Market Continues to Exhibit Bi-Polar Behavior with Today's Mega Rally

3/03/2011 11:24:00 PM / Posted by Soullfire / comments (0)

This week is a classic example of the market's bipolar behavior. The market rallies on Monday, has its worst day of the year on Tuesday, then follows it up with its best day of the year with a gap up rally near 200 points today.

Even though oil is hovering around $102, the market chose instead to embrace the positive news in reduced number of unemployment claims filed. Such is the life of a market that likes to ignore bad news until it decides otherwise, and then panics about it. 

Today's market activity was interesting in that there was plenty of "grinding action" in the move up, and by that I mean it's when a stock continually moves upward in small increments with little to no pullbacks.

Here's an example of a stock with grinding up activity today - Priceline:

 

With a stock with this kind of price movement, you can get in at just about any time of day and be assured of making money. Any one foolish enough to try shorting this stock would have the odds heavily stacked against them.

My guess to the causes of this kind of grinding activity is likely due to the trading computers interacting with each other inching the market up slowly but surely.

The thing is though, this action doesn't portray normal market behavior, and because of that falls under my "highly suspect" radar. I don't like to jump in on any stock trading this way since if the pattern fails, the stock tends to drop rapidly- and you never know if/when it will fail. 

So that brings us to the market rally today- does this mean Tuesday's major sell off was just a fluke and its onward and upward from here?

My opinion is as follows.

The "old Soullfire" would have complained that the market has no business rallying with $100+ oil, continued high unemployment, falling home prices, and increasing signs of inflation. My new thought process disregards all that stuff in the short term and just focuses on trends.

The equity market indices (Dow Jones, Nasdaq, S&P 500) all have long term up trends but are trending lower on the shorter time frame. I think the market is more likely to trend lower then break out and make new multi year highs because we haven't completed the move down to warrant support of the longer term trend yet.

I view today's rally and accompanying "grinding action" as an effort to kill any shorts who jumped on board during or after Tuesday's big sell off. The market in general loves to knock people out of positions to reduce the number of people making profits. This is why market analysis is both a science and art when it comes to interpreting its behavior.

The market gave a warning signal with Tuesday's sell off, which today's rally should not make you inclined to forget. The key is to keep an eye on the long term trend and be ready to act if that trend breaks down if you have long term positions. 

In terms of timing, I think this would be a perfect time for the market to sell off, since the political campaigns will be kicking off a few months from now for the Presidential election next year. The administration in power does their best to keep the markets stable so it won't be used as a political issue against them. If the market sells off in the near future, there's enough time for it to recover later in the year when the election cycle starts heating up. Otherwise, we're looking at a market that has gone up almost in a straight line since March '09 to continue through 2012. Logic dictates that the market eventually has to "exhale" sometime. The longer the market moves up without any corrections, the greater the risk of a bigger correction/sell-off down the line.

Now, market behavior has been hijacked with the Fed continually pumping money into the system, which explains the one sided behavior, but even the Fed has its limits in how much it can control the markets - the free fall of 2008 is a clear example of that. 

The Non Farm Payrolls (Jobs Report) number is released on Friday, and all are expecting a rally if the numbers are good. We are nearing the upper range of the short term down trend, so the market can either break out of that trend and reverse to resume its upward movement, or resume its downward move.

I suspect the market will interpret the news as good no matter what the actual numbers are, and rally hard in the morning, followed by a slow pullback throughout the day. This will entice many Bulls to jump in at the open,...only to see their positions going down at the end of the day.

The other possible alternative is a seriously bad number resulting in a gap down and all day sell off, which will shock all the Bulls that jumped in positions today.

I think this short term downtrend will be pushed and tested, but will hold and not break at this time - we will see....

 

In trading news, I still have open short positions in AMZN and WLT. AMZN is trending down, but WLT is looking like it's going to break out of its longer term downtrend. If WLT does break out, I'll have to start closing my positions for a loss, but I'm not convinced yet...its movement has been way too strong- too encouraging for Bulls to jump on board in a seemingly "risk-free" move.

