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Tuesday Market Expectations From Jeremy Frommer - 7 Reasons the Stock Market is Suffering From Narcissistic Personality Disorder

The Stock Market is Screwed Up, and So Am I

After writing a number of articles about the market being delusional and then a number of articles about me being a little delusional I finally sat down with my wife to get what always promises to be a dose of reality coupled with simple but incredibly valuable insight. Unfortunately the conversation was precipitated by 3 days of intense yoga followed by 3 days of alcoholic binging that made me wonder if it was time for me to call Betty Ford and look up my old psychiatrist, Dr. Prazin. My wife diagnosed me and in doing so helped me diagnose the entire financial community, and even more specifically the stock market.  She said she had been doing some research and has determined that I suffer from Narcissistic personality disorder. Determined to heal my self and improve my trading, I decided I would try to better understand my disorder and at the same time better understand the market.

Narcissists have an inflated sense of their own importance. Check there for both the market and me.

Behind the mask of ultra confidence lies a fragile self esteem, vulnerable to criticism. Check there for both the market and me.

But that doesn’t mean that the market and I are true Narcissists as defined by the mayo clinic. It may just be that we have healthy confidence in our opinions, high self esteem. I don’t value myself more than I value others, (a key component of narcissism) though I often dream of having zero responsibilities, packing a bag and going off grid for a while…. In truth I look around me, and am blessed to be surrounded by great people who are invaluable to me.

The market though, is another story. The market has been behaving like a certifiable narcissist. The market seems to have little concern for the value of others. It wasn’t always this way.

Lets review 7 symptoms of narcissism.

1. Is the market expecting constant praise and admiration? “The S&P 500, up 4.2 percent so far this month, has doubled in less than two years, the quickest 100 percent jump since the Great Depression.” This headline is all over the net. “I’ve never seen a market like this,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services. A market watcher for 35 years, he is taking profits in every area but commodities.” The market is thriving on these headlines.

2. Is the market exaggerating its achievements? “Slowly, but at least so far surely, bullish sentiment continues to grow. It is now perilously close to dangerously high levels.” Say Mark Hulbert of MarketWatch. In the short term this should be bad news for stocks. But the market just seems to ignore these sentiment indicators.

3. Does the market believe it is special and acting accordingly? “The rest of the world has an interest in the US recovery because of its stimulating policies, Mr. Bernanke argued in prepared remarks he plans to deliver in Paris as finance leaders from the Group of 20 nations gather.” Mr. Bernanke seems to think we are special according to newsystocks.com.

4. Is the market taking advantage of others? Reuters Feb 17th “Energy shares gained alongside

Narcissistic Personality Disorder starts at the top

crude oil prices, which climbed 1.5 percent on fresh tension between Israel and Iran. The tension added to concerns about unrest in the Middle East, which could lead to supply disruptions.” Many energy stocks are hitting multi year highs. But on the flip side “California’s average price for a gallon of regular gasoline hit $3.50 Thursday for the first time since 2008, driven higher by the impact of Middle Eastern turmoil on the oil market. California’s average gas price has jumped 8 cents in the past week and now stands at 35 cents above the national average, according to the AAA automotive service. San Francisco‘s average has reached $3.57, while drivers in San Jose are paying $3.53 per gallon. Not since October 2008 has California’s gas prices been this high. In June of that year, the state’s average set a record of $4.61 before the economic collapse pushed gas prices into a tailspin.” Says David Baker from chronicle news service. I fell taken advantage of when I fill my tank up at the station. Really think about it, do you ever come out of a gas station lately feeling good. The oil companies can poison our waters, get away with it, and the funnel clean up costs through inflated prices masked in middle east tensions.

5. A classic Narcissistic symptom is ones inability to keep healthy relationships. It is months now where individual stocks seem to dominate the indexes but broad stocks don’t seem to participate in the movement of the indexes. No one can tell me what the value of overbought or oversold indicators are, since all the market does is power forward. In fact Goldman Sachs market watcher Noah Weisberger had this to say on the phenomenon, in a recent note.

