Our $25K-$100K Portfolio – Week 6 – $31,813

by Phil - March 12th, 2011 8:23 am

Wow, what a ride!  

We had a super-busy day on Friday and it’s a great example of exactly why we play this hyper-aggressive virtual portfolio the way we do – with balanced positions on both sides, taking advantages of moves in either direction – not just to cash out winners, but to press our losing bets on the theory that our ranges will continue to hold.  They will, of course, break one day – and that’s why we keep such a close eye on our watch levels but, as long as they remain range-bound – it’s just a little gold mine that we can tap over and over and over again.  

We caught the downturn on the dime on Wednesday and yesterday it was crazy from the first minute – so much so that I had to send a 7:15 am Alert to Members regarding the earthquake in Japan, an update on the "Day of Rage" (as we expected, a big nothing) and how the Wall Street Journal was once again ripping off my headlines.  

On the whole, we got the spike low and then the ridiculous run-up we had expected for Friday – the Japanese quake was just the "reason" de jure for the bots.  Although I sincerely hope I do not have to remind our Members of Rule #1 (as we only have two rules) – I did send out another Alert at 9:34 saying:  "$25KP Moves.  I do not have time to check prices – take money and run on FAZ short calls, USO long puts and EDZ of course.  More to follow."  - as there was not a second to waste if we were going to sell into this particular excitement.  

At 9:40 I was already flipping bullish and we added the DIA March $120 calls at $1.03 in the $25KP and then, by 9:59, we had a slew of adjustments to make, which I will detail below.  I did not have time to mention it in the morning, so I will mention it now – one of the only times it is acceptable to put in market orders is when you are selling into the excitement.  If you have 3 positions to dump out of before the market turns and 7 other positions to look over to decide what to do with them – you’d better execute those sells but that…

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Crashiversary Week – Friday Shakedown – Earthquake Edition

by Phil - March 11th, 2011 7:24 am

 What’s shaking?

That was a special message for our friends in Japan, who are very shaken today with an 8.9 quake which is, of course, devastating.   Here’s a picture and notice how stuff is just pulverized (before being washed away by the 30-foot Tsunami that followed (on the right of the picture):

…

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Crashiversary Week Continues – Thursday Thump

by Phil - March 10th, 2011 8:23 am

Wheeeeeeeee!

Looks like we picked the right day to get bearish!  Of course we expected this all week because, as noted Sunday’s Stock World Weekly – it’s not a POMO day.  No free money – Oh noooooooooooooooo!  In Monday’s Member Chat, we discussed the flight to defensive stocks and how the unwinding of POMO could cause BIG TROUBLE for the market.  While POMO is not the be all and end all of the market movements – you do have to think of it as support that props it up so lack of POMO – like we’re having today – leaves us much more vulnerable to other negative news.  

There was a ton of negative news in our intra-day notes yesterday and, as I mentioned in the morning post – we’re very concerned that the consumer has been pushed to the edge of a cliff so, of course, we took the opportunity to get much more bearish during the day with several disaster hedges and, of course, the same DIA $120.75 puts at the same price we had so much fun with on Tuesday.  We also, as noted in the morning post, had fun shorting oil at the $105 mark – over and over and over again as it moved between $105 and $104 but 5th time is a charm as they finally broke hard this morning and fell all the way to $102.32 on the last drop, which now makes winners of our USO puts as well so, like I said – Wheeeeeeeeeeeee!  

So, let’s see which of the things we’ve been ignoring suddenly matter today:

• Japan’s GDP shrank 1.3% last quarter on LESS consumer spending and LESS capital investment.  "Gee, I don’t know George, we raised all our prices and people bought less stuff – who’d have thunk?"
• China posts biggest trade deficit in 7 years.  Prices go up and people buy less junk – even if it’s cheap junk. 
• Moody’s downgrades Spanish debt.  Really?  Gee, we never saw that coming, did we?  
• Borrowing costs for the PIIGS are back to crisis highs.  Same year-old link as above.
• Only one in seven Americans believe we are in a lasting recovery and over 50% say they are WORSE OFF than they were two years ago. (And – don’t forget – they don’t even poll people

…

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Which Way Wednesday – Happy Crashiversary!

by Phil - March 9th, 2011 8:07 am

Can you believe it was just 100% ago that the market collapsed?