I had a short with CME, and intended to keep it overnight but lost track of my stop, and sure enough got stopped out at a loss. The market moved high enough to trigger it, and then reversed. This is why people have a love/hate relationship with stops - they save your neck from catastrophic loss, but are vulnerable to market whipsaws. Of course to add insult to injury, CME closed at a price that would have been profitable if I were still in that position.

I also bought back a March 135 put I sold on CF on Tuesday's down draft for a profit which mitigated the loss in CME. I was planning to hold onto the put, but decided to wait since I'm a bit worried about the market selling off and taking CF with it. 

Since I'm blogging more about my trading these days, I decided to revive my trading blog - which I'll start using more often.



When Markets Go Awry: The Need for Humans

5/12/2010 07:48:00 PM / Posted by Soullfire / comments (0)

man-vs-machine


Last Thursday's short lived intraday 1000+ point market dive and subsequent recovery, a "Flash Crash",  raises some big questions on the stability and quality of our electronic market system.

The new age of technology and computers was heralded on Wall Street with the computerization of the market exchanges. Conversely, the NYSE was seen as being antiquated with their manually managed open call system where a human market maker determined the prices of the bid and ask of stocks.

Yet, the May 6 debacle showed that we may have gone too far too fast. The 20 minute cliff dive seen is still being investigated as to what caused it. So far it is believed to have been triggered by a CitiBank trader who mistakenly executed a billion dollar sale over the intended million dollar execution. This allegedly triggered a chain reaction among all the automated trading systems who read the market activity as a big sale trigger.

Now CitiBank is denying that they had anything to do with it, and the other problems that occurred certainly can't be blamed on them. For all we know, someone could have hacked into the system like in the movie WarGames and played "Stock Market Crash" instead of Global Thermal Nuclear War.

The market dive was interesting in that it was done on low volume- not a big volume dump that would truly indicate widespread panic selling. Other big problems was stocks were being mispriced at either pennies or over a hundred thousand dollars. Regardless of what triggered it, there was a definite error in the system as the markets went haywire.

There was one market that didn't go haywire - it was the believed "antiquated" NYSE who still has humans setting the market prices for their stocks. They saw the aberrant pricing and decided to slow down the trading action while the they checked the validity of the stock prices. The meant that trades were not being executed instantly, but had a delay of 30 seconds or so. The other electronic markets traded past the NYSE and ran with the given prices. This resulted in the NYSE being the only market that was still open during that time that maintained sanity in their stock pricing. They were also the first to decide to cancel any automated orders that were part of NYSE (ARCA) that happened with the erroneous pricing.

The news may be playing it down, but what happened that day was a SERIOUS malfunction of the US automated trading market, and could have had grave consequences on the worlds economies. During that time, it looked like the market was on its way to completely collapsing, and any one witnessing that would be inspired to sell and keep selling. There were also stop loss orders that would have been triggered taking people out of their positions at the lows of the day. This unfortunately adds more tarnish to the US financial system, which already has a black eye from the dubious actions of the major investment banks which are being blamed as the primary cause of the current Great Recession. If our market stability comes into question, it would gravely impact international money coming into America, not to mention our own security and peace of mind.

Canceling all the trades that occurred with crazy pricing was the right thing to do, as this wasn't triggered by real world events, but an error in the system. If the trades were allowed to stand, that would mean that people would have lost and made money based on a computer error which would seriously undermine the security and safety of our markets. It would be like a bank making an error with their accounts giving some people more money and taking away money from others, and then saying it was going to let those errors stand. That bank wouldn't be in business much longer if they went that route.

It also shows you the limitations of our current computer technology. Without a human mind in the system to evaluate the validity of the trade during volatile times, the market was more than willing to trade at whatever prices it received. With the myriad of worldwide financial news being taken into consideration, there are just too many factors to consider to think a computer can be programmed to take all of these into account and come up with a sound judgment - our technology is no where close to that.

You can be sure that more regulations are on the way to bring more stability to the markets, which is a good thing. An error like the one we experienced will most likely be triggered again on perhaps an even bigger scale unless proper checks are put into place. The current checks are not enough- the first built in market slow down is only triggered at a 10% intraday market drop. We were close to that, but didn't hit that number. Perhaps that number should be reduced to a lower number like 5% or 7%. Our current checks are now only meant to slow down a falling market, so there is nothing stopping the market from being bid up to the moon in one day with no forced time outs- this doesn't sound very safe either.


