The January effect of low priced stocks rising from Dec 30 through Jan 5 was in full swing as the averages climbed nearly 5% over four days through January 5 before ADP announced before the bell on January 7 that payroll numbers decreased 693k from the previous month. When the Department of Labor came out with their own number of -520k on Friday, Jan 9th, pretty much everyone who bought in the last four days unloaded everything turning the new year's 5% gain in the QQQQ to just over 1.2%. All the other indexes are now red for the year with the financials once again the worst sector down 7.6% just nine days into 2009.
While the big winners to start the year were coal (JOYG, PCX), casinos (BYD, LVS) and energy stocks; they all have retraced almost all of those gains in the past three days.
We're up only .4% ytd because we missed most of the gains but fortunately missed most of the losses as we've made two small trades with very small share sizes.
When you're in markets that are not trending as well as Oct 2008, trading smaller sizes allows you to still be in the game and forces you to watch the markets daily. We're in an environment were saying you are going to make 13% for the year is simply ludicrous. If you pay attention daily, you could make 5% or you could make 25% by the time 12/31/09 arrives. Risk management on every trade will allow you to maximize each trade so that any losses do not materially hurt your account balance. Because once your account hits zero, its game over.
When my nephew or niece gets to be around 21, if they start showing aptitude for it, I would probably want them to be aware of the index futures markets, specifically the ES (S&P 500), the YM (Russell 2000), and NQ (Nasdaq). For example, at the close on Jan 9, the cash market for the SPX at 890.35. Recently, I've been paying attention to how my streamer automatically calculates resistance and support levels or R1, R2, S1, S2. These are updated daily and approximate how a program trader would do at one of the market makers. The point is to scale out of part of a position if it is going in your favor to 1) lock in a guaranteed profit if the position reverses and 2) to allow the remaining position to ride a potential new trend.
Now its important to think of both scenarios so that you make an objective decision. We know the T2108 indicator on tradestation is still at a high 78% so from that perspective the lean is towards a move towards S1 just below 880. It probably could try to hold there before dropping to the 860 level which is S2.
On the opposite scenario, we could gap up to 899 or R1, pullback to 880 or S1, then go back up near the high from Jan 6 or around 925.
Confusing isn't it. When in doubt, stay in cash. But should something show up on an intraday scan, be confident in your analysis before the potential profitable trade disappears when everyone else starts to see what you're seeing (the self-fulfilling prophecy).
Sunday, January 11, 2009
Results for 2008, Why the Barrons Roundtable is no longer valid, and Who's Managing Your Money
So the markets were in a tight range from Dec 1 - Dec 29 in the indexes, until a 5% gain on the last two days of 2008 (Dec 30-31) cut the closing losses for the indexes to 1933 levels.
The best of the indexes was the Russell 2000 down only 35%. The S&P 500 was down 38%, the Nasdaq down 42%, and the worst sector was the financials down 56%.
Fortunately we were up 7.1% but that isn't the point. The point is you should not let anyone except YOU manage your money. There are millions of Americans who watched years of wealth disappear in the span of six months and it was all avoidable. The most any of them should have lost was 17%. If the market was not a wakeup call for people to manage their own money, I'm not sure what it will take in the markets to convince them that they do not need the so-called experts telling them where to invest their money. Even in the best case scenario, a 35% loss will take almost ten years to recover from and that's assuming the investor has nine consecutive years of decent single digit percentage gains.
Fred Hickey from the Barron's Roundtable is now the only one I "read" and I would still take it with a dose of skepticism since if investing were easy, we would all by retired. It's pretty astonishing that the panel of "investment experts" had the following performance in 2008:
Fred Hickey +22% (shorted GOOG and RIMM at highs)
Oscar Schafer -13%
Felix Zulauf -18% (right about Gold, up 5%, but other picks fell)
Abby Joseph Cohen -18% (always been wrong for eight straight years)
Bill Gross -33% (the so-called bond guru wanted investors to buy Ford and GM corporate bonds, guess he was too busy selling them to realize they might be worth zero).
