conducted through a list serve. I think its been pretty successful so far.

In order to make the fund successful and attract additional capital it is very important that we generate good, consistent returns.

So far we have initiated positions two positions, one a macro-related bet and the other a specific firm. Between the two trades currently, we are sitting on a profit, which is always a nice feeling.

Breaking into the financial services industry aka Wall Street is a very difficult thing to do. One thing that has consistently helped me out on interviews is bringing professionally made equity research reports and working them into the discussion. I will post three coversheet examples on to this blog so that any aspiring financers have something to learn off of.

Links of report coversheets are below (1,2,3), just click on them!





NFLX- Feeling the pressure of competition?


Today news was released that Facebook is entering the streaming video business. The company’s first release will be “The Dark Knight” which can be purchased for $3, for 48 hour rental. This news sent NFLX  stock on a downward spiral, closing down 5.96%. Could Facebook really be the reason that NFLX closed down this much with a market that closed 1% higher?

Is this the start of the downward spiral for NFLX?

Since making a high of $247.44 on 2/14/2011, the love for the stock has been deflated, and has since retraced 21%. Announcements of Amazon and now Facebook  entering this business has applied pressure to NFLX.  NFLX who has no real competition, now faces entry from two competitors who may pose a serious threat to revenues. Both Amazon and Facebook have the technological infrastructure and capital to pose a serious threat. Even though neither company has launched their campaign, the stock has taking a serious pounding. Investors more than likely fear one of two things: first, that once these companies launch their service they will lose a significant amount of subscribers, and second, that Amazon and Facebook are just the tip of the iceberg when it comes to competition. It will be only a matter of time before the “big 3″ enter: Apple, Google, and Microsoft. How could they not?  In an industry where these companies are constantly fighting for the top spot, taking on a new venture such as this can only help their bottom line.  The question remains: Will NFLX will be looking in the rear view mirror at one of the companies nipping at their heels for market share or remain the innovators?


Wednesday Market Expectations - It Has Begun


The Time Has Come - Hedge Fund Live

I have the biggest overnight short position I have had in nearly a month. I am very bearish. Odd, as I really was a perma bull. But I have always been the guy that saw things ahead of time. I have seen what is coming over the next couple of weeks for the last couple of months. We are on the verge. Take your money off the table; the risk reward is significantly in the hands of the bears. The NASDQ was not strong today. It was weak. Did u not see the selling into every rally? Did you not see APPL hit a wall? Did you not see NFLX struggle and Amazon sell into every rally? Oil will rally overnight. It should. The Middle East is a mess. How naive can we be, to believe that the Libyan civil war will be resolved in the near term? Are you deaf? Did you not hear that Saudi Arabia is outlawing peaceful protests? The day of rage is upon us. Oil will be trading at 110 next week. The market is stuck in a fever pitch, soon to be broken by the realities that are staring us in the face. My aunt Bernice wants to know if I think Apple is cheap. Should she buy NFLX? Is JDSU going back to $300 a share? We have reached that insane moment that only occurs when the market nearly doubles inside of two years. We are in frenzy. When you wake from a euphoric dream, and reality sets in, depression is soon to follow. As the saying goes, “Plan A never works, Plan B almost never works. No one ever has a Plan C. We are there and there is no plan C. Anarchy is upon us. Greed and a blind eye have brought us here. We need to correct, to find ourselves back on the path. The New York Times front-page lead article, “Rising Oil Prices Pose New Threat To U.S. Economy. Ignored. Page A14 Prime Minister Urges Iraqis to Call Off Nationwide Protests. Yes we are in danger of reversing  years of effort as we begin preparations to pull out of Iraq in December. Newtown Ct., my home away from home is struggling with their local budget. They are lucky to be struggling, high profile municipalities are not struggling, they are doomed. Win, lose or draw, I have bet a significant amount on the outcome of tomorrow’s market. This is referred to as living on the edge. It is where I belong; it is where I want to be. One decision, to be able to judge yourself in a moment, comprehend self worth, is like no other high. It is reality. It is destiny. I no longer have the patience to review the reasons why I am bearish; I would rather discuss the psychology that allows one to make a bet. Not just a small bet. But a bet that can change the game. I understand the risk. The firm is up $52,000 on the month. Tomorrow we are either down $50,000 or up $200,000. That is the real life of a “Risk Taker”. It is not your normal life. It is abnormal. But it is a high like no other; it is a razor blade edge I walk. A reward far beyond every day expectations. The time for long winded blogs explaining my position are at an end. It is time to put up or shut up, and so I have. No more discussions about domestic issues. No more pontificating on geopolitical implications. I will write no more blogs till I have either won the battle or been forced to retreat. It has begun.