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Stock Meltdown and Whipsaw: Robots Gone Wild

5/06/2010 05:25:00 PM / Posted by Soullfire / comments (0)

Today was another historic day in the markets - it was the greatest intraday plunge since 1987. This was matched by the mother of all whipsaws when the market dived over 650 points in just 15 minutes bringing the Dow loss to over 1000 points, only to surge back up over 600 points in just 8 minutes. To put it another way, the Dow moved over 1250 points in just about 23 minutes.

Dow_May_6_10

As you can see, the market literally falls off a cliff and then rapidly recovers much of the loss. That's an incredible amount of volatility!

Here's what it look like on the S&P 500:

SP_May_06_10

As this was going on CNBC had live video of people rioting in Greece over the govt approved austerity measures as they try to climb out of their debt problem.

Just remember as you see these countries in financial turmoil, that much of the damage was caused by them having toxic CDO assets that went worthless. This is the gift the big investment banks have given to the world....yet you still have folks trying to justify their existence instead of scaling them back.

This super-sized whipsaw most likely caused big casualties in the market today. All those who had stop loss orders placed most likely had them triggered as the market plunged. It's never fun to get stopped out of a position, only to have the market reverse and go higher. The market got me to cough up some shares before the real dive happened - thanks heaven I pulled the plug early!

The next set of victims were day traders- the human ones. The market moved so fast that if you weren't fast enough, you were likely to either get burned on the way down, on the way up, or from both sides. I made a few mistakes and got singed here too. I'm sure a few folks manages to capitalize and make some money if they timed it right.

The third set of victims were the robot day traders. What ever triggered this dive (they are still investigating) took everyone by surprise and the machines just exacerbated the moves as their algorithms went with the flow. I'm sure some auto trading machines fared very poorly.

The only folks who escaped that whip were the ones ignoring the market. Of course, the aren't completely unscathed as the market still ended the day with over 3% losses.

UPDATE:

NYSE (ARCA) and NASDAQ have announced that the are canceling ALL trades that happened during the plunge/whipsaw for stocks that were more than 60% off were they were trading before the big moves. Not sure how this will be tallied in...

Apparently the latest track is that some traders fat fingered an execution and instead of executing a million trade sell, he triggered a BILLION execution instead.

No Country for Old Men...or Humans

Now there is talk about more regulations needed to control the level and timing of trading. With hyper fast trading, computers can now process and work on over 1000 bid/offers per second. There's no way humans can compete with that on the short term. Manual trading gets safer the farther out you go in the time line as you have the longer term trends to support you.


Now everyone is getting worried again after months of "happy times are here again" complacency.

To be ahead of the game, all one can really do is stick to technical and trend analysis. Don't base your decisions on the news or emotions, but keep them in mind in the background. The long term trends should be the primary markers to show you whether to be buying or selling.

It's is interesting that turmoil in Greece can send sink our markets as well. It just shows you how connected we are. Don't you find it strange though that when Greece first announced that had problems several weeks ago, the market shrugged it off and moved higher? This is why you can't trade solely on news.

As I've said in a prior post, fundamentals ALWAYS catch up to the market eventually despite the market's willingness to ignore it for an extended time. This market is to be traded - buy and hold is high risk at this time.



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Is the Bear Market Dead?

4/26/2010 07:40:00 PM / Posted by Soullfire / comments (0)

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Since the March 2009 market ultra lows, the market has been on a high octane tear moving ever higher. The Dow has recently moved past 11,000 reaching 19 month highs. The Dow has also enjoyed eight straight weeks of gains, giving it the longest winning streak since January 2004. The Nasdaq is also having an eight week winning streak and a third of the S&P 500 companies are at 52 week highs.

All bearish analysts are left in shock and awe as the market surges continually upward.

With all this market euphoria, shall we proclaim that the worst is behind us and that good times are here again?