Meryl Witmer -33% (her one London pick FKI was up 56% but the other picks doomed)
Mario Gabelli -36% (he has always loved media but this has to hurt one's credibility)
Marc Faber -38% (the irony, he was short China but picked the wrong vehicles to implement his idea, his short FXI, and long FXP imploded on him because the instruments didn't trend in the intended direction)
Archie McAlister -62% (and why is he here, probably because they couldn't convince Peter Lynch to come back)
Art Samberg -63% (there is such a thing as being out of touch, and in this instance, this wins the last place towel)
Mental note, leveraged ETFs by ProShares and Direxion are great trading vehicles, but do not think for a second that you can hold these positions for a full year because the leverage will eat up any profits and potentially shift you into a loss situation.
Now if the above table does not convince you that YOU should be the only one to manage your money then you might as well not read any more of these posts.
The best of the indexes was the Russell 2000 down only 35%. The S&P 500 was down 38%, the Nasdaq down 42%, and the worst sector was the financials down 56%.
Fortunately we were up 7.1% but that isn't the point. The point is you should not let anyone except YOU manage your money. There are millions of Americans who watched years of wealth disappear in the span of six months and it was all avoidable. The most any of them should have lost was 17%. If the market was not a wakeup call for people to manage their own money, I'm not sure what it will take in the markets to convince them that they do not need the so-called experts telling them where to invest their money. Even in the best case scenario, a 35% loss will take almost ten years to recover from and that's assuming the investor has nine consecutive years of decent single digit percentage gains.
Fred Hickey from the Barron's Roundtable is now the only one I "read" and I would still take it with a dose of skepticism since if investing were easy, we would all by retired. It's pretty astonishing that the panel of "investment experts" had the following performance in 2008:
Fred Hickey +22% (shorted GOOG and RIMM at highs)
Oscar Schafer -13%
Felix Zulauf -18% (right about Gold, up 5%, but other picks fell)
Abby Joseph Cohen -18% (always been wrong for eight straight years)
Bill Gross -33% (the so-called bond guru wanted investors to buy Ford and GM corporate bonds, guess he was too busy selling them to realize they might be worth zero).
Meryl Witmer -33% (her one London pick FKI was up 56% but the other picks doomed)
Mario Gabelli -36% (he has always loved media but this has to hurt one's credibility)
Marc Faber -38% (the irony, he was short China but picked the wrong vehicles to implement his idea, his short FXI, and long FXP imploded on him because the instruments didn't trend in the intended direction)
Archie McAlister -62% (and why is he here, probably because they couldn't convince Peter Lynch to come back)
Art Samberg -63% (there is such a thing as being out of touch, and in this instance, this wins the last place towel)
Mental note, leveraged ETFs by ProShares and Direxion are great trading vehicles, but do not think for a second that you can hold these positions for a full year because the leverage will eat up any profits and potentially shift you into a loss situation.
Now if the above table does not convince you that YOU should be the only one to manage your money then you might as well not read any more of these posts.
Making money means planning for income taxes
We'll talk about the markets in our next post. When you either have your first job or income producing business, you must plan for income taxes. In a business setting, most states require payment of estimated taxes on sales on a monthly basis. The money is due between the 16th and 20th of the month and they don't accept excuses for late filings.
When you get your first job, if your employer asks you to fill out a W-4 withholding form, you usually want to claim "2 exemptions" on the federal form AND "2 exemptions" on the state form if you reside in one of the 43 states that has a state income tax. The reason for "2 exemptions" because you are likely single when you have your first job and you want to make sure that you withhold just enough to comply with the laws but no so much that you get a refund. When you hear about your friends getting big four figure refund checks every year they are giving the government an interest free loan on their money.
By filing "2 exemptions" on both federal and state, the most common scenario is that you will owe a small amount of money both the federal and state governments every April 15th. If you don't have any capital gains from stock transactions, you want to make sure that your withholding payments equal 90% of your estimated total taxes.
If this all sounds confusing, it's actually very easy. When you get your first paycheck, if you work a standard 40 hour week you can take the amounts listed on each line and multiply by the number of pay periods you are paid by this company. Then you can pull up the income tax tables on the irs.gov or the local state department of revenue and do a quick calc on whether you might pay too much or too little in taxes.
