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Egypt, the Stock Market and……Yoga

Mubarak before getting into his disguise

Mubarak in disguise as he slips out of the country

I feel compelled to write a blog about the events of the day. I assume I will be one of the multitudes of individual’s blogging about Egypt, the stock market, and yoga in a single blog. Let us begin with Egypt. Incredible, Fascinating, Mesmerizing. Look I am actually loving the fact that we are on the verge of real change in the middle east. But here is the crazy thing. It wasn’t Hillary Clinton, President Obama, Former president George Bush or 2009 senate maj. Leader George Mitchell who brought about this monumental change. Who do we have to thank for what seems to be the beginning of the end of Islamic fundamentalism? Not very surprising, Jack Dorsey – Twitter founder, a St. Louis Missouri kid who went to NYU and has changed how we communicate. Not very surprising, Mark Zuckerberg – A Jewish kid from White Plains, NY who went to Harvard, created Facebook and changed how we socialize. Definitely not surprising, Steve Jobs, the da Vinci of our generation for creating the tools by which we communicate and socialize. And yes, let us not forget to thank Al Gore for inventing the Internet. These are the true revolutionaries, sans Al Gore, who when all

Tapas in the Stock Market

the dust settles and a real democracy exists in Egypt, deserve Nobel peace prizes. Al Gore already has one. The Internet has changed our lives forever; we are still at the beginning stage of understanding just what that means. Yoga has taught me to live in the moment, to be present. As we watch these momentous days unfold, it is best not to fear the future, but to embrace the change optimistically. While he was not a yogi to the best of my knowledge, our 16th president Abraham Lincoln wisely said, “The best thing about the future is that it comes one day at a time.” Now I am not suggesting that violence and rioting are good things, but change very often is a great thing. Real change such as we are hearing in the voices of the Egyptian populous is revolutionary, it is evolutionary. And it has been driven by the genius of the aforementioned innovators. The most devastating blow the Mubarak government has thrown was not tear gas and rubber bullets; it was shutting down the Internet. It was also the final nail in their coffin. A starving man will kill to eat. A repressed society will revolt for enlightenment.  No revolutionary moment has come without a price to be paid; there is no success

without sacrifice. Yogic scripture refers to this sacrifice as Tapas. It is the suffering and pain we must go through for self-purification. Today was a Tapas day for the stock market. There may be a few more to come or not. We will have to wait for Monday to see if there is more Tapas to come. But what we saw today was healthy. We had approached a psychological level in the market. 1300 on the S&P is not a level to be taken lightly. Nor is 12000 on the Dow. We were not going to just glide through these levels. We need to blast through them when the time comes. And we needed a catalyst to sell off from the levels. But now is a time to breathe. Perhaps we need to pull back a bit more. But not much. What we need to do is rest. Observe the world around us and take stock of our current situation. Monday is month end. I do not expect much as funds will neither want to paint the tape to inflate returns, nor will they want to see much more damage done to the strong returns of the opening month of 2011. As the saying goes in the market “So goes January, so goes the year”. We are still in a bull market, but that doesn’t mean you have to be net

Breath of a Trader

long. It does not mean you buy every pull back. I expect a couple of weeks of stagnation and then a real attempt at breaking the psychological barriers in the market. Make sure you are long the market when that moment arrives. Until then, remember what Andrea Boydston famously said, “If you woke up breathing, congratulations! You have another chance.”

A Guide To Controlling Your Profit and Loss (P&L): Lose The Ego and Find Your Self.

A Trader Confuses Their Ego With Their Self

My ego took over; I gave my entire month back in two days and then proceeded to go negative on the month. Today I began the journey back, booking $10,000 of profit. I despise my ego. I am not talking about the “ego” that is high on itself; I am talking about the ego that intentionally sabotages your self-discipline. I am talking about the ego that I am in a battle with. Until the ego is eliminated, one’s abilities trading or otherwise will forever be limited. The ego represents attachment. Attachment breeds greed and emotion. When one is attached, they fear losing that which they are attached to. Suppressing the ego as a trader is perhaps the most difficult of journeys. As a trader, one is constantly measuring self worth by a number on a screen. A trader is attached to the number on the screen. In the Yogic tradition we are taught to “be in the present”. Nowhere is that more true than in trading. The dichotomy for me is that a trader’s ego predominantly exists in the present and it is always attached to the screen. As such, the present is one long internal battle. It is the “self” that I strive to be. As the self, I will realize that the emotional swings I experience when my ego prevails are not a true reflection of me, but actually the antithesis. I lost the battle last week. That is behind me and I continue my journey. But how does a trader rationalize no attachment to the changing value on his monitor, yet at the same time the trader’s entire focus is on maximizing that value. One can only conclude that the present is about the decisions not the number. The trading decisions must always be made from an unemotional and unattached

