Saturday, November 1, 2008

Mr. President.. Irrational Exuberance... Living and Learning...



Mr. President...
Most Americans are excited to get this Presidential Election over with. Both candidates pose as change agents. Barack symbolizes a combination of angst and pragmatism. Voters with a high degree of angst see Obama as a genuine break from the Bush administration. But beyond the "NO more Bush attitude", American voters see Obama as someone who actually seems to care for the underdog. The people like an upbeat attitude and a sense of self-confidence that seems to permeate Obama. At the bare minimum, he appears to fit the "image" of a President.

John McCain does have the battle scars to prove that he is a change agent as well. I do believe that he could have... and should have been the President of the United States instead of George W. Bush. But soft money donations took care of that... And big money ruled the day, McCain was left out in the cold. McCain a bit older, and now a bit wiser. He lacks the Presidential image or grace of Barack. Yet, more Americans will agree with McCain's platform as opposed to Obama's. A survey was conducted on Friday, where a test group of 150 individuals voted for the President. On appearance Obama won hands down. However, the same 150 individuals completed a survey based on political platforms, and most found that they agreed with McCain. Truly interesting!!!

Both candidates bring innovative ideas to the voter. While a number of polls suggest the election is already over, I am anticipating a dog-fight on Election Day. Regardless of the out-come, I believe that both of these candidates can move this country forward. Barack could well find himself in the same position that Bush had in his first term. Ownership of the House and Senate. This could well move his agenda along. By the same token, McCain who has a track-record of working across the aisle could position himself as a champion of bi-partisan change. Whoever it is, they will have their work cut out for them. On a side note, Representative Steve LaTourette is visiting schools in Solon and Twinsburg, Ohio. The fact that he is taking time out of his busy schedule to deliver speeches on Democracy and the Importance of Voting to kids who can't vote yet tells you what kind of a guy he is! I only wish I knew where to get his sign for my front yard!!!

Irrational Exuberance...
Former Fed Chairman Alan Greenspan coined the phrase "Irrational Exuberance" during the 1990's Bull Market, explaining why companies who had negative earnings but, had a .com attached to them, doubled and tripled in value. I wanted to remind readers that companies like Bamboo.com, Sunrise Technologies, Microvision, and Iomega are a few companies where the following epitaph might read: "Easy Come, Easy Go... Where the earnings came from, We did not know... They gave us money, for our stock. And we watched it drop, just like a rock." Yet, investors and speculators piled into stocks with no real reason, with the exception that stocks kept going up. The last time investors had piled into useless stocks was during the wireless radio revolution of the 1920's-30's!

Earnings drive companies, and companies that cannot demonstrate clear revenue now, or in the near to medium future should be punished. For instance, LVS is the ticker symbol of Las Vegas Sands Casinos. As we speak, they have no earnings... none! The EPS of LVS stands at a negative .08 cents per share. While the market cap reflects $5.04 Billion, companies are only worth what people are willing to pay for them. This week, analysts rewarded companies that require discretionary spending from a beleaguered consumer. The general belief on Wall Street must be that people will attempt to gamble themselves out of debt... or at least, win back their depleted retirement savings!

Cinnemark (CNK)is another loser. Not that I don't mind catching a movie. But when it comes to buying stock on this dead horse.. forget-about-it! While we are sure to see a new salvo a Christmas time movies (or if you prefer the term Holiday movies), expect box office numbers that are well-below expectations. With earnings of -.53 cents a share, and a high likeliness of global recession, this one should be avoided like the Bubonic Plague!!! Companies like WMT and D make much more sense!

On a positive note, reduced gas prices could well keep consumers in their houses... and hopefully service a portion of debt... but in terms of additional spending, it is just not going to happen. Moreover, I do not think that GM will actively pursue the next generation of Hummers until new gas mileage standards are developed. San Francisco Fed Chief Robert Parry suggested additional "downside risks" even after the .50 rate cut announced earlier this week. The bottom line is that a triple whammy of rising unemployment, tightening credit, and shrinking wealth are at work as major de-levereging forces. From the peak of housing boom, national housing prices have dropped -17%.

