Dr Doom Roubini speaks out today. The following are some of the minutes of his speech.
- Those aren’t “green shoots”–they’re yellow weeds
- The crisis isn’t over, and everyone has become way too complacent
- We’ll be in recession for another 6-9 months
- The recovery after that will be weak
- Big risk of a double-dip
- Households aren’t deleveraging
- Oil could go to $200 just as economy starts to recover
- Real interest rates could spike, killing housing, etc.
- Concern about hyper-inflation
- All this could lead to “perfect storm” that will clip wings of economic and financial recovery
- So we need to stay focused on averting disaster before we redesign regulatory architecture.
See original here
So Roubini or Buffet who is going to be right? Buffet was very optimistic. He called for the stock market bottom last quarter when the Dow was at around 8000 and it later dropped to 6500. Roubini called for the financial melt down more than a year ealier and he was right. Buffet was onto banks and he was right too. For most part their views may not be contradicted with each other. For example their views on the risk of inflation. But their views on housing seem to be different. Buffet was optimistic on housing market going forward. Roubini’s view was kind of depressed. Who do you believe.
I am more on Roubini’s side on housing because I just don’t think housing price will go back to 2006 without a major raise in wage. Banks will not provide those exotic mortgages again. Housing price went crazy during 2005 and 2006 majorly because of those exotic mortgages. No money down, stated income, 110% finance and reverse mortgage. Those things are not easily coming back.
As for inflation some economist think it won’t come until consumer borrowing increase. But consumer borrowing is still decreasing so inflation will probably come eventually but not that early. However inflation expectation will built into commodity price before the economy recover. Roubini predict “Oil could go to $200 just as economy starts to recover” that is about 6 to 9 months later. So it is probably a good move to load up the oil share like CEO or PTR now.
Banks in a short time will run up because some of them will repay TRAP and no matter what it will be seen a positive sign for the sector. Anyway I just want to jog down some of the ideas I want to keep in mind going forward.
I make some profit today and I feel comfortable with it. I said I didn’t want to trade option but I trade again. I sold USB put again. Next weekend will be the expiration day let’s see if I can pocket the $450 bucks. I said I want to be on the long side of banks but I took the short side when BAC was above $12. I trade a couple times and make profit. Another thinking I change is that I don’t want trading cost get into my mind and affect my decision whether to close a position or not. As long as I can make money net of commission I don’t want to care about how much it is.
Account Balance Change: +$196.98
In a previous post that I discussed whether technical analysis worked in stock trading I mentioned that Baidu’s price was going up simply because its price target was raised by Goldman Sachs. Looking at Baidu’s price now it stands at $304. If I brought its shares at that time I should have made good profit buy now. I didn’t buy it because Baidu share was too expensive and I can not follow my guidelines if I trade Baidu’s share and it happened that I was considering whether I was wrong not following guidelines. Because of the hesitation I missed an obvious earning opportunity.
Goldman Sachs was the major underwriter helping Baidu go public five years ago. Its opinion has been a major driving force behind the ups and downs of this stock. Next earning will be big because it is a good chance for the analyst to play a big game. Baidu’s valuation at this level is supper high compare to many other stocks. If Baidu miss analyst expectation it can trigger a streak of downgrades and Baidu’s price could be pushed back to $220 level. If they beat expectation the stock may go up a bit say 10% to around $330 and still analyst other than Goldman Sachs will downgrade it using the excuse of high evaluation. I am thinking may be I should watch out for any shorting opportunity after the next earning report.
There is still a long way to go though.
Lose Money on First Trade After Fresh Start:
I try to be more conservative with a fresh start of a clean cash position of $30,000. I started with a trade shorting 750 shares of BAC yesterday in after market at $11.88. I decided not to follow the market actively and I got up at 8:00 AM PST this morning. Obviously I was kind of late. If I was up early and watching I might increase my short position when BAC went up above $12. So my first trade after my fresh start was at lost. I covered it at $11.96 and lost about $76 including commission. Fortunately I was following my trading guidelines and didn’t lose much.
Live a Low Beta Life:
That is it if I follow the guidelines I will lose less when the market goes against me but I will also earn less when the market is going with me. It is like I choose to live a life that has a low beta. The ups and downs will be small. I feel comfortable with a “low beta life” though. But you may not found it as exciting reading my blog. I will still make the decision to increase bet depending on market condition otherwise I will not be fully making use of the capital I have.
View on the Market:
I think the sentiment on financial shares is still bullish especially on Bank of America because of the analyst upgrade yesterday. Investors now have in mind the idea that bank shares could be double or triple in the next several years affected by some of the analyst’s opinion. Their upgrade is trying to reinforce the price target of Gold Sachs and Morgan Stanley. It was a laughable target then but investors are giving it a second thought.