I talked about the blood in the streets and all the fun we had in Monday’s post.  The chart shows the S&P, DAX and Hang Seng all up almost exactly 100% (1,333 or bust is still our goal on the S&P) with the FTSE dragging along at 70%, the Nikkei up just 50% (although not bad for a country that is "mired in deflation") and the Shanghai isn’t even trying with a 40% gain in 24 months.  The star of our show is the Bombay Sensex, which is up 125% since March 9th of 2009 but it doesn’t feel like it as they were up about 160% in November.  

The Hang Seng has also pulled back about 20% since November but everyone else is catching up with even the Shangai bouncing while the Hang Seng consolidates.  Our 100% lines on the US indexes are 12,938 on the Dow, 1,333 on the S&P, 2,530 on the Nasdaq, 8,362 on the NYSE and 684 on the Russell.  The Russell is our leader, up 140% in two years (which is REALLY good for the RUT $390 Index calls we bought back on crash day for just $10!) and the Nasdaq is up 119% off their 1,265 low but we liked buying AMZN at $62.50 better than risking the basket of the index at the time and that too has worked out well with AMZN now $167 (up 167% coincidentally).  

We were already in AAPL and GOOG etc – the usual suspects as we had gone bullish the week before the crash in March of 2009 – all the crash did was flash a big SALE sign at us while we were already at the mall with cash to spend.  Most of my picks on that actual day were financials:  SKF shorts, FAS longs, XLF long, RKH long, BAC long (at $3.14!) and then some staples like GE, DIS, TGT and HOV (at 0.65!) along with the Russell, which was our "index most likely to succeed" selection.

So you can’t blame us for hoping we have another nice correction – especially with values currently so stretched.  We don’t want to be bearish but, when there’s nothing to buy you either stay in cash or get a little short and, as much as we liked AMZN at $62.50, we have…

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Crashiverary Week Continues – Testy Tuesday

by Phil - March 8th, 2011 7:58 am

Wheeeee – this is fun!  

I do so love it when a plan comes together and our plan in yesterday’s Morning Alert to Members at 9:55 was to pick up the DIA March $120.75 puts for .90 into the silly and very fake-looking "rally" and, as you can see, we had a very easy time getting in below our target and those puts took off like a rocket, giving us a huge win by lunch.

That gave us a very nice start to our trading week and we took trades on both sides of the aisle during the rest of the day including a short play on oil at $106 as I decided $105 was going to be tough to hold due to a combination of "fear exhaustion" and the fact that our crack team of overseas analysts have determined that Qaddafi can’t last and the only people who don’t know that are Qaddafi and the idiots pumping oil on CNBC.

Still, for the most part, it was a watching and waiting kind of day although we did take the opportunity to adjust our $25,000 Portfolio, trying to lock down our $29,961 cash position by getting our unrealized gains and losses to cancel each other out.  We did hold on to our EDZ hedges as they are for April and Fitch did just say that China faces a 60% risk of a bank crisis by 2013.  "Fitch sees a risk of “holes in bank balance sheets” should a property bubble burst," according to Director Richard Fox.  This same indicator used by Fitch correctly predicted both Iceland and Ireland’s crises well in advance (but nobody ever listens).  

Bloomberg reports that events on the streets of Beijing offer a timely reality check. There, economists can find ample evidence that China may be approaching the limits of its ability to grow sustainably. Inflation is among the forces unnerving the masses, a phenomenon not unlike the one inspiring uprisings in the Middle East.  The economy may be at a dangerous turning point, one where jumps in asset and consumer prices derail an impressive run. It doesn’t mean China is about to crash. It does mean that the time for taking its boom for granted is over.

So China is clearly at the breaking point and our play is that either oil fails to hold $105 or China begins to…

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“Crashiversary” Week Begins – Just Another Manic Monday

by Phil - March 7th, 2011 8:05 am

Happy Crashiversary! 

Just 2 years ago this week, on March 6th, we spiked down to a low of 666.79 on the S&P 500.  That move was capping off a relentless drop down from 950 as they year opened and was dashing most people’s hopes of a recovery.  I say most, because certainly not ours as out Members were BUYBUYBUYing that F’ing dip.  I happened to be on TV the afternoon of the crash doing a 3-hour special on Tim Syke’s LiveStock show where I not only made 13 REALLY good picks that made 469% over the next 6 months, but I also explained my logic for buying on that particular dip so it’s worth watching if you have time to kill. 