Living and Learning...
The realm of trading options is new to me. While I have had stunning success (profits of over 40%), I am living and learning. As a rule of thumb, when stocks hit a 100-200% profit, I believe a prudent strategy might be to purchase a covering position to lock in a higher degree of profits. Technical rallies have cut deep into profit margins that would be otherwise OUT OF THIS WORLD!!! The covering could well be a contract that is only a month out... and cheap. While I was a big winner of COF, XLI, and XLY, I have learned that covering positions could well be a reasonable strategy. A reminder should always be that profit is never a dirty word. I am currently holding calls on BAC, GE, and AU. Put positions include WYNN, FXI, VNO, SPG, BBW, and CNK.

Sources...Varied

11 comments:

AX said...

TC, your wistfullness in describing McCain's chances resemble that of the liberals in 2004. We know McCain lost this election months ago, and the closest election was already run b/n Obama and Clinton. The only polls that give you claim are those from Fox, which even Kudlow points out, do not put McCain ahead. Let's stick with the realities of the market and economy and hope that this change only strengthens our economic thesis and makes us 40% winners as well.

Jim said...

Obama is a relativist who flat out lies, making promises the budget cannot keep. Worse, his record on abortion extrapolated into supreme court appointees equals accelerated murder of babies. Any thinking person should smell a rat if the media is behind it. America needs your vote to count.

DCNorth said...

Hello Tiger Coach,

I want to understand the concept of the covering position. Say, you are bought June ABC calls which have doubled. You would buy the same number of puts expiring in November. What price would you buy those puts at for?

Picked up a book called The Bible of Options Strategies. Just in the beginning chapters, but talks about the various options strategies to be using in different markets.

Regards,

AX said...

DC, keep in mind that the guys who basically invented options pricing (Black/Scholes) lost more money in a single week than they ever made over their careers and almost took the whole market with them. All of these fancy strategies usually require a lot of capital to make a small spread, but TC does make a good point, that the nearer term options will cost you less to insure your LEAPs.

Anonymous said...

Ax... You could well be right on McCain. I'll be curious how this whole thing plays out on Election Day. Like most Americans, I have become skeptical of the media and their ability to write/report an unbiased story...

Jim... Your points are well taken in that the next President will appoint one or two Supreme Court Justices (Justice Stevens is 88 appointed by Ford in 75'...Kennedy, Breyer, and Souter are all aging as well.) Don't be surprised if Stevens pulls the plug early if Obama wins...) If I am not mistaken Roe v. Wade was a 5-4 decision... I met an "unwanted pregnancy" who just got accepted to Harvard!

DC NORTH and Ax...
Profit is not a dirty word. An OTM covering for an option is not much less than an insurance policy... you decide how much to cover, and the price as well. At least you have a hedge on some of the "big" profits on a homerun! I have followed a couple options up, just to follow them back down again. The cover protects against a massive upswing on a position that you believe will still be a winner. (This happened to WYNN last week.) I like the notion of locking a degree of profits! Remember, we are not the "experts". Those guys are getting laid off by the hundreds as we speak... or are making plans for their GS Holiday bonuses of a cool $3 million a piece.)

This current rally is BOGUS! We'll see how Benton Woods II plays out!!!

DCNorth said...

Thank you for the tips TC, Ax and anon. Anything to help my understanding of options etc is appreciated.

I agree with you anon that the rally is nothing more than a headfake. After the election (no matter who gets elected) people will realize that the economy is still going to be hit hard. I don't believe those GDP numbers of only -0.3 and expect it to get worse. Credit to the customers is getting chopped and 20% of homes are underwater! Look out below, cause the "bottom" has some serious cracks in it...

Regards,

AX said...
This comment has been removed by the author.
AX said...

Ha ha, DC, anon sure sounds a lot like TC, don't you think? Give up the McCain pipe dream and fess up, TC!

DCNorth said...

Well, you know 75% of Canadians support Obama so you can tell which way this country is bending...haha. Maybe not TC, but a close relative?...haha.

Profit is never a dirty word! It helps get me closer to retirement!

Anonymous said...

:)...Evidently I was too lazy to sign in ... Ax would make a good blood hound!!! Now find us some losers Roscoe!!!

AX said...

That's ok, TC, always on the lookout for losers! Maybe a chance to get back to shorting after the post-election bounce. Just don't join the army of crazy right-wingers trying to tell us Obama will ruin the country. Bush already did that!