“Within the U.S. market, where we have the richest set of metrics, we find that both implied average stock correlation and implied average sector correlation have declined sharply so far this year. Mechanically, the decline in this metric is a function of a combination of falling index volatility and rising sector volatility (in the case of implied sector correlation) or rising single stock volatility (in the case of implied stock correlation). These measures reached historic highs during the depths of the 2009 sell off. But in the “post-crisis” era, both stock and sector correlations peaked in mid-2010 (at a whopping 0.9 for average implied sector correlation and 0.7 for average implied stock correlation) and both measures have been falling in fits and starts ever since.”

6.  Narcissists set unrealistic goals. Zacks investment research Steve Reitmeister says in answer to the direction of the market “I strongly believe the answer is that we are due for more gains. Not just because there is no double dip. More importantly, there are sound fundamental reasons for the market to continue its advance.” So do many of his peers. Stock markets to not continue to advance indefinitely without healthy reversals.

7. Arrogance and haughty behavior often accompany a diagnosis of narcissism.

A. Headline MSN money Feb 4th: Ignoring Egypt, markets roar on. The political crises sweeping the Middle East join the risks of unresolved economic issues at home. Yet speculators continue to run wild.

B. Reuters Feb 10th: (Reuters) - Investors are often told not to fight the Fed, but in the U.S. Treasuries market taking the opposite stance to the Fed has been a winning strategy in the past six months.

C. FTMdaily reports: Stocks Ignore Growing Inflation Concerns

Arrogance and Haughtiness are acts of ignoring other’s opinions. to hold their opinions in disdain.

I have felt there was something wrong with the stock market for at lest the last couple of weeks. But I could not put my finger on it. But it is no relief to now know that one thing I had come to rely on for my livelihood, is so very ill.

The Mayo Clinic says, “It’s not known what causes narcissistic personality disorder. As with other mental disorders, the cause is likely complex. Some evidence links the cause to a dysfunctional childhood, such as excessive pampering, extremely high expectations, abuse or neglect.” I could find evidence of all of the in the history of the stock market.

Complications of narcissistic personality disorder, if left untreated, can include depression and even suicidal thoughts. I think the flash crash was the first indication there might be something wrong with the market, but I hope my research help you better understand what is truly going on with today’s stock market. And when the market falls into a brief state of depression, and correction, don’t be surprised. We are dealing with a classic Narcissist and there is no real cure. I expect depression to set in on tuesday, and suicidal thought by friday for the Stock Market. Buyers Beware.

Monday Market Expectations, How to trade an Egyptian crisis and the M.A.S.S. Minimizing of America’s Superpower Status

Egyptian Stock Market - "The looters took our flat screens!!!!!!"

As we move closer to the end of the weekend, my expectations of tomorrows’ trading activity begins to form. As always, it is more of an intellectual exercise that helps keeps my Socratic Trading Mind sharp. In addition it helps me prepare to contribute to the collective thought process on the HedgeFundLive.com trading desk, we have over 20 million dollars of open positions. But I believe we are well structured for the day ahead. Egypt is still a mess. I am optimistic that we are seeing the end of a totalitarian regime, and the beginning of real Middle East democracy, but this will take some time to sort out and puts the market at risk to exogenous shocks. Example would be a significantly more lethal response by a sill Mubarak controlled Military on its people; call it Egypt’s Tiananmen Square. Example would be Hammas thinking this is a good time to attack Israel; they are always so impeccable with their timing, or perhaps our Foreign Affairs novice President continues to remain basically silent on what is one of the most seminal events of democratic evolution. The same democracy we are spending billions on in Iraq and Afghanistan. his continuing silence is an affirmation of what I call the ongoing

Egyptian Trading - The Stock Market Before

M.A.S.S. Minimizing of America’s Superpower Status. None of this would breed confidence in a market that has only recently gained its footing from the realization that much of Europe is theoretically bankrupt. There will be much grief in the coming weeks, as innocent people will suffer for macro change. As Mohandas Gandhi said “What difference does it make to the dead, the orphans, and the homeless, whether the mad destruction is wrought under the name of totalitarianism or the holy name of liberty or democracy?”