A trader's ego is both a reflection and a number on a screen

position. The Profit or Loss will then be what it will be. While the mind may be elated by profit and distraught by loss, neither is a reflection of the self. It is not the changing P&L that is affecting a trader emotionally. It is the mind’s and the ego’s attachment and perception of that value that destabilize the individual. Control the ego and you control the emotions. Control the

A Trader Searching For His Self

emotions and you control the decisions. Discover your “self” and you are in control of your ego; you are in control of your trading. As I said before the number will be what it will be. But you certainly will improve the odds by finding your “self”. I am still looking; please let me know if you find mine. I can be reached at HedgeFundLive.com. Thanks.

Weakness in the Pre, Particularly in Asia

Morning Notes

- Looks like the leaked China CPI number from yesterday was spot on: +4.6%, in line with expectations
- China GDP and Industrial Production beat expectations
- China’s gov’t stressed that inflation would stay high, at least in first half of yr
- Rumors that PBOC may take action before Feb. 3 (Chinese New Year)
- All of the above weighed down Chinese stocks- Shanghai closed down nearly 3%
- Notable weakness across Asia: Hang Seng closed down 1.7% and Nikkei closed down 1.1%
- European markets trading slightly lower as well
- German PPI came in higher than expected, suggesting slight inflation
- Commodities lower in the o/n
- Initial Claims: 404K vs. 420K; prior revised down to 441K
- Continuing Claims: down 3.861M from 3.887M prior
- Remaining on the economic calendar for today: Existing Home Sales at 10a; Philly Fed at 10a
- S&P futures opening on no pivot signal, trades between S3 and R3 pivots

How To Trade A Difficult Market - Namaste

I know i have been an asshole, but it is a trading desk, so grow up or get o

Recently, everyone seems to think I have been acting like an asshole on the desk.  You know what I have to say?……………No, it is not what you all think; I actually was going to say,….. NAMASTE…… I have compassion for all but I must balance it with what I am seeing in my business. We are finally at the starting gate, and I know that we have all worked hard to get here. But a common theme I have noticed in failed business is the inability of partners and staff to push the intensity level up, after they have already elevated their performance to levels they never could have envisioned. True success is only partially defined by consistent work and intensity; it is more so defined by consistently never letting up. It is the internal battle that says I need a rest. The moment that one feels that nagging feeling to slow down is always the best time to speed up. The true winners are the ones who push beyond their perceived limitations. So yes, be prepared for a rough couple of months. I have personally decided to finance February and March operational costs. I believe the next 3 months will be game changing for our firm, and for me personally. We continue to trade the extremes and

Don't Catch a Fallin Knife -But If You Do Pain will bring you Pleasure

maintain a hedged book.

Now to the market. There is limited downside from here, maybe another 4 -5 handles before we pause and make a run for 1300 on the S&P cash. I was chewed up today, but the overall firm is holding up real well. I would still recommend sticking to the Rumor names and the beaten down names. I am long YHOO, BBY, AKAM, IMAX,CREE, BA,CTXS,LEN, GMCR, STX, GME, SVU. I am short the 52 week high names, QCOM, IBM,XOM, DISH, AMZN, NFLX, RVBD, JPM.

This is a healthy pull back in the NASDQ, but with it now only up 2.7% and the DOW up 2.3%, I am shorting diamonds and buying NQH1.

Do not fear a little pain. Pain will bring you pleasure. Maybe we test the 1270 level, but we will not leave this month without at least one real test of the 1300 level. Or perhaps it will be the first week of February.