That same afternoon, my friendbuddypal Jim Cramer was on TV throwing 5,320 around as a target for the Dow (it was at 6,626 that day so another 20% down) although you wouldn’t know it now because CNBC has redacted the video and changed the text on the link to his show that day.  Fortunately, it’s hard to get rid of video once it hits the web so now you can decide if the new CNBC summary matches the actual tone of segment they are hiding.  MSNBC’s summary of the segment remains: "Mad Money’s Jim Cramer makes the call that the Dow will bottom at no less than 5,320. Listen to why Cramer says the key index could still drop another 1,300 with CNBC’s Melissa Francis."

The Fast Money crew had a chance to watch my broadcast but still chose to go on with a unanimously bearish show that day and this one you still can catch part of on the official site.  "A lot of people are calling bottoms," said Guy Adami.  "But I still don’t think we’re there, yet. It has to feel like the end of the world before the market can bottom."  

"The data that I’d watch to signal a bottom is the rate of decline slowing," adds Karen Finerman. "But I don’t see that, yet."  "We won’t be at the bottom until the financials participate in the market’s broader moves," adds Pete Najarian.  "I don’t think we’ll get a bottom until we get policy going forward that doesn’t seem like it’s just attacking Wall Street," adds Jon Najarian.  

Crashes tend to make investors fearful and Mr. Buffett says…

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Friday’s Market Blow – Jobs or No Jobs?

by Phil - March 4th, 2011 6:57 am

Why are we bearish?  

For one thing, we like to go bearish when the market is testing the top of it’s channel as there is generally a higher percentage probability that we drop than we pop back over.  Secondly, as I mentioned yesterday, it’s not just the Federal Reserve that is in denial but the commodity speculators, the equity investors and even the bond investors as the ALL believe they are going to get paid while MATH says that’s not even remotely possible.  

What is math?  I know – thanks to cutbacks in our education budgets over the past 30 years, that is a question that vexes many Americans and it also creates a perfect environment for the people who CAN do math, those in the Financial sector perhaps, to design endless levels of complex instruments that are all designed to con people who have lower math skills than they do.  

Complexity is good.  Just like the legal scam, complexity forces you to seek assistance with your finances – the more money you have, the more complex your finances become and the more you need help and this allows swarms of leeches or, to be kind, remoras to attach themselves to you and feed endlessly off your earnings and savings (they don’t care which as they will happily destroy the host and simply move on to the next big fish).

Personally, I prefer simplicity.  My Grandpa Max was a Depression kid who built a business from scratch and invested his money well and had a nice life for himself.  He taught me how to invest when I was a little kid and, as you can imagine, he did not ask a "financial adviser" what to do with his money as he had seen where that had gotten his parents generation when he was young (he was 24 when the Global markets collapsed).  

Our investing days would begin by reading the papers (not just one – they all say different things, don’t they) together and pointing out things that looked interesting.  Not just the Business Section but whatever seemed like an important World event or a trend worth watching that would help us get ahead of the curve with our stock selections.  This is pretty much what I do now isn’t it (thanks Grandpa!)?  So, I will share with you what I consider the most…

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Forward Thursday – Nothing Could be Drier than a Jolly Caucus Race!

by Phil - March 3rd, 2011 8:28 am

Forward, backward, inward, outward

Come and join the chase
Nothing could be drier 
Than a jolly caucus race

Backward, forward, outward, inward
Bottom to the top
Never a beginning,
There can never be a stop

To skipping, hopping, tripping fancy free and gay
Started it tomorrow
But will finish yesterday

‘Round and ’round and ’round we go
Until forevermore
For once we were behind
But now we find we are be-

Foreward, backward, inward, outward

Wheeee – this is FUN!  

Up we go again, getting close to 100 points pre-market – once again punishing anyone who was foolish enough not to buy the F’ing dip.  How dare you short this market!!!  Like the Wall Street Pelican in the cartoon says: "You HAVE to run with the others if you want to get dry."  Of course it’s impossible for the participants (the bottom 90%) to get dry as they are not on the rock with a warm fire and simply keep getting wet over and over again but the Wall Street Pelican keeps playing his tune, giving himself a ready supply of dancing fish to snap up whenever he gets hungry.  

Of course, for those who miss the subtlety of the Caucus race, Disney also puts in the story of the Walrus and the carpenter.  "The time has come" the Walrus said, "to speak of many things.  Of ships and shoes and ceiling wax and cabbages and kings."  

The carpenter reminds me of the Tea Party, enabling their fat-cat (or fat-walrus) allies, only to get screwed over in the end.  Walt Disney, don’t forget, had gone bankrupt early in his career and had also got screwed by big business when Universal Studios took control of "Oswald the Lucky Rabbit" – the original Bugs Bunny from Disney.  "Alice Comedies" were and earlier work of Disney’s that culminated in the eventual release of Alice In Wonderland, with much of his early sarcasm and frustrations with the system still intact. 

