There is no logic to the market now. If people say stocks are cheap, that means they are not? If they say stocks are rich, they are not? This has turned into a bit of a joke. CNBC tell us when the market is up, it is because of signs of a recovery. When CNBC tells us why the market is down, it is fears of a double dip recession. Thanks CNBC. Here is the deal. I have been writing that I am bullish on the market for the last 2 months , since the days after the flash crash and we are right back to that level. If we hold then it reinforces my theory and one should be buying these dips, because the rally I have expected will come. if we break, then history is no longer barometer for the market and the world. And I would be wrong, seriously wrong. It would be a systemic change in the markets and investors. And 20 years of experience is not worth what it was in the “wisdom” currencey. I do not believe this to be the case. Strap on your helmet, buckle your seat belt and get ready for a crazy ride one way or the other.
Blogs
Monthly Lows Ahead of Existing Home Sales Number
August-24-2010
Morning Notes
- S&P futures down about 13 handles from FV
- We are well below S4
- Weakness extending into overseas market
- Consequently, strength in dollar, yen, treasuries (flight to safety plays)
- Treasuries: 10-yr note yield at 15 month lows
- 2-yr notes out this afternoon
- Largest item on agenda for today: July existing home sales at 10a
- Weakness prominent in Japan in Asian markets
- Japan’s finance minister did not comment on currency intervention at a press conference
- European markets down about 1% across the board
- BOE policymaker made cautious comments, further adding weakness to the market
- M&A headlines still in focus: RTP may partner with a Chinese firm to bid for POT; DELL preparing to increase its bid for PAR
- BAC’s CEO purchased $391K worth of shares yesterday: this marks his first open mkt purchase of the year
- S&P at monthly low as well as DAX after Q2 GDP report that showed German economy grew 2.2% q/q
- Oil price at monthly low as well
- Weakness across commodities
Is RIMM beaten enough for now?
The Technology/Telecom book didn’t perform well today in comparison to the other books but since our gross exposure has been cut in half during these times of uncertainty we were still able to outperform the NASDAQ Composite and the XLK (Tech Sector ETF). The book closed the day down 43 basis points besting the NASDAQ which was down 92 basis points and the XLK which was down 92 basis points.
The majority of the losses came from Apple which closed the day down 1.54%. Apple was weak throughout the day failing to rally at any opportunity, although there was no headline news out regarding Apple there was a note out stating that Apple was the most widely held stock of hedge funds. I don’t know for sure but traders/investors could have been taking their risk down as they don’t want to get caught as liquidations could pick up if economic numbers continue to move I the wrong direction and we break down through 1060. CREE and MA were down 98 basis points and MA was down 57 basis points to add a little pain.
The one winning position was EarthLink (ELNK), which we are short. ELNK ended the day down 43 basis points. We added $40,000 worth of value to the long side as we entered a trade in Visa and added small to our CREE position.
One specific trade I have been thinking about is taking the other side of RIMM. I have been bearish on RIMM for sometime as I feel they are in major trouble with Apple and now Android dominating the growth in the smart phone community. We got short into the release of the OS 6 and the BlackBerry Torch which ended up being the perfect trade, we even covered at the low but didn’t short enough on the bounce. We are now sitting flat with RIMM and I’m starting to believe getting long is the right trade. Today I looked at my e-mail and noticed five negative headlines in a row on RIMM, no other tech news just negative news on RIMM and I’m starting to think the short story maybe getting a little over done. Right now RIMM trades at 8.4x its forward earnings estimates and there is terrific support at 35/30 where RIMM would be trading at a 6.29/5.39 multiple. I’m not saying go out and buy RIMM (we don’t give advice at HFL) but I think the short side is getting crowded. If we can start to see RIMM base I think the shorts might be satisfied and start to cover which could give us a nice rally. If RIMM continues to move lower there is terrific support at $35 and $30 and I think you have to take a shot.