Barring an immediate positive change in Egypt, we should sell off a little more into month end and then remain range bound for a while. The Market loathes a vacuum of information. Even peaceful resolutions in Egypt, will still not satisfy the market. It is my opinion that this event is just the beginning. Similar to the Civil Right Movement, where Martin Luther King began a revolution that is still being fought every day in this country. Democracy will spread in the Middle East. Syria and Jordan are truly at risk. Saudi Arabia seems to be the chosen destination for retiring kings. In many ways Iran is probably the next most logical Hot Spot. If this is not such a seminal moment, why are the Chinese censoring searches on Egypt on their Internet? I think the range bound trading will keep us under 1300 on the S&P cash until we get another set of positive economic indicators from our own government. This should happen in approximately 3 – 5 weeks, a reasonable time frame to expect some progress in the Middle East.

Egyptian Trading - The Stock Market - AFTER

I will look for a strong dash through the 1300 level on the S&P Resistance will become support for what should be a strong year in the markets. Until then “Trade the Day you are given”. As Patanjali teaches us, “Stay present”. That said I am quite optimistic on the NASDQ and particular the Technology spaces as well as Home Builders and Biotech. I will continue to focus on those names to the upside. I will look for Take Over speculation names. I will be spending a great deal of time analyzing options strategies, as volatility will definitely be seeping into the market. Finally I will be looking to buy names that I ultimately believe will benefit the most from a changing landscape in Egypt. I will be shorting the DIA as a hedge, more than the S&P. Buying S&P puts is becoming a favorite hedge for me. I am not particularly optimistic on the Banks at this point and see them as perhaps dead money, though there are a number of regional banks I like. Mostly I will look to short high Flyer non-tech names such as RCL, in fact I might look to short the whole cruise line space. I really don’t like cruises. Commodities may be interesting to trade intraday volatility, but I will be staying away from overnighting them. We are living through monumental times. DON’T FORGET THAT!!  And trade like you understand it.


Morningstar: Top 10 Potential Takeover Targets in 2011 (Part III)

Welcome to Part III of Monringstar’s Take out names for 2011.  Today, we’ll be going through the last few names on Morningstar’s top ten list.

Myriad Genetics (MYGN):  Myriad is a molecular diagnostic company focused on developing and marketing novel predictive medicine, personalized medicine and prognostic medicine products.  MYGN has been a takeout name for the last year.

Petrohawk Energy (HK):  HK is an independent oil and natural gas company engaged in the exploration, development and production of predominately natural gas properties located onshore in the United States. Its business consists of an oil and natural gas segment, and a midstream segment. Its oil and natural gas properties are concentrated in four domestic shale plays.

HK rumors have been abundant last year with Chesapeake Energy (CHK) being the main mention as acquirer.

Range Resources (RRC):  RRC is an independent natural gas company, engaged in the exploration, development and acquisition of primarily natural gas properties, mostly in the Southwestern and Appalachian regions of the United States.  RRC was a highly rumored name last year,

Sun trust Banks (STI):  STI is a diversified financial services holding company, which provides a range of financial services to consumer and corporate clients. Through its principal subsidiary, SunTrust Bank, the Company provides deposit, credit, and trust and investment services.

Regional Banks have been highly touted takeout names for the last few years and when it comes to naming one specific regional Sun Trust tops the majority of lists.

Morningstar: Top 10 Potential Takeover Targets in 2011 (Part II)

The spreadsheet below gives you the up to date internals for the top 10 take out names brought to us by Morningstar.

Before getting to the spreadsheet let me tell you what the company does and what the rumor mill has been saying over the last few months:

ACTELION (ALIOF):  In mid-November, Bloomberg reported that Amgen (AMGN) was preparing an approach that could come within days, while the usual big pharma suspects have all been touted as potentially interested.

American Eagle Outfitters (AEO):  The retailer has been subject of take out rumors over the last few months along with competitor Abercrombie & Fitch.

Clearwire Corp (CLWR):  BTIG research analyst thinks Sprint, who owns 54% of CLWR will take them out for $15 a share sometime in the next 6 months.

Constellation Energy Group (CEG):  Constellation Energy Group, Inc. (Constellation Energy) is an energy company that conducts its business through various subsidiaries, including a merchant energy business and Baltimore Gas and Electric Company (BGE).  CEG has been a rumored take out name for years.

LEAP Wireless (LEAP): Leap Wireless International, Inc. (Leap) is a wireless communications carrier that offers digital wireless services in the United States under the Cricket brand.  Leap wireless has been a takeout name for years with MetroPCS (PCS) being the number one acquirer.  Recently, there have been rumors that T-Mobile is very interested in LEAP.