If this all sounds confusing, you can always give me a call, but there is TurboTax and I'm sure by the time you are reading this, the calc is probably available as freeware over the internet.
Because I had a big capital gain in 2007, I was probably subject to estimated tax in 2008, so I had to make estimated payments on 4/15/08, 6/15/08, 9/15/08, and 1/15/09. Because my income fluctuates depending on how I do in the markets, I made very small payments for the first three dates otherwise I would have ended up overpaying in taxes. However, the past three months have been pretty good, so I have to up the final payment a little to make sure that 1) all my withholding payments from my job plus 2) the four estimated tax payments on 4/15, 6/15, 9/15, and 1/15 total 90% of the tax calculated for the entire calendar year. The other wrinkle is that the state I reside in, the remaining amount owed must be less than $200. So even if I pay 90% of the estimated tax liability since I won't know the final numbers until all my sources mail their 1099 forms on January 31 and it arrives around the first week of February, the amount owed on 4/15 must be less than $200 for the state I reside in; otherwise the state will charge an underpayment penalty. The federal form is more conservative as all they care is 90% paid regardless of the final 10% is over $200.
Estimated taxes only occur when you owe more than $1000 on 4/15 or if you expect that your withholdings are less than 90% of the final bill. The first year it happens, you usually get a free pass, but the government expects you to start paying estimated taxes. So let's say you owe at least $1000 in 2007 and the amount is due 4/15/08. Well you also have may have to send two additional checks to the state and federal government on 4/15, 6/15, 9/15, and 1/15/09 because that is the way the law is written.
Tax law is not as complicated as your friends want to make it. If you are as responsible with your money as your parents, you have the ability to manage your money as wisely as them. All you have to learn is adding a few extra payments to the government when you are making money.
When you get your first job, if your employer asks you to fill out a W-4 withholding form, you usually want to claim "2 exemptions" on the federal form AND "2 exemptions" on the state form if you reside in one of the 43 states that has a state income tax. The reason for "2 exemptions" because you are likely single when you have your first job and you want to make sure that you withhold just enough to comply with the laws but no so much that you get a refund. When you hear about your friends getting big four figure refund checks every year they are giving the government an interest free loan on their money.
By filing "2 exemptions" on both federal and state, the most common scenario is that you will owe a small amount of money both the federal and state governments every April 15th. If you don't have any capital gains from stock transactions, you want to make sure that your withholding payments equal 90% of your estimated total taxes.
If this all sounds confusing, it's actually very easy. When you get your first paycheck, if you work a standard 40 hour week you can take the amounts listed on each line and multiply by the number of pay periods you are paid by this company. Then you can pull up the income tax tables on the irs.gov or the local state department of revenue and do a quick calc on whether you might pay too much or too little in taxes.
If this all sounds confusing, you can always give me a call, but there is TurboTax and I'm sure by the time you are reading this, the calc is probably available as freeware over the internet.
Because I had a big capital gain in 2007, I was probably subject to estimated tax in 2008, so I had to make estimated payments on 4/15/08, 6/15/08, 9/15/08, and 1/15/09. Because my income fluctuates depending on how I do in the markets, I made very small payments for the first three dates otherwise I would have ended up overpaying in taxes. However, the past three months have been pretty good, so I have to up the final payment a little to make sure that 1) all my withholding payments from my job plus 2) the four estimated tax payments on 4/15, 6/15, 9/15, and 1/15 total 90% of the tax calculated for the entire calendar year. The other wrinkle is that the state I reside in, the remaining amount owed must be less than $200. So even if I pay 90% of the estimated tax liability since I won't know the final numbers until all my sources mail their 1099 forms on January 31 and it arrives around the first week of February, the amount owed on 4/15 must be less than $200 for the state I reside in; otherwise the state will charge an underpayment penalty. The federal form is more conservative as all they care is 90% paid regardless of the final 10% is over $200.