If you've been reading my blog for any length of time, you'd see that I've been on the bearish side of the market.  I've also talked about a bipolar market that acts as if either everything is good or everything is horrible with no moderate in-betweens.

Okay, so am I guilty of being a "perma-bear", one who remains bearish regardless of what the market does and has an eternally gloomy outlook? I hope not because I can't stand perma-bulls or perma-bears as you can't trust what they say since they're always one-sided.

Anyway, here's my take on the market - we have a complete disconnect between the market technical data and longer term fundamental data. In short, I'm technically bullish on the market but long term fundamentally bearish. Here are my reasons:

Case for the Technical Bull:

One just needs to look at the ever climbing market for that. You can't argue with the market's upward movement. Companies are also seeing improving bottom lines from the lows of 2008/2009.

Case for the Fundamental Bear:

Bull_bear


Does it make sense to you that the market has gone straight up in a "V" type recovery as if all the problems have been resolved? Have things improved that much so soon? Here's what we are still dealing with:

1) Decades high unemployment - shedding employees will give big business employers boosts in productivity and better profit margins in the short term, but on the long term will see decreased demand and declining revenue as there are less people with buying income.

2) Crushing debt - In the aftermath of the market melt down, several cities and states are suffering with budget shortfalls. Services are being cut across the board which include fire, medical, and police services. There are municipalities that are in danger of declaring bankruptcy.

Debt problems go beyond the state level. The US Federal Deficit is well over $12 trillion dollars and climbing fast. Spiraling out of control debt will have negative implications down the line with higher taxes along with reduced services and benefits. The US dollar will also be under devaluing pressure which means the likelihood of rampant inflation along with higher interest rates. We've seen $4/gal gas...$5/gal and $6+/gal are real possibilities if inflation takes off.


The US isn't the only country dealing with a huge debt problem. I've written about the financial crisis in Dubai  and predicted that other cities and countries may also be in danger of defaulting on their debt. Since that time, Greece has moved into the spotlight of being in danger of default. This begs the question as to what other cities/countries are on the ropes, but hiding it for now? A default of a major country can have severe economic and currency impacts.

Yet despite all these real problems, the market continues to ignore them and power upwards.


One thing we know for certain is that while the market may ignore fundamentals for quite a while, it will ALWAYS respond to it eventually. The only question is WHEN. Don't expect the main stream media to give you any advance warning....they never do.

Knowing this, the question becomes how does one invest in this market, or if they even should?

I would say yes, one can invest, but one needs to have a short term outlook, meaning being ready to move your funds to safer harbors if the market starts an extended decline. The higher the market climbs in the face of all these headwinds,  the greater the risk that we are moving into yet another bubble.

The main point here is to avoid going into zombie "buy and hold" mode as this could be the worst time for it. It's best to use technical analysis for determining when to buy or sell.



Case in Point of Bipolar Market Behavior

12/06/2009 05:20:00 PM / Posted by Soullfire / comments (0)

The markets reaction last Friday to the employment numbers proves we are in a bipolar market.

As you may recall, I discussed market behavior when October employment numbers were released:

The unemployment numbers were higher than expected and the national unemployment rate rose to a high of 10.2%, to which the market responded by rallying and moving higher. The reason given by financial main stream media was higher unemployment means interest rates will likely be kept low for a longer period.

So in their Bizzaro universe, higher unemployment is reason to celebrate in the stock market.

Now there has to be two sides to every equation, which means that if the jobs number showed lower unemployment, the market move should be negative (higher interest rates), right? Well, my Bipolar Market Theory predicts that the market will move in a certain direction independent of any new information.

Now last Friday the jobs number was much lower than expected- only 11K jobs lost for the month and the national unemployment number dropped to 10%

How did the market respond? Well if you guessed it went down since this means interest rates will be going up, you'd be wrong. The market instead rallied to make another new high for the year and ended positive for the day. The financial media, as expected, linked the rally to positive signs of the recovery taking place, forgetting all about interest rates.

So in summing up we have the following:

1) Higher unemployment triggers a market rally.

2) Lower unemployment triggers a market rally.

3) The financial mainstream media will try to make both situations seem logical and expected.