Please tune in tomorrow for the third installment and commentary on the five remaining targets.

Morningstar: Top 10 Potential Takeover Targets in 2011

Last Thursday, Morningstar Research published a list of potential takeover targets for 2011, although the list is roughly 100 companies long here are there top ten in no particular order.

Actelion:  (ALIOF)

American Eagle:  (AEO)

Clearwire Corporation:  (CLWR)

Cloud Peak Energy:

Constellation Energy:  (CEG)

Leap Wireless:  (LEAP)

Myriad Genetics:  (MYGN)

Petrohawk Energy:  (HK)

Range Resources:  (RRC)

SunTrust Banks:  (STI)

Bonus Season - Wise Advice from Tom Bernard, The Human Pirahnha and Pappa Bull

Bonus Season - Remember what the Papa Bull Said

Bonus Season - All those lucious grazing cows

My first Wall Street year-end was 1990, 21 years ago. I was a grunt on the Kidder Peabody High Yield (Junk Bond) trading desk. I worked for the iconic Tom (The Human Piranha) Bernard. I was 22 years old. My base salary was $18,000. I had been on the trading floor less than 6 months. My bonus was zero. Nothing, but a few pearls of wisdom from my fearless leader. After sensing my frustration during my year-end review, Tom closed my file and sat back in his chair. He was younger than I am today, 39 maybe 40 at most, but wise beyond his years. He told me a story. He told me that there was once this Father Bull and Son Bull taking a stroll on the top of a mountain overlooking a canyon filled with grazing cows. For those who don’t know this as Bernard found it necessary to explain to me, “Cows” are Female Bulls. Male Bulls are just “Bulls”. As the story goes, the Son Bull got very excited when he saw the canyon filled with these luscious cows. He turned to the Papa Bull and said “Dad, Dad…lets run down there, nosing in the direction of the

Bonus Season - "F" em all

eutherian harem, grab one of those cows and have sex with her.” “Let’s go, lets go, come on Papa.” Bernard paused for a moment; letting the young bull’s words sink in.  The Papa bull slowly turned to his son and looked him straight in the eye, “Patience my son, patience”…..”Why don’t we walk down this mountain and f*** them all”. Then silence. Bernard looked me straight in the eyes as he leaned forward over his desk. “Do you understand the f***ing story?” he asked. “Yes” I said, dead seriously, “I understand the f***ing story”. He was quite brilliant. Silence followed for a moment. I got up, shook his hand, ready to return to the trading floor and get my head back in the game. “Hey”, he called to me as I began to open the door to his glass office dubbed the “fish bowl”, at the far end of the trading floor. “Keep working hard and stay focused, maybe you wont be disappointed next year.”

He was right, too right.  Bonuses on Wall Street are a conundrum wrapped in an enigma. The next year I got a nice bonus.  And yes I wasn’t “disappointed”, but I wasn’t ecstatic either. Bonuses are meant to achieve a balance in your mind, often referred to as “satisfaction”. Satisfaction that you make more money than you ever thought you would but not as much as you now want. Satisfaction that the number you received was somewhere between the low end of your expectations and the high end, and you wont have to start looking for another job. Bonuses are also meant to give you a taste but not the full treat. They are meant to get you hooked. They are like a drug that gets you high but leaves you wanting more, needing more. Six months after you get your bonus, you are meant to have somehow elevated your life style, and increased your expenses such, that as you count down the next six months you work your ass off praying and hoping for a bigger bonus than the previous year, only to repeat the entire emotional process again and again.

Bonus Season - It is an addictive drug

There were year-ends of famine and year-ends of feast over the last 21 years. Such is the nature of a career on Wall Street, finance or trading. Even if your career is not structured around a year-end bonus, the last week of December is still a period of annual “career self reflection”. “What was my total take for the year?”, “How much better or worse did I do year over year?”, and “How am I going to make more money next year?”. During your early days, you try to gauge what you think you are getting by consensus. While it is taboo on wall street to discuss your actual bonus with anyone other than your manager, it is vey common to discuss bonuses as a concept with just about everyone under the sun, or at least on the trading floor. “What are you hearing? Up or down year over year.” “I heard there hitting the new guys first but they cant do anything about all the guarantee, so we are getting screwed”. Some of my favorites were, “look, we had a good year, but we have to make up for some of the groups that didn’t, we are a team”. I am not sure I knew which group we were making up for, let alone anyone’s name.  My other favorite was, “look, expect the worst and no matter what you will be happy.” What the f*** did that mean? Jesus, it was like water torture in the month leading up to bonus. Should I expect cancer my whole life and when I die of heart attack, be happy?” In the final week certain people would get told their bonuses before other, and then the rumors would start. “Did u hear that so and so trading desk was paid down 20%?” Or “I heard so and so desk really got fucked, they are all