Estimated taxes only occur when you owe more than $1000 on 4/15 or if you expect that your withholdings are less than 90% of the final bill. The first year it happens, you usually get a free pass, but the government expects you to start paying estimated taxes. So let's say you owe at least $1000 in 2007 and the amount is due 4/15/08. Well you also have may have to send two additional checks to the state and federal government on 4/15, 6/15, 9/15, and 1/15/09 because that is the way the law is written.
Tax law is not as complicated as your friends want to make it. If you are as responsible with your money as your parents, you have the ability to manage your money as wisely as them. All you have to learn is adding a few extra payments to the government when you are making money.
Wednesday, November 26, 2008
One hour until Thanksgiving
This is one of the years I'm staying home for the holiday. Almost back to 100% health and even got a flippy 1% trade thanks to the traditional pre-Thanksgiving day runup. Going back to our last post, on that Fri, Nov 20, options expiration, the Dow touched 11-year lows intraday, until in the final hour, the avg staged a massive 500 point rally. On the following Monday, we had a gap open and finished up another 473 points. Call it a bear trap or whatever, on Tuesday, we rose another 70 points and today another 240.
The biggest mover was the financials and if one had the foresight to play the UYG or the FAS you would have gains over 60% in three days. The oils did well through the DIG or ERX and the best performing average was the Russell 2000 through the TNA.
Originally, I was suppose to go shopping for Black Friday, but I decided to stay home at get fully recovered as I might have to trade on the 1pm shortened session for Friday followed by the normal Mon, Dec 1 401k contribution day. I should be through for 2008 by next week and then the work begins anew four weeks later for 2009.
Ironically I've been spending more time Xmas shopping as it seems I picking up habits from some of the ladies of the group. Since gift cards are a big faux pas this year as you never know if the store you get the card from will go bankrupt by the time the gift recepient cashes it in, I was leaning toward things like a quality "down blanket" or stuff for redecorating a bedroom or living room. Let us all be thankful for having a positive year in the markets given what all has occurred, in addition to our families both immediate and nearby, our health, and other commentary that I'll keep confidential. Enjoy Thanksgiving and be ready for work on Fri morning.
YTD +6.9%
The biggest mover was the financials and if one had the foresight to play the UYG or the FAS you would have gains over 60% in three days. The oils did well through the DIG or ERX and the best performing average was the Russell 2000 through the TNA.
Originally, I was suppose to go shopping for Black Friday, but I decided to stay home at get fully recovered as I might have to trade on the 1pm shortened session for Friday followed by the normal Mon, Dec 1 401k contribution day. I should be through for 2008 by next week and then the work begins anew four weeks later for 2009.
Ironically I've been spending more time Xmas shopping as it seems I picking up habits from some of the ladies of the group. Since gift cards are a big faux pas this year as you never know if the store you get the card from will go bankrupt by the time the gift recepient cashes it in, I was leaning toward things like a quality "down blanket" or stuff for redecorating a bedroom or living room. Let us all be thankful for having a positive year in the markets given what all has occurred, in addition to our families both immediate and nearby, our health, and other commentary that I'll keep confidential. Enjoy Thanksgiving and be ready for work on Fri morning.
YTD +6.9%
Wednesday, November 19, 2008
The Crash of 2008
Six weeks later and unless you were in cash or were short, 90% of the public has watched their 401ks implode. Back on the close of my last post, the averages were at:
Dow 10831.07
Nasdaq 2069.40
S&P 500 1161.06
Russell 2000 671.59
Now at the close of Nov 19 take a look at what's happened:
Dow 7997.28 (-26%)
Nasdaq 1386.42 (-33%)
S&P 500 806.58 (-30%)
Russell 2000 412.38 (-38%)
On one hand, I am thankful to be up ytd but I'm disappointed I didn't capture some of those moves using the Ultrashort ETFs. The scary thing about this down move which began on September 19 (the day the SEC decided to temporary suspend short selling on financials), is that no more than twenty people in the whole world saw this coming. From Jim Rogers of Rogers Holdings to casy, dana, callie, trisha, angie, audrey, billchang, wally, to Meredith Whitney of Oppenheimer, each predicted and warned everyone what was coming.