One last though as I am in my Yoga Training the next three months. In Yoga Sutras of Patanjali, we are taught to “accept pain as purification”. This is referred to as “Tapas”. But it is often misunderstood. Those old monks, who would whip their backs until they bled, mistakenly believed they were practicing Tapas. They were wrong. Tapas also refers to self-discipline. To quote form Sri Swami Satchidananda, “Normally the mind is like a wild horse tied to a chariot; imagine the body is the chariot; the intelligence is the charioteer; the mind is the reins; and the horses are the senses. The Self, or the true you, is the passenger. If the horses are allowed to gallop without the reins or the charioteer, the journey will

The Trading Floor of Namaste

not be safe for the passenger” It is through pain that we often gain self discipline, to take control of the senses is a difficult and often painful process, but eventually it ends up, a process of fulfillment. A process of happiness. Gain control of your senses, become self disciplined and you will succeeded in business, in trading and what ever endeavor you pursue

Market Predictions, New Years Resolutions and The Year that was 2010…….All Employees Must Wash Hands and Read This Blog

Saad - Vintage 2010 "He is our future at Hedge Fund Live"

This will be a long year. Barring an extreme exogenous event such as a major terrorist act or an all out collapse of the European union, I expect the market to end strongly this year. I expect it to be a slow steady grind all year as opposed to a gappy volatile run. I also expect a number of records to be broken, such as most consecutive days in a row up on the S&P. As such I expect to

New Years Resolution - Spend More Time With Saad

see a near 1400 close on the cash. Let me be specific about the European Union. A difficult restructuring of sovereign debt, even a loss to some senior lenders, even a bailout of Spain does not fall into exogenous events. In-fact these events are expected. The open issue, is how orderly the Union deals with the problems.

That said, the art of investing, the sport of trading and the millions of athletes that run the race, have just finished a strong season. It is time to rest a bit. Warm up, practice, and take a few lay up games. Reassess the competition and the ever-evolving landscape of the sport. While I believe the market moves higher over the first quarter, I expect it to be a modest 3% - 6%. It may seem odd to refer to this as modest, but the times they are a changing.

I am looking forward to a consistent trading environment with ample opportunity for singles and doubles and an occasional triple. The time for home runs is behind us for now. Low concentration and high diversification. 2X to 3X leverage on any extreme move.

Saad and I make new friends

On the long side of the market I am looking for 2 types of names. Names that have been beaten up in the past 6 months due to earnings, margins and business or consumer related issues. BBY, CSCO, Bank Names, YHOO, GNW, THOR to name a few. I still believe that the fundamentals of these types of companies remain intact, and that an improving economy and a grind higher market will give you the biggest bang for your buck in these names. Secondly, I will be looking for LBO related names and Merger and Acquisitions plays. Names that should be taken out, names whose independent business models can be taken no further but can be absorbed into a broader infrastructure that can reshape the companies direction. SVU, IMAX, PLCE, STX, AONE, GAIA, TTWO, GME.

On the Short side I will be looking for names that have been on a tear, where expectation far exceed the reality of the trading levels. I will be looking to sell bubbles and high short interest names. Names trading near 52-week highs that I believe fast money will shift out of. CLF, LULU, XOM, QCOM, KSS   etc etc etc.

As I said in my previous blog, my plan is to take trading and things in general day by day for the next couple of months. Life, day by day. We have had a strong opening performance for the firm MTD, up over $150,000. The chemistry on the desk is evolving, and while it has taken a year to get here, the progress over the last month has been remarkable. Caroline remains my trusted right hand. Jeff Tynik and Zach Guterman, have truly come into their own as traders. They will have long productive careers ahead of them. Betty Lee has transcended both trading and business and is an integral part of the Business execution plan. The return of Mark Moskowitz, and addition of Jach Shuman have substantially added to the collective intelligence. Saad and Judah have built a foundation for our business and have proven to be

Saad wears a special brain cover when programming

one of the most unique pairings in entrepreneurial history. Kandace and Lamont have allowed me to see through my vision of merging media with a trading desk. They have added a touch of class to a previously raw process. Dean’s consistency and discipline anchor us all. His wisdom and broad perspective help us stay grounded and true to our discipline. Marc Schwartz’s trading prowess and leadership are cornerstones of our profitability. His grounding and calmness under volatile and difficult trading and business environments help us control losses and maximize gains. My intention is to add 2 to 3 more individuals to the collective, as well as fully fund 5 – 10 university desks and integrate their perspectives as well into the broader collective.

As we enter year 2, I am left with a number of business thoughts.

