December 21, 2014
Coal in some stockings, treats in others, but who’s been naughty and who’s been nice? In the world of big-time financial side bets (Credit Default Swaps), it isn’t exactly clear.
When I heard about the unusual happenings that kept Radio Shack open for at least one more Christmas season, my thoughts went to the decision process for the traders on each side of a massive CDS trade. Making money is the primary reason they play, but there is something else going on.
Senior people on Wall Street have their own version of Black Friday – the day after Thanksgiving that some retailers need to push their full year into the black. It’s not the same day at every Street firm or hedge fund, but it’s just as manic as the mall scenes with people trampling each other to get enormous televisions. On one day each year, everybody gets their “number” – their bonus for the year.
This year, as every year, people are trying their best to book big profits while the bosses are deciding who gets how much of the bonus pool.
From the glossary of Finance Monsters, here’s the definition of the Bonus Pool: Read the rest of this entry »
November 27, 2012
I exited my Northern Technology (NTI) short put (bullish) position today as the stock ran up toward $23 a share. Of course, I didn’t get the last dollar of potential profit, but that’s not my goal.
What happened next amazed me. About a half hour before the close, the stock started dropping like a stone, falling as low as $20.24. Since I entered the trade by selling those $22.50 puts for about $2 each, if I had still held the position, it would have been a net loss at that point. Boy, did I feel lucky.
Then, almost as quickly, the stock started going back up, closing the day right around $22 a share.
I even started playing “what if” in my mind, thinking how I could have re-entered the position for even more potential profit.
But I didn’t, and I’m glad. Read the rest of this entry »
October 26, 2012
Yesterday I called the reporting of some trade information for MBS bonds a “baby step” in the right direction, but didn’t try to describe exactly why it was such a small step, or why the sleazoids that hide in the shadows could still do their thing. Quite rightly, frequent commenter and longtime friend from the business “Conscience of a Conservative” pointed out that one AA private label MBS might be so different from another that the information has truly limited value without knowing the exact bond that traded.
The reason I didn’t get “down into the weeds” in my initial post was that I hadn’t come up with the right metaphor to describe why disclosing trade prices without CUSIP numbers still leaves too much hidden. I’m sure it doesn’t escape anyone’s notice that the SEC is a captured regulator, or that FINRA obviously won’t bite the hand that owns it directly and signs the paychecks, but that doesn’t get to the specifics.
I have to thank my friend Stephen Jencks for making a comment on Jody’s article that gave me that elusive metaphor that makes it clear to the average Joe why the new “transparency” is so little so late. Read the rest of this entry »
December 20, 2011
Most of what I’ve written about hedging is what I know — how a bond portfolio manager hedges a book of mortgage-backed securities.
I hope it’s been helpful for my readers to recognize the styles and methods the managers of these companies use, and their relative transparency and quality of disclosure on this front.
Jon Rosenbaum asked in a comment today:
“What is the best way to protect your principle and retain dividends for amreits? What hedging instruments work best?
What about SDS for general market drops? or some other vehicle?”
Before I take a shot, let me remind everyone that there is no perfect hedge. Back in the 80’s, the First Boston (today Credit Suisse) traders kept a small potted miniature (English) boxwood near their trading desk with the legend “The Perfect Hedge”…. Read the rest of this entry »
December 6, 2011
In a recent post, I provided a link to a TA (Technical Analysis) service that made a bear call on amREITs. I mentioned that the TA folks don’t adjust their mathematical models for dividends, a flaw that guarantees followers of pure TA will not be comparing actual investor returns when they choose stocks to buy and stocks to sell.
I will give props to StockTwits for at least mentioning the current yields of Anworth (ANH), Annaly(NLY) and American Agency (AGNC).
They did not, however mention the relationship between the stock prices and the book values. I can understand why book values get ignored for banks with questionable assets held at par, or for tech companies or brand name behemoths whose real value is intangible and not listed as part of book value. Read the rest of this entry »
December 6, 2011
As promised, I will describe my biggest mistake of the year. As a balance, I’ll include the biggest winner.
First the bad news.
This is bad mostly because it was supposed to be a safe place to “park” some bucks for a couple of months until I needed them later in the year. Instead, it morphed into a position that will take a year or more to climb back into the black, if ever.
It was also a harsh reminder that the game is often rigged against the unwashed retail investors. Read the rest of this entry »
November 5, 2009
Economic Cycle Research Institute’s (ECRI) Weekly Economic Indicators have been known to move markets. Many people who look at the economy now including economists have a tough time sifting through all the sometimes conflicting crosscurrents. Many of those who have finally come down on the bullish side will cite the ECRI forecast and its splendid record as a key point in reaching their decision. It is really hard to argue with that.
In a way ECRI’s WLI encapsulates all the favorite tools of traditional forecasters in one concise forecast. And why shouldn’t they enjoy the influence they have? Their record of forecasting post war recessions is superlative, and if anyone need any reminding, they were real early in correctly forecasting the economic turnaround we now appear to be having.
Success of course spurs interest. My latest interest started to grow when their indicators started showing some mixed readings a few weeks ago. At the same time I began to see some signs myself that this expansion was having some problems and therefore it was time to start looking for signs of a possible downstroke in the economy.
Read the rest of this entry »