Tune In for my live broadcast at HedgeFundLive.com Mon - Fri 8am - 5pm, lets see how it all ends.


T-Mobile and Sprint Merger


T-Mobile, the fourth largest wireless carrier in the US will hopefully merge with Sprint soon. This would be huge, Deutsche Telekom AG would have a chance to improve their current network. Personally, I hope AT&T takes this opportunity to improve their service so I won’t have anymore dropped calls. Regardless, Deutsche Telekom AG should take this opportunity to merge so it can grow in the future by investing in a faster data network in the US. T-Mobile has been performing poorly in the past few years and has rapidly lost subscribers to their network. Hopefully these considerations are not weighted heavily when T-Mobile stocks are being valued for the merger. Anyway, I think it might be a good time to invest in Sprint. What are your thoughts?

Analyze This- Your PNL (Part IV)

HedgeFundLIVE.com - I am continuing to build upon my PNL analysis for Hillside scans.  To see an archive of what I have been doing to analyze their PNL, go to Analysis > Hillside Materials and look for the uploads in my “Analyze This- Your PNL” series.  My latest update showed how to break down PNL by price as well as volume buckets.  The conclusion was that <$30 stocks have been significantly outperforming stocks that are in the $30-$50 and >$50 buckets.  Separately, stocks with a 20d average daily volume <500K shares have been significantly outperforming stocks with an average daily volume >500K shares.  One would weight his portfolio accordingly following these stats (lower price stocks and more thinly traded stocks).

I expanded this analysis further to view PNL by Price by Scan and PNL by Volume by Scan.  By taking this alternate approach of splitting the PNL by scan, we can see much more color such as which scan is pushing up or pulling down the total PNL.  Let’s begin with PNL by scan for each price bucket:

PNL by Price
Row Labels <$30 $30-$50 >$50
Boll -3,177.06 -4,044.50 3,580.83
Mflow 2,687.24 -3,866.13 -9,695.25
Put/Call -1,146.70 -3,749.36 -1,826.95
Trend 20,960.59 2,788.12 9,170.13
Vol 25,286.94 -4,563.37 -3,781.77
Grand Total 44,611.01 -13,435.23 -2,553.01

Prior to splitting up the PNL by scan, we had only been able to see that the <$30 stocks fared better than >$30 stocks.  (Since inception on 12/10/2011, Hillside is up $44,600 on <$30 stocks, while down $13,400 and down $2,600 for $30-$50 and >$50 stocks, respectively.) However, with this new analysis, we can identify that the Trend and Volume scans clearly have been contributing the most PNL.  Similarly, I broke down the PNL by scan for each volume bucket:

PNL by Volume
Row Labels <500K 500K-1M >1M
Boll 886.20 1,167.32 -5,694.24
Mflow -1,672.51 2,543.00 -11,744.62
Put/Call -269.25 628.34 -7,082.10
Trend 3,416.71 -2,256.66 31,758.77
Vol 13,553.76 2,938.70 449.35
Grand Total 15,914.92 5,020.71 7,687.15