From this we can conclude:

1) Bipolar market theory has been verified.

2) Financial main stream media are basically idiots and should never be looked at for insight.

3) The market isn't trading on fundamentals at this time, which makes it equivalent to Wyle E. Coyote running off of a cliff and not falling because he hasn't realized it yet. Technical analysis is best suited for use now and one needs to be alert to any signs of bipolar market sentiment shifting. Once the sentiment shifts negative, you will see the market continue to fall regardless of news in the same fashion as it did going up.



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Fed Chairman Faces the Music at Senate Reappointment Hearing

12/04/2009 01:01:00 AM / Posted by Soullfire / comments (0)

Fed Chairman Ben Bernanke is attending the Senate Hearings on whether he gets appointed to a second term. Kentucky Senator Jum Bunning had a few choice words to say on the matter.

Before I show the video, a little set up is needed...

Here's the low down on bailed out company AIG. When a company is in serious financial trouble, one of the first things they do is try to renegotiate the debt obligations to their lenders....as in pay them 60 or 70 cents on the dollar rather than the full value amount, known as "par value". The lenders may not like to take a loss, but they are motivated to negotiate because the losses could be far greater if the company goes bankrupt. Anyway, that's what normally happens- but it didn't with AIG. The Fed bailed out AIG and paid 100% of their debt (par value) to the lenders.....all with US taxpayer money and more debt. So basically AIG allowed other banks to engage in risky counter-party investments that went bust- and US citizens get stuck with the bill. So AIG and their lenders get the benefit of only gains and NO RISK of any losses. This, my friends, SUCKS and is NOT what capitalism is about.

This video starts in where Bunning is talking about the AIG bailout having no negotiated cuts to lenders:



Notice how Bernanke tries to weasel out by saying he was "powerless" to do anything and that the lenders had the upper hand. This is hogwash. If AIG went belly up, the lenders would have got squat, and had NO leverage. This is yet another example of Bernanke making excuses instead of taking accountability for his mistakes....that is, if you want to call this a "mistake". I think this was a deliberate move in favor of Wall Street cronies.

Here's the longer version of the video to see the full verbal smack down given to Bernanke:




Sen. Bunning (R-KY) to Fed Chair Bernanke: 'You Are the Definition of Moral Hazard'



Gold Breaks Through The $1200 Level Setting Another New High

12/03/2009 12:29:00 AM / Posted by Soullfire / comments (0)



With the dollar weakness, gold and the other commodities continue to trend higher.

This kind of dollar decline/gold appreciation can't be good for the economy in the long run and certainly threatens any hope of a timely recovery.

I wonder if the US Govt (Bernanke/Geithner) will continue to watch the dollar sink and do nothing while gold continues to make new record highs on an almost daily basis?



Financial Analysis 101: How to Analyze The Dubai Financial Crisis

11/29/2009 09:04:00 PM / Posted by Soullfire / comments (0)




Although you could have easily missed it with all the news about Tiger Woods and his auto accident, or the White House party crashers taking up the majority of the air time, there was some very interesting financial news the past week.

Dubai, the play city for the wealthy, has run into financial problems due to plunging real estate values and has asked its creditors for a delay in its debt repayment schedule. Okay, so the fact that Dubai is in danger of defaulting on their debt and facing bankruptcy is just the first part of the interesting news.

The next part, which I find even more interesting, is the fact that none of the other United Arab Emirates (UAE) initially stepped up to "save the day" and even stated that they wouldn't be stepping in for any bailout. How about that? Forcing Dubai to take responsibility for their own debt problems - what a novel concept!

Could that be a lesson for how the US and Europe should regard corporate debt problems? It would seem it's a lesson they still aren't ready to learn as the financial markets responded by falling last Friday and the major complaint/question repeated over and over again by the talking heads on financial and news media was "why wasn't the UAE going to bail Dubai out?"

This type of mindset angers me to no end. How is it that banks and corporations feel they are entitled to special consideration and being bailed out for the "good of the markets", and yet these same banks show little to no mercy for their own individual customers like homeowners who fall behind on their debt payments. Their level of hypocrisy knows no bounds, and is a clear example that the harsh realities of accountability don't appear to apply to rich corporations. It disgusts me.