It’s Merger Monday!… And Nobody Cares
Takeover talks between POT and BHP appear to have kicked off a renewed M&A cycle. A WSJ article last stated that about $85B worth of deals had been announced since that Monday (Aug. 16), which marked the highest weekly total since late 2009. Just in the Consumer/Healthcare sectors alone, we saw M&A activity pick up even further today: shares of WHR rallied off the open on rumors that GE may be interested in the company; AET may consider bidding for WCG; CPB is interested in acquiring Britain’s United Biscuits. M&A activity is certainly a positive sign for the economy and, in fact, our firm, along with every other investor out there I’m sure, have been waiting for the M&A cycle to pick up again. However, here was Merger Monday today- and nobody seemed to care. Volume was pathetic today, definitely on the low end of the already undeniably narrow summer volume range. The market looked promising off the open for brief moment and then again around noon as the action started to look like the one we saw on Friday where we grinded higher throughout the afternoon and into the close. However, we saw a sudden sell off around 3:25p and we closed the session in the red. Again, what will take for this market to pick up?!
I’m going to have point my finger to the employment picture. M&A won’t help the job market and as I voiced in a previous blog, the unemployment rate is what’s holding down the economy. On the other hand, maybe we just need investors in order to make any progress. Cramer reminded me of a WSJ article today saying that investors are fleeing the market. Well, obviously they have been, but I guess the reality of it sunk in today. Smaller investors wouldn’t want to get whipped around in this market, and rightfully so! We’ve been repeating on this desk that this market is just impossible these days. Cramer said it himself just now. It’s the most difficult market that he’s ever witnessed in his 31-year career. So as it stands in my mind now, show us a solid uptick in employment and then the smaller investors will return and then finally the market will show some signs of healthy life.
Existing Homes Sales Preview: What you Need to Know
Tomorrow morning at 10:00 existing home sales data will be released. This piece of data comes out on or around the 25th of each month and is reports the total number of sales of existing homes within the prior month as well as a month-over-month percentage change. This release is considered the most important piece of housing data released during the month because it indicates change in demand rather than change in supply. The current expectation is 4.65 million homes/13.4% decrease month over month. Both of these estimates are lighter than last month’s numbers of 5.37 million/-5.1% decrease. This lowball consensus reflects the deplorable housing data we have seen in the past several months coupled with the hazy outlook for the future of the housing market. That being said, any number lighter than expectations will shrink the bullish band of brothers a bit further.
HFL Portfolio Recap: 8-23-2010
A painfully boring day for trading as the market traded in a tight range for the majority of the day. Despite the early and closing sell off we traded in what seemed to be a two handle range for five and half hours. While the market sold off into the close the Hedge Fund Live book was able to hold up and close the day down 10 basis points outperforming both the S&P 500 and Russell 2000 which closed the day down 40 basis points and 1.36%, respectively.
The top winners on the day were all shorts: ATHN, SPG, KR, SMRT, and F. Athena (ATHN) continued its decline today closing down 2.71%. SPG was down 1.05%, while KR was down 1%, and F was down 1.40%. SMRT was down 2.09% on no direct news closing the day at 7.01. The losers on the day were AAPL, BKS, AXP, CREE, and IMAX. AAPL had a rough day closing down 1.54%. There was no direct news out but there was a note out saying AAPL is the most held stock by hedge funds and this could have enticed traders into taking some risk off the table. AAPL closed the day at 245.80. BKS was down 3.41% today as traders were most likely taking down risk into earnings. AXP was down 1.42% while CREE was down 1%, and IMAX was down 1.14% on no direct news.
The technology book hurt us the most today closing down 11 basis points largely due to the loses in Apple. We didn’t make any major changes to the book but we did put the hedge on as we head into the housing number tomorrow morning.
Me Too
My most comfortable state of existence is anxiety.
I have spent much of my life trying to figure out how to enjoy a moment.
I don’t remember much from the real early days.
We lived in a Brooklyn. Maybe I was 4 or 5, what’s the difference. At best, everything going on around you shapes some unique personality traits and sets in place foundational attributes. If everyone around you is smiling, then you smile. If everyone around you is depressed and gloomy, then you don’t smile. I smile some of the time. At worst your just part of someone else’s movie. Who knows? Not really in your control anyway.
Lights, camera, action, quiet on the set. Quiet on the set. “Hey money guys that means you too….. Yes, your murmuring makes it onto my soundtrack. Who is that some friends of the producer’s assistant? They’re in the shot. Someone ask them to leave the set.”