Prior to splitting up the PNL by scan, we had only been able to see that the <500K  category significantly outperformed the >500K categories.  (Since inception on 12/10/2011, Hillside is up $15,900 on <500K volume stocks, while up $5,000 and up $7,700 for 500K-1M volume and >1M volume stocks, respectively.)  This updated analysis sheds some valuable light, particularly since I see more extreme data points than in the previous breakdown by price.  First of all, the Volume scan pulled most of the weight for the <500K average volume bucket as that scan contributed $13,600 of the $15,900 in PNL.  So if you are looking to take advantage of the fact that lower volume stocks outperformed, I would seek to use the Volume pair scan to isolate these lesser traded names.  Another interesting data point is that using the Trend scan for stocks with an average volume of >1M shares may prove to be a profitable strategy.  The above chart shows that historically the Trend scan contributed $31,800 in PNL for names that trade an average of >1M shares, a clear outlier.  Meanwhile, the Money Flow scan has produced negative PNL, down $11,700 for stocks that trade an average of >1M shares.

Breaking down PNL by scan is clearly valuable as it identifies towards which scan the portfolio should be more heavily weighted (or which scan to lighten up on) using particular indicators like volume and price, in this example.


How to Treat Delusional Disorder

Market Participants

This market is delusional!  I’ve heard it several times, but I am still unsure exactly what this means.  Given what I’ve seen and heard on this trading desk over the past several weeks I can begin to hypothesize about the true nature of this ubiquitous exclamation.  First, strength and weakness in the market has not necessarily translate to strength and weakness in individual names.  Dean’s portfolio has been the best barometer of this divergence.  His long cash book has felt the slings and arrows of a declining market while under performing on up days; the perfect shitstorm.  Strong balance sheets and superior management have failed to translate into upward price action.  On the other side of the coin, Moskowitz’s technical strategy has also struggled in the face of this “delusional” market.  Daily levels of support and resistance, moving averages, and pivot points have been broken, traversed, and forsaken.  Familiar setups have failed to produce familiar results.  Finally, after reviewing the charts of Schwartz’s portfolio, we came to the conclusion that the tenets of relative strength and relative weakness have been all but abandoned.  Names have shown massive intraday reversals that suck away P&L without warning.

Given the “delusional” nature of the market, there is only one strategy that guarantees success; get small.  The fact that strategies have lacked their usual effectiveness does not imply they are obsolete; however, given the unusual action we have witnessed lately, it is advisable to limit one’s exposure to the bizarre action.  Eventually the market will begin to look like its old self and when that time comes, the heavens will open and the money gods will reappear.  In the meantime, remember the old axiom: “The market can remain delusional longer than you can remain solvent.”

The Future of Wall Street (and some other stuff) according to Alan “Ace” Greenberg

Ace embraces Hedge Fund LIVE

HedgeFundLIVE.com — Last night I was privileged to attend an excellent event at the Bloomberg headquarters hosted by the Yeshiva University Wall Street Group.  The event was titled “After the Financial Crisis: New Strategies for Investing and Managing Risk”.  The panel was a smorgasbord of Wall Street elite:  Dr. Henry Kressel, Chairman of Yeshiva University and Senior Partner at Warburg Pincus, Isaac Corre, Senior Managing Director at Eton Park, and Seth Masters, Partner and CIO of Defined Contribution at Alliance Bernstein would have sufficed, but the headliner was Alan “Ace” Greenberg, former CEO and Chairman of Bear Stearns and current Vice Chairman Emeritus of J.P. Morgan.  From thumbing through Mr. Greenberg’s management handbook, Memos from the Chairman, I knew he was philanthropic (he instituted a policy at Bear that Managing Directors donate 4% of their income to charity), parsimonious as a manager, a great investor, magician, dog trainer, and bridge player.  I also knew he was funny, but I guess great comedians are always funnier in person than they are in print, and Ace is no exception.  (The following is by no means a transcript, but the spirit of Ace’s retorts is intact.)

Q: Please tell us a little about yourself

A: I work at J.P. Morgan.  Our primary business is “lending money to people and hoping they pay us back”.  But I’m not involved with that, I work in asset management.