Instead of asking, where is the bottom? The better question is, "How should I position myself to take advantage of what's going on today?" In two words, risk management. The most successful daytraders and portfolio managers who are up in 2008 understand both the potential risks and rewards on every trade and do not allow any one single decision place their livelihood in jeopardy.
Anyone can look like a genius in uptrending markets, but the ones who can make profits in downtrending or neutral markets are the ones you should want to learn from.
YTD +5.9%
P.S. Have been a little under the weather since election day, so haven't placed any trades long or short. Interesting enough, I paper traded since then and would have lost about have of this year's gains had I attempted to trade. When you are not 100% focused on the markets, you leave yourself open to distractions that will cost you money.
Dow 10831.07
Nasdaq 2069.40
S&P 500 1161.06
Russell 2000 671.59
Now at the close of Nov 19 take a look at what's happened:
Dow 7997.28 (-26%)
Nasdaq 1386.42 (-33%)
S&P 500 806.58 (-30%)
Russell 2000 412.38 (-38%)
On one hand, I am thankful to be up ytd but I'm disappointed I didn't capture some of those moves using the Ultrashort ETFs. The scary thing about this down move which began on September 19 (the day the SEC decided to temporary suspend short selling on financials), is that no more than twenty people in the whole world saw this coming. From Jim Rogers of Rogers Holdings to casy, dana, callie, trisha, angie, audrey, billchang, wally, to Meredith Whitney of Oppenheimer, each predicted and warned everyone what was coming.
Instead of asking, where is the bottom? The better question is, "How should I position myself to take advantage of what's going on today?" In two words, risk management. The most successful daytraders and portfolio managers who are up in 2008 understand both the potential risks and rewards on every trade and do not allow any one single decision place their livelihood in jeopardy.
Anyone can look like a genius in uptrending markets, but the ones who can make profits in downtrending or neutral markets are the ones you should want to learn from.
YTD +5.9%
P.S. Have been a little under the weather since election day, so haven't placed any trades long or short. Interesting enough, I paper traded since then and would have lost about have of this year's gains had I attempted to trade. When you are not 100% focused on the markets, you leave yourself open to distractions that will cost you money.
Wednesday, October 1, 2008
Winners and Losers in Financials
Now that twelve banks have disappeared, who are the winners. Its obviously the banks who didn't get involved in option ARM loans on derivative securities. The easiest way to determine the best financials is figure out which ones are up ytd. So in no particular order:
Winners: BBT, WFC, JPM, PNC, and USB.
Losers: Anyone that no longer exists, C, BAC.
C purchased Wachovia's assets after it became the latest bank to approach insolvency. But C will be on the hook for the first $42 billion in losses from Wachovia's loan portfolio. The sad thing is Wachovia purchased Golden West Financial's loan portfolio and did not know what they were doing when expanding the ARM portfolio through leverage.
BAC as we explained overpaid for MER and will find out how much they overpaid when they go through MER's "Level 3 Nonassets".
Note that Warren Buffett has positions in BBT and WFC for his BRK/A portfolio. As if one believes Buffett will let the market tarnish his reputation. Recently Buffett has been making favored deals to GS ($5 billion) and GE ($3 billion) giving them much needed capital in exchange for 10% private secured bonds along with convertible warrants ($115 for GS, $22.25 for GE) into common stock.
He believes he's getting the "best of the industry" companies at fireside prices. I really don't know what to believe.
We do know that today, the trading is range bound, hardly anyone willing to go long or short with tonight's vote on the bailout bill by the U.S. Senate. The risk/reward is insufficient for me to take a position today, although that could change, if the averages decisively break one way or another. From the Buffett standpoint, he would prefer a yes vote to justify the $8 billion he has handed over from his Berkshire shareholders.
We also heard the SEC is planning to extend the ban of short selling 950 "financials" until the end of October and for possibly reimplementation of the uptick rule. Obviously a lot of rules changing in an attempt to prevent the financial system or the markets from imploding.
Winners: BBT, WFC, JPM, PNC, and USB.
Losers: Anyone that no longer exists, C, BAC.