Bonus Season - This drug will help value yourself

downstairs drinking and putting together resumes”. Occasionally you would actually have a random trader crack, and see him kicking in stall doors in the men’s room. The worst though is when you saw someone who you knew was just told their comp and he was F’n smiling. You felt like ripping out his gullet. You see, traders were told there was a finite pool for bonuses, and any body smiling before you had gotten comped could only have taken money out of your pocket.  The whole process was structured such that when the moment finally arrived when you were to be told your bonus, your expectations had been lowered so severely, that the best you are hoping for is not to have to hit the men’s room in the middle of your review, because your stomach gives out. As you get older you are plagued by other questions. “Are my best years behind me?”, “What did I do to screw things up?” , “Why cant I be the guy who makes 1 million?” or “Why cant I be the guy who makes 10 million.” This whole process that begins as early as November is commonly referred to on Wall Street as, bonus messaging. It is both a science and art that has been practiced by management for centuries.

This year is different for me in a number of ways. It is the first year in a long time that I have not worked for an institutional firm and I am not getting a bonus. It is the first year in a long time that I am not being reviewed by a manager. But it is actually one of the most difficult bonus seasons I have faced in quite a long time. I am on my own. I will live or die by my own sword. There is no bonus for me this year, and there may not be any for many years to come. I continue to plow money into the business I started a year ago. I am investing in the journey, and there is no promise of a bonus or reward at the end…..Yes, I no longer will measure myself by “year end”. I have finally broken myself of “Bonus fever.” I will not suffer the year end “self worth affliction.” After 21 years of the December “money malady”, I see December no different than January or February. Each day I keep my business running and stay alive to fight another day is my bonus. The journey itself has become my reward, and I am looking inward for self worth. Management no longer will judge me, but I will weigh in on my own value. My “Self” will review my “Ego” and while the “Ego” may never be satisfied as I am sure it never has been in previous years. My “Self” will be much better off and has learned to have no expectations. That is my bonus.

Yes, year-end and the holiday season are about peace on earth and all that other stuff. But unfortunately for those particular demented species known as Wall- Streeters, bankers and traders, it is about money and self worth and then maybe peace on earth. So during this time of holiday cheer, try to remember the Papa Bull’s lesson.

My personal Bonus season message, is ignore the “Ego”, focus on the “Self” and try to enjoy the Journey…..Oh yeah, Peace on Earth too.

Bonus Season - Peace on Earth and may the Bull run free

Trader Rehab: Trying To Control My Bull Market Gorging

Dr. Schwartz at Trader Rehab

Dr. Guterman at Trader Rehab

Dr. Machado at Trader Rehab

Take them up. The S&P cash should move up another 3 – 5 from here, over next couple of days and then rest or more likely test the 1212 level before another few gaps take it close to my predicted 1275 year end close.  It May even test the 1212 level today. So take advantage of the pullbacks on single points of data that do not impact the long-term trends. They have moved up for the past week because the majority of you believed they shouldn’t. The market will contradict the masses at the start of bull market cycles. It is part of a process to clean out the shorts. Expect to hear the Einhorn type disciples to start beating their chests harder as they declare we are still on the brink of a disaster, though they cannot explain why. In bull markets, emotional trading shifts to the Bears. The media will flip flop everyday. Bulls, Bears, Bulls, Bears until some senior producer gives some concrete direction to the mass of talking head reporters and journalists.  The Bears seem to have difficulty articulating their positions. No different than a Bull like me did in Bear markets. But my days in trader rehab have helped me see things more clearly. For a long

time, I looked in the mirror and saw the bull staring back at me. I couldn’t clearly see the market or myself. I found myself gorging on the Bull