Q: How have your investing practices changed since 2008?

A: My approach to investing really hasn’t changed much.  I still invest in large U.S.-based companies with good management.  I have never invested outside of the United States, “I won’t even invest south of Houston”.  I remain opposed to leverage.  Leverage can work two ways and “one way is down”.  In our business people make projections and eventually they’re right – “my advice to those people is to quit”.  These people make one correct call and then go start a firm named after themselves and continue to try to make calls.  There was a woman (Elaine Garzarelli) who predicted the crash in 1987 and I don’t think she’s gotten another thing right since then.  There was a guy named Grandall (??) who used to make stock market predictions and people would pay top dollar to fill the room at his seminars.  Eventually he got like 20 predictions in a row wrong, so he switched to predicting earthquakes and tornadoes instead – that was a smart move.  Recently there was a woman who predicted that Citi would cut its dividend (Meredith Whitney), and since then she’s been wrong.  She’s predicting that there will be several hundred billion dollars worth of municipal bond defaults by June; we’re in March, so she’d better hurry up.


Q: How has your firm changed since 2008?  (This question was asked to all panelists and was not specific to Bear Stearns)

A: Well, “our firm has changed considerably” (crowd goes wild).  Investment banks are gone and will not come back, that includes Goldman Sachs.  Broker-dealers will do well and boutique investment banks will do fine.  Everyone involved in a deal these days wants representation.  There are 8 investment banks involved in every deal so boutiques will have what to do.  (The Alliance Bernstein CIO made an interesting point here – he said that their clients are more risk-averse than ever before and they want bond exposure, but if it were up to him he would be more heavily exposed to equities.)


Q: How do you feel about high frequency trading?

A: It doesn’t bother me.  If someone wants to flash 22 and then really sell for 22.02 I don’t care.  Making 2 cents is a non-event for me.  If I’m trying to buy Wells Fargo and I buy it for 2 cents higher than I thought it doesn’t make a difference.  Overall these guys add liquidity which is good.  Sometimes the liquidity can disappear, but liquidity can always disappear.

Sprint and T-mobile

HedgeFundLIVE.com — Sprint has started talks with Deutsche Telekom in order to buy out the stakes in T-mobile. There has been no official decision made yet but Deutsche Telekom has not denied any allegations when to comes to its USA company. The talks have said to go on and off between the two company so do not expect a deal coming soon, but these talk do foreshadow only 3 big cellular company in the US. After, AT&T and Verizon, Sprint and T-mobile rank 3rd and 4th in popularity in the US, so the merge would bee a big step for both of the companies. Sprint has evolved today with their superior 4g devices and their fast service, while T-mobile has somewhat left behind. Although T-mobile is has not regressed much behind the big names, it has not progressed either. This future transaction is somewhat of a reminiscent to when AT&T merged with Cingular and later became the top service provider in the US.

Diurnals, Day Trading - Astro View

HedgeFundLIVE.com — In 1985 i began a research project which i essentially just completed on sunday, march3,2011. i was involved in a trading business with a consortium of the up-stairs trading operation of a number of NYSE specialists firms. They took longer term positions based on a model that i had developed.The model was built around astro cycles of a long term nature and conventional technical analysis.a very complete study of sentiment-psychological indicators was a very important part of the process.Unfortunately these sentiment indicators are no longer functional,it seems that they have been overemployed.For a variety of reasons i began work on a short -term astrological forecast to handle the vagaries of intra-day trading. The method i employed was called “a diurnal” meaning of the day.In order to implement this method it requires an exact birthday , day,place and exact time of day to a second.Precise is a requirement and its not as easy as you  might think. what i have are exact starting times of theDOW and the Sp500 ,im optimizing the NASDAQ 100 today. When i plot and add together the cycles from the sp and dow ,the result seems to be a forecast on a daily basis which is extremely accurrate. My initial observation is that the Nasdaq study also contributes.Beginning weds,3,10,2011 i will post the diurnal forecast (before the fact).