Meanwhile, the news media would rather keep you updated on fluff news like Tiger Woods, and White House parties instead of news that could actually have an impact in your life. This is why you should NEVER depend on the news for advance warning- by the time it's becomes "worthy" of their attention, it will be too late to do anything about it.

Here are some of the questions you should be asking about the Dubai situation since most news media isn't doing it:

1) How does this affect me or my investments?

Just because Dubai is half a world away is no guarantee that their actions have no global impact. The failure of US investment bank Lehman Brothers last year should make that very clear.

2) Could this crisis impact my country?

All investors in Dubai could be impacted - which includes many international banks and investment firms. How much have these corporations loaned to Dubai- which translates into how much of their capital is at risk?

3) What does this say about the remaining "systemic risk" out there?

Think Dubai is the only city-economy in dire straits? Think again. Could there be other cities or nations on financially shaky ground?

4) Why does the news ignore this story for the most part?

You can find news on Dubai if you're on the financial news network or online service, but good luck finding it on regular TV news, where they would rather compete with Entertainment Tonight or TMZ, rather than give you useful information.

5) How does this affect overall market risk in general and risk to my investments in particular?

By effectively gauging risk, you will be ahead of the curve in keeping your long term investments safe from severe market turmoil.



Making Money in a Bipolar Market Whether Bullish or Bearish

11/27/2009 12:25:00 AM / Posted by Soullfire / comments (0)

Friday, 27 November 2009

bp2


*** Attention Bulls ***

*** Attention Bears ***

It should be obvious by now that the market will often behave independently of what the current market forces and economic conditions are. This can leave one at a loss for how to engage such a market rationally while still limiting the level of risk.

On the Bullish side:

Many of those who have subscribed to "buy and hold" have been burned badly as the market plummeted. Parts of the market has bounced back from the March lows, but other segments are still languishing.

On the Bearish side:

Many shorting or expecting the market to collapse have been stymied by the continued run up from the March lows with no sign of weakening. Anyone attempting to short this market has most likely been in a losing campaign.


In both the bullish and bearish scenario's listening to the news would not have helped you make sound decisions in the short term as there has been a mix of both positive and negative information, and not only that, the market seems to ignore the information most of the time.

In my research, I've found that the best way to invest in this market is to accept that fact that the market is bipolar, meaning its normal state isn't rational- either everything is great, or everything is rotten.

The next step is read the current financial data and make your own projections where the market "should" be going. You'll have to determine this yourself as the news always presents conflicting information and will only confuse you if you don't have a good grasp of the current state of the economy. This will tell you where the market is headed eventually- and here, the key word is EVENTUALLY- it could take some time for this to happen so consider it an "extended forecast".

The last step is to understand "Trend Line Analysis" and "Support and Resistance" areas specifically as well as the art of technical analysis in general. You will need to know this area in order to determine when to buy or sell.

So putting it together, we have three main components to achieve success:

1) Accept the market is irrational (Bipolar)
2) Determine the "extended forecast" of the market.
3) Know Trend line and Technical Analysis

This is how you put them together for more successful investing experiences:

Knowing the "extended forecast" of where you think the market is headed will be invaluable for your long term (at least 1 year or more) investments. It will provide you with an early alert on whether you should be adding to your position or reducing it and moving it somewhere else. If done right, you should be able to avoid being caught in major market crashes as well as keeping your assets in stronger investments.

For short term trading/investing, knowing where the market is headed with your financial extended forecast information won't be as helpful due to the bipolar nature of the market. The market has the uncanny ability to keep moving in one direction regardless of the current financial conditions. There is also an abundance of automatic computer trading going on which makes decisions on other things besides current news. The media, looking to explain any market movement with current news only adds to the confusion and you wind up with ridiculous "can't lose" scenarios. Here's one example:

The national unemployment numbers for October went up to 10.2%, which was higher than expected, but the market was seemingly unaffected and rallied. The financial news media stated that the market rallied because that higher unemployment number means interest rates will remain low. This makes no sense as the negative of a higher unemployment rate is of a higher magnitude that the positive of lower interest rates. Now on the other hand, had the unemployment number been lower than expected, the market would have rallied and the media would have proclaimed that it was due to signs that the recovery was taking hold, ignoring the interest rate angle altogether. Therefore no negative scenarios exist in this case that would result in a negative market move. This makes no sense in a rational market, but behaves as expected in a bi-polar market.