Yesterday, the part of the Walrus was played by Doctor Ben Bernanke, who’s Beige Book (see my commentary to Members) refers to "non-wage input costs" which have "increased for manufacturers and retailers in most Districts."  Callooh!  Callay!  The Fed may as well be saying as they come up with brand-new words in order to…

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Wacky Wednesday – $100 Oil Equals No Inflation Says Bernanke

by Phil - March 2nd, 2011 8:28 am

Have you no shame?  

That’s what the Senators should have said to Ben Bernanke as he hemmed and hawed his way through his ridiculous testimony yesterday.  What was it that that Joseph Welch said to Joe McCarthy when he tried to lie to the Senate?  "You’ve done enough!  Have you no sense of decency, sir, at long last?  Have you no sense of decency?"  As Mr. Welch said about McCarthy, the same can be said about Bernanke: "I think I never really gauged your cruelty, or your recklessness…"  

Maybe it was the atmosphere of the Senate hearings that made me think of it but I was so sickened by the farce going on at the Senate yesterday, punctuated by the joke of oil rising to $100, even as The Bernanke told us inflation was under control, that there was little left to do but dream of an America long past – when people of moral conscience stood up – not because it was profitable – but because it was right.  

In Bernanke’s official testimony to the Senate, the Fed Chairman justifies his action with Bullshit – there is no other word for it – it’s total Bullshit: 

Inflation has declined, on balance, since the onset of the financial crisis, reflecting high levels of resource slack and stable longer-term inflation expectations. Indeed, over the 12 months ending in January, prices for all of the goods and services consumed by households (as measured by the price index for personal consumption expenditures (PCE)) increased by only 1.2 percent, down from 2.5 percent in the year-earlier period.

To quote Moneypenny from last night’s PSW Wrap-Up show: "Are you freakin’ kidding me?"  This is so ridiculous I can’t even bring myself to comment on it anymore – just screw it – we’ll see what happens at the House today in day two of Bernanke’s crap-fest but what’s the point?  The fact that Bernanke was allowed to leave the Senate chamber without being handcuffed says it all, doesn’t it?  As David Fry pointed out: "Bernanke gave his senate testimony and mostly lied his way through it. I’ve given up trying to be ambivalent about this since the lying and spin should upset everyone. The “core rate” nonsense is a manipulated smoke and mirrors diversion from the truth. Inflation is rising and we see…

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Testy Tuesday – 1,333 or Bust – Again!

by Phil - March 1st, 2011 8:21 am

Wheeee – what fun!

I love it when a plan comes together and we were not disappointed in yesterday’s action (see David Fry’s chart) as we shorted the morning gap and bought the F’ing dip when it filled later.  That was our plan from the Morning Post, of course and we had a FANTASTIC day grabbing the DIA $120 puts at .88 at 10:50 in Member Chat and we ditched those at 1:41 for $1.06 (up 20%), flipping into the TNA $84 calls at $3.30, which finished at $3.90 on the stick save – that was certainly no surprise to us as my exact comment to Members was:

TNA – Chart looks just like an exaggerated version of the RUT to me. They are down a bit more than the RUT as the moment so, since we hit goal on the DIA puts, it could be fun to grap the TNA $84 calls at $3.30, which were $4.80 this morning – looking for a bounce. A 10% risk down to $3 would be the way to play or use the 817 line on the RUT as a sign to get out. Making 20% would be $3.90ish so that should be goal for the 2:30 stick.  Done with DIA $120 puts at $1.06, of course.

People ask us what kind of trade ideas we put up in chat – that’s a pretty good example of our day trades.  Of course, the day trades get all the attention because they are the fun ones but we advocate keeping the vast majority of a portfolio in long-term, well-hedged positions that you don’t have to worry about.  This leaves us free to hang out and chat and make a little money playing with our cash.  

As I mentioned in this weekend’s post about "Warren Buffett’s Secret to Making 100% a Year" – it’s all about compounding those returns.  Our long-term picks on Monday were JPM and GOOG for 2013.  Those are our "serious" picks for value stocks we look to establish a long-term position in and compound them over years of holding.  We also day traded oil from $97.50 to $98 in the futures – twice and there was a speculative short-term bullish trade on UUP off the $22 line which was not intended to be a day trade.  This morning we’ll be looking to establish a long-term position in YRCW…

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