Without vision there is no business.

A business begins with an idea, but the vision takes time to come in to focus.

It needs experience to grow.

It needs failure to have clarity.

It needs success to have direction and focus.

My vision for the business while broadly consistent still changes on a daily basis. Each challenge causes reflection and reevaluation. I see a merger of media and finance, an intense website and an intense trading desk, transparency and real time investing, real time education and real time experience, and collective intelligence imbedded in a proprietary trading environment. Collective intelligence that is exposed to and thus strengthened by the website’s membership community.

Saad is making the mustache cool for kids of all ages

The first year has had many setbacks and expensive mistakes. I would not change a thing. All has been as it should have been. While at this nascent stage I am approaching the business day by day, I am significantly more confident with the future. I look forward to the challenges that are ahead of me.

Seeing a Bit of Pressure Ahead of New Year, Similar to Day Before Christmas Eve

Morning Notes

- Overseas mkts are mixed with Asian markets (note: Nikkei is closed) closed up while the European markets are currently down (note: DAX is closed)
- Shanghai showed some noticeable strength, closing up 1.8%
- In China MNI Business Condition Survey posted a drop

Happy New Year

- In UK, housing prices increased for the first time since May 2010
- Crude lower again (see yesterday’s action) this morning
- Gold up this morning
- S&P futures are down in the pre, about 3.25 handles from FV, trading right along S4 pivot level
- Just to recap, S&P is up about 12.8% YTD and up about 6.5% MTD
- In corporate news, IMAX is up 13% in the pre on reports from the UK Daily Mail that SNE may be interested in the co.
- Meanwhile, BGP is down over 17% in the pre no report that it delayed pmts to certain vendors while trying to refinance
- Select European markets (including the FTSE) are closing early today on this New Year’s Eve holiday
- No economic data releases scheduled for today so the quiet trading will likely resume today

If You Are Trading Today, You Will Probably Contribute 1/10000 of Today’s Volume

Morning Notes

- Overseas mkts mixed in the overnight:
- Asian mkts closed down (-20 to -80bps)
- Meanwhile European mkts have seen mixed action thus far

City Around The Holidays

- Irish gov’t confirmed plans to take control of AIB, according to CNBC
- November Durable Goods Orders: -1.3% vs. -0.6%; prior revised up to -3.1% from -3.3%
- November Durable Goods Ex Trans: +2.4% vs. +1.9%; prior revised up to -1.9% from -2.9%
- Initial Jobless Claims: 420K vs. 420K; prior revised up to 423K from 420K
- Continuing Claims: 4.064M, down from 4.167M
- November Personal Income: +0.3% vs. +0.2%; prior revised down to +0.4% from +0.5%
- November Personal Spending: +0.4% vs. +0.5%; prior revised to up +0.7% from +0.4%
- November PCE Prices m/m: +0.1% vs. +0.1%
- We do have some additional economic data out today including UMich Sentiment @ 9:55a ET and New Home Sales @ 10a
- Expecting not much reaction (or action) in the mkt following economic numbers
- Bond mkts close @ 2p today
- S&P futures pulled in below S3 a little past 8a
- S&P futures are down 1.75 handles from FV

Finally, Some Economic Data to Spice Up the Market!

Morning Notes
- Overseas mkts mixed in the overnight
- Asian mkts were mixed w/ Shanghai down 90bps and the Hang Seng up 20bps
- European mkts are flattish

Spice Up the Market!

- There were reports out that China may buy Portuguese sov debt (Dean has been talking about how there have been some great deals on sov debt for a few months now)
- China’s debt purchase may help assuage debt issues in Portugal (Portuguese bond yields pushed higher nonetheless today)
- This week has been extremely quiet, volumes- and new-wise
- There are at least a few items on the economic calendar for today to help provide a little bit of action
- Q3 GDP (third estimate): +2.6% vs. +2.8%; first revision: +2.5% from +2.0%
- Q3 GDP Deflator: 2.1% vs. 2.3%; first revision: 2.3% from 2.2%
- S&P still flattish after an initial pull back after GDP release
- Dollar seeing a little bit of pressure following GDP release
- Existing Homes Sales @ 10a ET
- S&P futures are up half a handle from FV and trading b/w S3 and R3

