THE DAILY TRADING RISK: Weekend Tidbits

Saturday, May 1, 2010

Weekend Tidbits

Goldman Sachs gets a stock price thrashing. BP and oil rigs and drillers get into share trouble over what is turning out to be an oil spill disaster in the Gulf of Mexico larger than the Exxon Valdez. And the S&P 500 is possibly looking to correct another 10% while oil prices are stabilizing around $80 a barrel give or take. What does this tell me exactly? The drive to 12,000 on the Dow is far from over but its likelihood is becoming more of a challenge than the stock markets latest bubbler devils were hoping. I would be buying bonds and TRADING stocks. What that means is hide your cash in 30year treasuries ONLY and learn how to trade stocks from day to day or week to week. Its a fools game for sure and this fool absolutely loves it, but making foolish decisions doesn't have to be your creed. Don't say I didn't warn you. The federal government has been the ONLY market maker in not only the bond and stock markets, but the housing market, the oil market and just about any other economic enterprise from here to kingdom come. Sooner or later, and I put my cashola on sooner, the kingdom will come crashing down yet again, only this time, alot more people will be hurt because they have used up the stimulus sentiment and we have lost our stomach for deficits and debt because you made the fateful decision to bail out a worldwide industry of stupidity and greed which built absolutely nothing of substance. In other words: we ALL let you Congress, sell ourselves to the devil in the name of I am rich afterall. Have a great weekend anyway cuz we're all subprime now baby. -Tradebum

*hummmmmmmmm

bigcharts.com

stcokcharts.com

from calculatedrisk.com96.5%of Mortgages Backed by Government entities in Q1

Obama was boasting about those GDP numbers yesterday so heres a chart to give you an indication of just who is making up the GDP growth and it ain't the private sector and it ain't jobs.

*and here's a chart on oil prices. Ridiculous really.

wtrg.com

from econompicdata.com
Is the S&P 500 at Fair Value?
The chart shows the relative value of the S&P 500 as compared to nominal GDP (to be more specific... the S&P 500 index / nominal GDP in billions $$) since 1929.

And the importance of such a measure.... the ten year forward annualized change in the S&P 500 index vs. the starting S&P 500 to nominal GDP ratio since 1929.

30 April 2010
Baltic Dry Index (BDI) -5 3354
Rate

*this shows that the cost of shipping commodities around the world and it is decreasing again.
dryships.com

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Books

Debt of Honor by Tom Clancy
Den of Thieves by James B. Stewart
Fundamentals of Investing in Oil by Chris Termeer
How We Got Here by Andy Kessler
How the Stock Market Works by Dalton NYIF
How to Day Trade Stocks by Harvey Walsh
Liars Poker by Michael Lewis
Manias, Panics and Crashes by Kindleberger and Aliber
Market Wizards by Jack Schwager
One Good Trade by Mike Bellafiore
Options as a Strategic Investment by Lawrence G. MacMillan
Reminiscinces of a Stock Operator
Secrets of a Pivot Boss by Frank Ochoa
Steidlmayer on Markets
Street Smarts by Linda Raschke
Team of Rivals by Doris Kearns Goodwin
Technical Analysis of the Financial Markets by John Murphy
Thank You for Arguing by Jay Heinrichs
The Ascent of Money by Niall Ferguson
The Big Short by Michael Lewis
The Forgotten Man by Amity Shlaes
The Intelligent Investor by Benjamin Graham
The Logical Trader by Mark Fisher
The Playbook by Mike Bellafiore
The Power Game by Hedrick Smith
The Shack by Wm. Paul Young
The Smartest Guys in the Room by Bethany McLean and Peter Elkind
The Taylor Trading Technique by George Taylor
The Traders Bible by Richard Wyckoff
Unconventional Success by David Swensen
When Genius Failed by Roger Lowenstein
Women & Money by Suze Orman

SHORTING STOCK

Lets say you think GE is headed down in price. You would borrow 100 GE shares from A at say, $10, then sell them to B for $10, and when the price goes down to say $5, you would go into the market and buy them at $5 and give back the shares to A, pocketing the difference.

The Mechanics of a Short-Sale
by Andrew Tobin
When you sell stock short, you are selling shares you don’t own, hoping they will go down. Your broker just borrows someone else’s shares for you to sell. Eventually, you have to buy them back and return them (unless you’re really lucky and the stock goes all the way to zero and disappears, in which case there’s nothing to return). If you can buy the shares back for less then you got for them, you make a profit; if you have to pay more, you suffer a loss.

But where do brokers get shares to lend short-sellers? The first thing they do is look to see whether one of their other customers holds the same stock in a margin account. Anyone with a margin account has signed an agreement authorizing the broker to lend his shares. He will not know they’ve been loaned, and he needn’t worry about it either way. He’ll still get his dividend (it will come out of the short-seller’s account); he will still be able to sell at a moment’s notice. (The broker will just replace the shares by borrowing someone else’s shares. Or, if that proves impossible, he’ll "buy in" the short-seller, forcing him to cover his short — typically at a loss — and return the shares. This doesn’t often happen, but it definitely can. It’s one more risk of the hazardous short-selling game.)

Brokers love short sales, because although you take all the risk, they typically get the interest on the proceeds of the stock you’ve sold. That’s right: you shorted 1,000 shares of some stock at $50; well, that means the broker got $50,000 in cash money in return . . . but you won’t find that money in your account. It’s earning interest in his account, whether he be a deep discounter or the most expensive full-service firm on the block.
(Active, pushy customers can sometimes twist arms and, if they do enough short-selling, persuade their brokers to share some of that interest. But few even know to ask and fewer still will be told yes. If you do $20,000 a year in commissions, say, well, that might be a different story.)

If your own broker doesn’t have shares of stock in one of his other client’s margin accounts to lend you, he will call around to find a broker or institution that does have shares to lend. Harvard, with its $10 billion endowment, makes some good money this way.

When a broker or institution lends stock, the "rent" it charges is interest on the value of the shares. In other words, your own broker has to split some of the largess with the lender (making him all the less eager to share any of his share with you).

*to give you an indication of how crooked the market is lately, Fidelity has put out word that they will not lend out shares of IWM.

If you have more questions feel free to email me at tradebum@gmail.com.

THE DAILY TRADING RISK

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Saturday, May 1, 2010

Weekend Tidbits

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