Investors are trying to convince themselves that BAC is worth more than $12.00. The only thing dragging it was the other financial shares which was affected by the concern on unemployment rate. I feel Bank of America on its own would’ve shrugged off any bad news till $13.00. But frankly I believe the analyst was speaking for their firm’s large holding of bank shares. They would not wait till it double to exchange it with you for cash.
Anyway I was wrong on shorting BAC yesterday. At least I should’ve set up a short order at price above $12 yesterday so that even I don’t want to watch the market I can still make money. I think the DOW should try 8,900 next week so I will try to be on the long side. But I don’t want to long BAC. I want to long USB when it is below $18.00. I feel USB has very good support when it is under $18.
Again t is a losing day for me
Account Balance Change: -$76.74
I am confused about the difference between standard option and non-standard option. I originally thought that non-standard option was like European style option which could be exercised on expiration day only. If that was the case then the risk of writing this kind of option should be lower and the premium should be lower. But I found it is exactly the opposite. See the following July Bank of America options with strike price at $11. The premium for the non-standard option is a lot more. I was thinking selling the non-standard put option would make me a lot more money than the standard one.
Well I did some research and found I was wrong. Look at the following when I open up the JUL 11 PUT OPTION. It says “Non-Standard Option | $13.71 cash in lieu of shares, 85 Shares of BAC”..
This non-standard option is a result of Merger between Bank of America and Merrill Lynch. This non-standard option was originally Merrill Lynch option. Since the merge or acquisition between Bank of America and Merrill Lynch was 0.8595 shares of Bank of America common stock for each Merrill Lynch common share, a Merrill Lynch option contract (100 shares) became Bank of America option contract with 85.95 shares. Because the fraction share can not be traded Bank of America use cash to pay Merrill Lynch share holder during the merger. And the $13.71 cash reflected the fraction share conversion.
If you sell this put options, yes you could collect a lot more than selling standard one, but when the buyer exercise the put option and sell you BAC shares they only need to deliver 85 shares of BAC plus $13.71 cash to you to fulfill the contract. So yes you get a lot more upfront by selling them but you take the risk of getting a lot less when the put option contract is fulfilled. Risk and return are always proportionate
I don’t feel like to trade till the put option I sold expires and I am still holding OZRK. I don’t feel I like to trade options again. Many of the options are not liquid enough and I hate waiting. Of course I don’t have to wait and close my option position before it expires but I feel that makes me lost some profit that I have a very high chance to get. It seems to me once you are in a position to write options you don’t want to let go until it expires.
Anyway I don’t feel like to trade because I can not get back to discipline. I can not let go the thought to earn back quickly the $10,000 I lost before I started this blog. I am searching for a balance in my mind and I feel if I start again from a clean cash position say $30,000 then I may be able to forget about the past. I want to close out all the position and move out any balance in excess of $30,000 so that I can achieve the balance I am searching for.
Have you had the same feeling and did the same before or I am silly? My account balance is at about $31,500 at this moment
I did this right after I wrote this post. I can not wait. I sold ORZK at a lost of about $400. Close out the option position. The option position net about $200. I transfer out $1,427.25 and my account balance is at a whole number at $30,000.00. I have to give myself a fresh starting point
With all the transactions above
Account Balance Change: -$1,427.25
Looks like Epena is on technical analysis. See her comment on Baidu. No offensive but I don’t completely believe in technical analysis and I don’t rely on technical analysis to do any of my trades. My take on technical analysis is that it will just work 50-50. Because I think any well known stock trading theory is self-destructive. It only works when I am the only one understand it and use it. When many people understand it and use it it will become ineffective. Since technical analysis is well known strategy I don’t think it will work. But if anyone use technical analysis find it works let us know here. Let’s see what the odd is.
I have a silly theory. That is the stock price movement is the weighted average result of tarders’ sentiment on a stock. The weighted factor is the money held in traders’ hand. Let’s say Baidu if the number of bearish and bullish traders on Baidu are equal and they are holding the same amount of trading power then stock price should not move. However if the bearish side of the traders hold a larger position than the bullish side then price will be pushed downward. On the opposite when bullish traders hold a bigger trading position then price will be pushed upward. Simply put price movement is to achieve new balance of the bulls and bears. What we do is to find the imbalance between the bulls and bears and take advantage of it. It would be like guessing the mood of a group of people. I usually make a trade based on the price level, its previous movement and what is happening on the company, the industry and the economy. I don’t usually look at graph.
Take Baidu again. I think it will get close to 300 in a couple weeks and then it will come back and stay around 290 till next earning release. It went up today simply because Goldman Sachs upgraded it otherwise it should back down to $270 level. Goldman Sachs has a lot of power on Baidu and it can easily turn bears into bulls.
I guess I babble too much on my theory. But let’s put it on if you have another one
Stock market is just as life. It is a box of Chocolate you never know what you are going to get. It makes you feel surprising, fulfilling, 
exciting and happy at some time and makes you feel lost, sad, miserable and angry at another time. Its ups and downs are like the ups and downs in life. The differences are you can experience it all in a few days with the stock market.