mentality, and then puking my positions. But I am getting better now. I can see myself for what I am. I am an optimist, working on becoming more of a realist. And I am more comfortable with my beliefs and market calls.  My advice is to buy a bit here, but save your firepower for what should still be one more small pullback. That said, those with a longer time horizon should have no fear and continue to add to their positions, as I believe this will be a long cycle of equity appreciation. As they let me out of Rehab on weekends, I plan on spending time with my family, take my kids to see “Mega Mind”, my wife to a nice dinner and finishing a book I just began by Phillip Pullman called: “Jesus And The Scoundrel Christ”. It is a fascinating book. I want to send a special thanks to Dr. Machado, Dr. Schwartz, and Dr. Guterman for their hard work on me this week. The treatments seem to be working and I am thankful for letting me out this weekend. I will return to the institution Monday morning and continue My treatments with the wonderful staff at Hedge Fund Live’s Trader Rehab.

I look in the mirror and see the bull staring back at me

Wall Will Come Crumbling Down

Wall Of Worry

This is a panic sell off over reduced QE2. Just relax; I believe there is a small opportunity that we have an outside reversal day today that will signal the opening of a new leg in the bull market. Ultimately the entire market does not hinge on QE2. Pick the stocks u believe in, and use the opportunity to add to your equity allocation. Earnings continue to be strong and we are approaching a critical day in which the Democrats will lose their majority position. Credit spreads are widening in Europe. Here we go again. Wall of worry being built, but it will not hold, and we will smash through it.

Technology Review: 10-12-10

Tech was nice and strong today as it led the S&P 500 to the highest levels in since the late April highs.  Apple and Google both showed strength out of the gate and with Apple reaching all time highs it seems we’ll see 300 tomorrow.

The Hardware names were strong across the board and an announcement from Lee Ainslie late in the day spiked DELL.  Ainslie in a speech in downtown NYC said that Michael Dell could be looking to his company private and the stock rallied up to 14.14 but couldn’t hold gains and closed the day at $13.92. Ainslie also said that tech stocks including ADBE, CSCO, DEKK, HPQ, IBM, INTC, and MSFT are great value plays providing a high free cash flow yield of 12% in 2010 and 13% in 2011.  Ainslie also said tech names are attractive because of the weaker dollar.  The weaker dollar can help U.S. companies export and many tech companies already earn half or more of their revenues overseas.

Moving into the cloud names, CTXS, AKAM, CTXS, and RHT all had a nice bid to them throughout the day.  No direct news but it seemed like people could be covering after another brutal day Monday.  Although, there did feel like there was some real buying in this space today and it will be interesting to see if we can get any follow through tomorrow, being today was the first decent day since EQIX took down their numbers.

Semis were solid today as the  SMH’s closed up 63 basis points.  ALTR, NVDA, SNDK, NVLS, MRVL, and NETL all traded well today but LLTC and INTC will set the tone for tomorrow.

LED stocks were weak today as RBCN was off 8% and CREE closed down about 1.6%.  Sterne Agee had negative commentary out regarding RBCN and GE commented that LED pricing was very aggressive.  TV sales figures over Golden Weak missed expectations.


Worst Performers: MOT, ERTS, FSLR, PAYX, MA, TXN

Happy Merger Monday


Morning Notes

-       Strength this AM in metals: Gold, Silver, Copper printed new highs

-       Hence, strength in mining stocks this AM

-       Hang Seng Idx in Asia was up 1.2%

-       BOJ meeting commenced last night, will last for two days: QE likely according to speculations, but timing and degree of QE is uncertain (policy decision will be announced tomorrow)

-       European mkts down small

-       Greece unveiled austerity pkg

-       China announced it would purchase Greek debt, Greek will buy Chinese ships

-       S&P futures down small as well, about 4 handles from FV

-       A lot of M&A news out from the weekend, welcome back Merger Mondays

-       SNY took their TO offer for GENZ hostile for $69/share

-       MSCC to pay $20.88/share for ACTL

-       DDMX to be acquired by Greenbriar Equity for $21.25/share

-       WLK bot a 50% equity stake in a pipeline from KMP

-       MD to acquire Southeast Anesthesiology Consultants

-       On economic calendar today: factor orders and pending home sales at 10a EST