C purchased Wachovia's assets after it became the latest bank to approach insolvency. But C will be on the hook for the first $42 billion in losses from Wachovia's loan portfolio. The sad thing is Wachovia purchased Golden West Financial's loan portfolio and did not know what they were doing when expanding the ARM portfolio through leverage.
BAC as we explained overpaid for MER and will find out how much they overpaid when they go through MER's "Level 3 Nonassets".
Note that Warren Buffett has positions in BBT and WFC for his BRK/A portfolio. As if one believes Buffett will let the market tarnish his reputation. Recently Buffett has been making favored deals to GS ($5 billion) and GE ($3 billion) giving them much needed capital in exchange for 10% private secured bonds along with convertible warrants ($115 for GS, $22.25 for GE) into common stock.
He believes he's getting the "best of the industry" companies at fireside prices. I really don't know what to believe.
We do know that today, the trading is range bound, hardly anyone willing to go long or short with tonight's vote on the bailout bill by the U.S. Senate. The risk/reward is insufficient for me to take a position today, although that could change, if the averages decisively break one way or another. From the Buffett standpoint, he would prefer a yes vote to justify the $8 billion he has handed over from his Berkshire shareholders.
We also heard the SEC is planning to extend the ban of short selling 950 "financials" until the end of October and for possibly reimplementation of the uptick rule. Obviously a lot of rules changing in an attempt to prevent the financial system or the markets from imploding.
One year's volatility in two business days and Sept 29 Dow -777
Catching up on the past two weeks:
Back on Thur, Sep 18, around 2:30p EST, the Dow was down about 170 points when rumors floated that the SEC was going to ban naked short selling on financials. The SKF which was at 152 dropped like a stone over the final ninety minutes closing at 112. On Fri, Sep 19, the SEC banned naked short selling for 799 companies. The opening bell saw big 4%-7% spikes higher as short sellers were forced to cover on of all days, options expiration. Although the gap up was faded, most of the shorts trading on shoestring margin accounts got clocked anywhere from 10-20% down.
Over the weekend, the Federal Reserve "put a gun to BAC's head" where BAC massively overpaid a 40% premium to buyout Merrill Lynch at $28/share. The buyout, a 100% stock transaction, temporarily gave long stock holders a reprieve from selling.
Also over the weekend, the last two independent investment banks, GS and MS, asked to be restructured as bank holding companies as GS had dropped to $97 from a high over $240, and MS to $22. This restructuring allowed both access to the FED discount window credit lines and pretty much guaranteed that the "greed is good" profits of the 80s and 90s would be no more.
Secretary of the Treasury Henry Paulson then proposed what is considered the most arrogant 3-page bill to Congress requesting $700 billion to "shoreup the U.S. financial system". One clause of this bailout was that Paulson would have complete decision making over which assets he would purchase and at what prices. All his decisions would NOT be reviewable by any judicial court. In other words, "crown him Emperor Palpatine". The House of Representatives later in the week asked Bernanke and Paulson to speak at the House Banking Committee asking why Americans should give them 1/4 of the federal budget in one swoop and explain why six months ago that on record, they stated "the subprime crisis would have only a small impact on the U.S. financial system, and that the system is fine".
After the close on Sep 24, the Proshares ETF funds posted their capital gains distributions to all its funds, unannounced, noting that it would payout on Sep 30. This had the effect of capping the gains if the markets went in the ETF's direction and also because of the "no short" rule, pretty much made any ETF with a big distribution (SDS and SSO) difficult to trade. So even if the markets moved in your direction, you wouldn't get the full % move in the ETF.
On, Sep 25, Washington Mutual became the 12th US Bank to seek FDIC protection and only a shotgun marriage with JPM (purchasing the deposits and buildings for $1.9 billion saved the uninsured depositors over $100k from a quick writedown to hell). The stock had dropped into the single digits and was in the $2 range due to $17 billion in withdrawals from account holders who correctly feared that WM was insolvent and did not have the credit lines to support a bad loan portfolio.