Ujjayi Breathing, My Self and My Ego - Wall Street Yogi: Day 2

Limit Order Trading - Breathe

Trading free of emotions is a cornerstone to a successful career as a trader. Impulsive decisions can be controlled through rigorous discipline and training. One must “Breathe Through” their trading. Predetermined trades must be thought through, entered, and patience practiced as one awaits execution of the trade. “In the moment trades” or reactive trades, still require some degree of “Pause”. The pause can be as simple as closing the eyes, deeply inhaling through the nose, hold the breath in for a 5 count, allowing fresh oxygen to flow to the brain. Exhale fully and slowly through the nose. Inhale again through the nose hold for a count of 5. Again

trade execution - a wall street yogi

exhale fully and slowly but this time through the mouth, Exhaling all emotion and negative energy. Reassess the trade. This entire process can take up to 30 seconds. Inexperienced unqualified traders might argue that by that point, by the end of the “Pause”, the trading opportunity has passed. They may be right about that particular trade, but they are definitely wrong in general. The error is on two fronts. First, more often than no, the trade will show itself again and allow one to take the opportunity again. Second, if “Breathing Through” is practiced consistently, than statistically you will have increased your odds of success. Any practice enforced on a consistent basis, any rule employed over time will, better one’s odds for success. An “Extended Breathe Through” is best suited for traders, prior to entering Limit or Algorithmic orders. During  an “Extended Breathe Through”one should take a moment to focus on the third eye. While continuously breathing through the nose (known as the Ujjayi breath), close your eyes and focus on the space between your eyes. The third eye is unique to the individual. My third eye, starts as a whirlwind of colors, as I look up into a cone with a small opening at its apex. As close to the apex I feel I am getting, it always feels out of reach. It is perhaps, vast “Emptiness” on the other side, and thus nothing awaits my efforts to make my way through. Perhaps “Everything” is just through that hole, just out of my reach. Perhaps “Everything” is actually seeing the vast “Emptiness” and understanding that everything is within you. Or perhaps “Emptiness” would be seeing that everything is out of your reach. Patience as I breathe my way through the apex. Once through though, the only thing I see is the view back to the bottom of the cone. I find myself looking inwards back at myself. Just as I made my way through the cone and expected to see “Everything”, I find it is nothing, yet I find nothing is “Everything”. I see my “Self” not my “Ego”. It was my ego that went looking for “Everything” but found nothing. It is my “Self” that looked for nothing and found “everything”. It is then that I turn to see all that is beyond the third eye as well as all that is not. I am ready for the trade. I am ready for the decision. I am ready.

Mergers, Takeovers, Acquisitions - 1 + 1 = 3

Mereger and Acquisitions, 1 + 1 = 3

Takeover Stocks , Acquisition Targets

So here we are at the end of the week. As I said at the beginning on Monday, quiet till the end of the week, then the first of what should be a real gap. Ironically, what I thought would be a quiet week has actually resulted, in a nearly 7 handle move in the S&P in the last 4 days. At that implied rate we would close somewhere around the 1256 level. As I am still a believer in 1275, I see one or two gaps coming. Each day we see a glimmer of what is to come, the market sells off and then recovers gaining small ground. This is how the Bull and Bear battle it out. CDS spreads have stabilized. Overly Short names like LULU continue to squeeze up. The M&A cycle I have been blogging about is starting. CYH has made an unsolicited bid for THC. Beckman Coulter has put itself up for sale. They have hired Goldman to help with the process. Clearly the name Goldman has not been as tarnished as many had predicted. You might recall in previous blogs I have discussed the short memory of Wall Street. KKR may raise its bid for Australian fund manager Perpetual. These are the signs that experienced investors look for to signal the start of a new bull cycle. Air products (APD) raised its bid for Airgas. I like buying the names that have been beaten up, as I see them as the “return chasing” names that managers will go after in the final weeks of the year. Names such as BA, CSCO, BAC, MSFT, EQIX and ART to name a few as well as all the home builders and many of the regional banks.  Yes, I am known to be a “perma bull” but as I am in trader rehab, I have had the opportunity to see the market with free hands and objective eyes. The Bears are running out of ammo. As I said last time we are not that far away from “Ball Ripping”.  Oh yeah, one more thing, our government has announced they have made 35billon on the Tarp. It didn’t cost the taxpayers anything and I have to say, it is a point for team Obama.