Right after I created a “learn from the past” category for my trading. I made another mistake following one of those lessons I learned: Trading Out of Discipline and not Knowing How to Stop Caused Big Lost. Well I didn’t completely follow the lesson though. I still trade out of my discipline but I did KOWN HOW TO STOP and I stopped it too early.
As you know in my previous post I Had a Short Squeeze First Time in My Life I lost on a trade that I should have make money on. CCO is currently trading at $5.18. I shorted it 2000 shares at $5.60 but covered it too early at $5.87. I would have made $800 on that trade if I don’t follow my lesson learned. But I was holding other position and because of that I was a little bit scare.
After a few months of trading my account balance is not going anywhere. It was up to around $43,000 before I started this Blog from around $30,000 in a little more than a month and now it went back to where it was before I start day trading.
What do you think my balance is going to be down the road say half a year or 3 years from now? Going to zero? Going to double, triple? Take a guess here if you like and there may be interesting finding by the time when we look back.
Wonder what is short squeeze? I just had one and made the most laughable mistake in my entire trading life. Yesterday I shorted 2000 
shares of (CCO) Clear Channel Outdoor Holdings at $5.62 after it jump 56%. $5.62 was close to yesterday’s height but I covered it this morning close to today’s height at $5.87. What a stupid decision. Now CCO is trading at $5.09. A typical short squeeze.
Bank of the Ozarks another issue I bought yesterday is going against me droped another 2.5% after dropping 6% yesterday. But I feel much easier to hold on to a long position so I am going to keep it there. Still think it is a bank that is much healthier than its bigger peers. Let me know if you have different thoughts
Big loss again today dropping $1,150 at the momment. My account balance is falling off the cliff
At market close
Account Balance Change: -$689.99
I covered 200 shares of Baidu at $281 this morning. Lost more than $1200 on that trade. If I wait till tomorrow to cover it seems to me I can break even or make profit. My average on Baidu short postion was $275.5. In addition to that I made some big moves in hope to recoup that lost tomorrow. I bought 1000 shares of OZRK (Bank of the Ozarks). I follow that stock for sometime it seems to be a small but very good bank. Well I didn’t read its quarterly report. I don’t think I will understand the banks’ financial statement neither do I think the analysts in Goldman Sachs and Morgan Stanley understand them. 
Otherwise they wouldn’t set a price target of $25 and $32 for Bank of America. I also shorted CCO (Clear Channel Outdoor Holdings). Hopefully they all go in favor of me tomorrow.
I also make my third move today I sold 10 contracts of June USB Put with strike at $17.50. If USB’s price stay above $17.50 though Jun 20th. I will collect $700. Otherwise if the buyer of my put choose to sell me 1000 share of USB at $17.50 I seem to be happy to have it at least for now. It is the first time in my life to trade options. I feel if I don’t trade option I will not get the entire picture of stock price movement.
I know I lost discipline again. But I really couldn’t think of any way to recoup my lost. Perfect excuse. How much do you think I will gain or lost tomorrow with these position?
Account Balance Change: +$833.38
I listed some of the mistakes I made more than one times here and hope to avoid them in the future. Of course history not always repeat itself and making the same move when the same situation appears in the future may turn out to be correct. Nevertheless these minutes can remind me what major mistakes I have made in the past.
1) Mistakes of trades on WFC and BAC when they did secondary offering.
Don’t Short a stock when it is trading higher then the offering price in after market on the day when the secondary offering price is announced especially when Goldman Sachs is the underwriter. I did this kind of shorting on WFC and BAC and both lost money. In fact I should long in after market and sell next day in pre-market.
2) Mistake of rushing to take a short position at market opening.
Don’t rush to take a short position at market opening even when the price of a stock runs up an unbelievable percentage. I made the mistake more than one times on LINTA, WFC, and BIDU. Seems to me the best time to take a short position is at market close given that you still believe the price up run is too much.
3) Mistake of miss judging the market trend.
If the US market opens higher after the world markets it tends to trend higher during the day given no major bad news.
4) Mistake of rushing to sell and not waiting still earning release day comes close.
Don’t rush to sell depressed issue even you believe earning is not going to be good. At least wait till the day before earning release. I ever held VISN but didn’t wait till release day come close when the price run up began. When earning release day comes close many depressed stock will become the target of price manipulators. Manipulators may identify depressed issues and push up the stock price in hope to mislead the market that good earning has been leak. There may be a good selling point when we hold the depressed stock long enough before earning release even we believe earning is not going to be good
I originally wanted to keep this minutes in a private post because obviously these are specific to my trading experience. You might experience the exact opposite and it could appear totally nonsense to you. But this is a blog and this is what blogging is about. I should still feel good if you have a good laugh reading it. Comments of all kinds are welcome!
I want to add a few lines after I post this yesterday. I found for all the mistake I made if I had hold the issues I lost long enough say two trading days. I could have realize profit on them.