Over the past weekend, the House of Representatives worked over the weekend, to craft the bailout bill and fortunately to a stunned Wall Street, On Mon, Sep 29, the bill was REJECTED by a 228-206 vote with one voter unassigned. The Dow dropped -777 points, its largest single day drop. On Monday, Sep 30, being the day hedge funds can accept withdrawals from customers, and last day of quarter for window dressing, the Dow recovered 481 points. The Senate is expected to vote on a revised bailout bill including a provision to raise the FDIC protection to $250k per account.
Personally, after getting crushed on Sep 19, we were able to take advantage of Sep 29, and luckily cashed the whole thing out. So now we're 100% cash and thankful for being barely in the black. As I mentioned to others, I want to see how it plays out for a day or two, and maybe I can probe my way back to a position. Essentially, I have two months to make money as I do not intend to take any trades in December to enjoy the holidays.
YTD +.3%
Back on Thur, Sep 18, around 2:30p EST, the Dow was down about 170 points when rumors floated that the SEC was going to ban naked short selling on financials. The SKF which was at 152 dropped like a stone over the final ninety minutes closing at 112. On Fri, Sep 19, the SEC banned naked short selling for 799 companies. The opening bell saw big 4%-7% spikes higher as short sellers were forced to cover on of all days, options expiration. Although the gap up was faded, most of the shorts trading on shoestring margin accounts got clocked anywhere from 10-20% down.
Over the weekend, the Federal Reserve "put a gun to BAC's head" where BAC massively overpaid a 40% premium to buyout Merrill Lynch at $28/share. The buyout, a 100% stock transaction, temporarily gave long stock holders a reprieve from selling.
Also over the weekend, the last two independent investment banks, GS and MS, asked to be restructured as bank holding companies as GS had dropped to $97 from a high over $240, and MS to $22. This restructuring allowed both access to the FED discount window credit lines and pretty much guaranteed that the "greed is good" profits of the 80s and 90s would be no more.
Secretary of the Treasury Henry Paulson then proposed what is considered the most arrogant 3-page bill to Congress requesting $700 billion to "shoreup the U.S. financial system". One clause of this bailout was that Paulson would have complete decision making over which assets he would purchase and at what prices. All his decisions would NOT be reviewable by any judicial court. In other words, "crown him Emperor Palpatine". The House of Representatives later in the week asked Bernanke and Paulson to speak at the House Banking Committee asking why Americans should give them 1/4 of the federal budget in one swoop and explain why six months ago that on record, they stated "the subprime crisis would have only a small impact on the U.S. financial system, and that the system is fine".
After the close on Sep 24, the Proshares ETF funds posted their capital gains distributions to all its funds, unannounced, noting that it would payout on Sep 30. This had the effect of capping the gains if the markets went in the ETF's direction and also because of the "no short" rule, pretty much made any ETF with a big distribution (SDS and SSO) difficult to trade. So even if the markets moved in your direction, you wouldn't get the full % move in the ETF.
On, Sep 25, Washington Mutual became the 12th US Bank to seek FDIC protection and only a shotgun marriage with JPM (purchasing the deposits and buildings for $1.9 billion saved the uninsured depositors over $100k from a quick writedown to hell). The stock had dropped into the single digits and was in the $2 range due to $17 billion in withdrawals from account holders who correctly feared that WM was insolvent and did not have the credit lines to support a bad loan portfolio.
Over the past weekend, the House of Representatives worked over the weekend, to craft the bailout bill and fortunately to a stunned Wall Street, On Mon, Sep 29, the bill was REJECTED by a 228-206 vote with one voter unassigned. The Dow dropped -777 points, its largest single day drop. On Monday, Sep 30, being the day hedge funds can accept withdrawals from customers, and last day of quarter for window dressing, the Dow recovered 481 points. The Senate is expected to vote on a revised bailout bill including a provision to raise the FDIC protection to $250k per account.
Personally, after getting crushed on Sep 19, we were able to take advantage of Sep 29, and luckily cashed the whole thing out. So now we're 100% cash and thankful for being barely in the black. As I mentioned to others, I want to see how it plays out for a day or two, and maybe I can probe my way back to a position. Essentially, I have two months to make money as I do not intend to take any trades in December to enjoy the holidays.
YTD +.3%
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