“Action”
Boring growing up segment. No real horror show but quite frankly no exciting action sequence. Other than a few birthday cakes and dreading the bus ride to school, nothing happens for almost 8 years. At least nothing I give a shit about now.
It’s about 13 that your movie really begins. Maybe God is like a producer. You can’t have a leading role until your 13, but you can play a bit role in someone else’s home movie. But your real show doesn’t begin until your 13. Then the grand production really starts up. You are the star. It takes about 27 years to film. It makes the “Apocalypse Now” shoot seem like a “High-School Musical” shoot. At 40, you begin to understand how you did domestically; everything from then on is foreign receipts, DVD and On Demand residuals. At 40 you start filming the sequel. Its not until you are 80, or at least way past 40, that you will know if your movie has become a classic or another small film that just fades into history and is forgotten.
My movie opens up with my heart, it is beating fast, when I put my hand to my chest, I can feel it thumping. It is quiet in my mind except for the thump. Cue the sound effect. Thump, Thump, Thump. I am turning 40, my eyes are adjusting to see the time on the clock cube. The colors of my room come into focus. Mind starts turning, work, check blackberry, shower, dark suit, tie, maybe no tie, roll over, images flashing before me. Take a minute, roll over in bed and stare at my wife. I’m crazy about her. Deep in sleep, her slow calm breathing brings me peace, not a lasting peace, but a peace for preparation. Heart slows, the thump slows. Cue the sound effect but slow it down a bit and add a shallow but long breath, inhale then exhale…slowly. Colors, Sounds, Clarity. Each move now part of a choreographed routine. These are the quiet moments. Control sets in. I stand up. The bell goes off echoing inside me. I see the center of the ring. The crowd starts roaring off in the distance. It is getting louder. I can feel the blood start pumping. It is hot. My whole body starts to heat up. The heated blood, flowing through me, my heart start to thump more rapidly, the crowd gets louder. But now I feel in control of the rhythm. The heat keeps me alert. The Breathing is deep and strong. And the feeling hits me. I cannot wait to get to the center of the ring. The battle to begin soon. The journey is underway again. The morning is upon me. It is 5:45am.
To be continued
Sleeping With The Boss
It’s a quiet, sleepy August afternoon of Low & Slow Market action…– Low Volume and Slow moves in a nearly trendless direction. But at least we have The Boss - Bruce Springsteen playing on radio Hedge Fund Live - WHFL… and the crew is keeping their color comments to a minimum so we can enjoy the music… IF we can stay awake!
Business Is A Roller Coaster
Building a business is an emotional roller coaster, quite similar to trading. Ultimately it is conviction that allows you to take pain in a trade, often at great risk. Only with great risk comes great reward. This applies to trading as well as business. Ultimately, there is only one way to stomach the difficult times, the risk, and the inevitable fear of failure. One must learn to live in the present while at the same time seeing the big picture. This is not an easy feat. I daresay most people cannot take the ride without feeling queasy and praying that the ride comes to an end soon. But, alas, the roller coaster is just an analogy. Building a business is binary. Trading is binary. There are two possible outcomes. There is success and failure. And the ride is not over until one is declared. Getting off in the middle of the roller coaster can be quite painful, or perhaps the best move in what is a dangerous ride. The plain truth of it is though, that when the ride comes to a stop, and victory or defeat is declared, you are only moments away from getting on the next ride.
Futures Up Pre Market Following Strength in Europe
August-23-2010
Morning Notes
- S&P futures up about 5 handles from FV
- Strength pre market attributed to strength in European mkts
- Strength in European despite lower than expected eurozone PMI number released today
- Asian markets were quiet o/n, down small
- Weakness in Japan as yen strengthened vs. dollar
- Yen strength drags down exporter stocks
- Australian mkts down after nat’l elections failed to produce an outright majority parliament, which is a positive for mining stocks because probability of mining tax being passed is lower now
- No economic data for today and earnings season nearly over
- Headline of the morning: HPQ proposed to acquire 3Par for $24/share, cash, which marks a 33% premium over the $18/share bid from DELL for 3Par
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