The way around this situation in the short term is to focus primarily on technical analysis (TA) instead of the news. If TA dictates the trend is up, go long. If TA points down, go short. In each case include a protective stop loss trigger as a risk limiter. This technique should keep you on the right side of trades in the short term while you're waiting for your long term forecast to come to pass.



Study Shows "Do it Yourself" Investing Beats Using a Financial Adviser

11/04/2009 01:08:00 AM / Posted by Soullfire / comments (0)

finadviser3

Long time readers know my investment philosophy subscribes to the old axiom- "If you want something done right, you have to do it yourself."

At the end of the day, the person who has the most to gain or lose from your investment nest egg is you- not a financial adviser or any other person offering investment help.

Well, a study was done that compared the investment returns of those who used investment advisers and those who didn't, and the results were very interesting. On just the surface view and analysis, those who had a financial adviser manage their assets appeared to have superior performance and lower risk compared to those without an adviser. However it was found that financial advisers are more often paired with older, richer clients rather than younger, less affluent ones. Taking these differences into account results in a different outcome. From the study:

"Once we control for different characteristics of investors using financial advisors, we discover that advisers actually tend to lower returns, raise portfolio risk, increase the probabilities of losses, and increase trading frequency and portfolio turnover relative to what account owners of given characteristics tend to achieve on their own."

Now this makes sense when you think about it. Financial firms are going to give their older, wealthier clients their best financial advisers to keep them from going to another firm. The newer, less experienced/seasoned advisers are more likely to be assigned to smaller accounts that correspond with a younger investor with smaller assets. This results in these accounts being the "training grounds" of newbie/inexperienced financial advisers, with often mediocre or poor returns to show for it.

When it comes to investing talent, not all financial advisers are the same.       

The study concludes:

"Based on the findings, it should not be taken for granted that financial advisers provide their services to small, young investors typically identified as in need of investment guidance. Indeed, the opposite is true. Even if advisors add value to the account, they collect more in fees and commissions than they contribute."

The bottom line is you are not automatically well served letting someone else manage your money. If you don't want to manage your money, the key is picking a good financial adviser, and to do that, you need to have at least a solid basic understanding of investing yourself. I know it's easy to say we're too busy and to ignore boring things like finance and basic investing skills, but then again, we ALL want to retire early with lots of money- we can't have it both ways.

How to Invest

As a start the easiest thing to do is invest in the index funds like those that follow the S&P 500 or NASDAQ. Your investing will then directly follow the market indexes for better or worse, with no financial adviser needed. From a long term perspective, the market has been historically bullish so it works out.  That would get you started as you learn more about the market and investing. The best time to use a financial adviser is when you are savvy enough about investing to know what you want to do, but don't have the time to do it, so you can give your financial ideas to the adviser and let them execute it for you.

How to Spot a Good Financial Adviser

How can you tell if a financial adviser is good or not? You can ask to see their track record of performance. As a quick check, you can ask them how they fared in the market from 2007 - now. We have seen some turbulent times in the market which serves as a great litmus of the true skill set of the financial adviser in question. Compare their performance to that of the market index funds. If they can't beat the index fund performance, then they aren't adding any value with their management skills, and should be avoided.


Anniversary of the Wall Street Melt Down - Lehman's Failure

9/14/2009 11:07:00 PM / Posted by Soullfire / comments (0)

Monopoly_Broke_Cream_Shirt

Today marks the one year anniversary of Lehman Brothers' failure, the largest bankruptcy in US history, which began the acceleration of the chain of events which led to Wall Street's worst crash since the Great Depression (so far).

At this point we can look around and see if any lessons have been learned by the banks.....

....and the current answer looks like....NO.

We still see the same uber $$$ salary structures in places that reward risk-taking over performance with safety. The surviving banks are now even larger and have an even bigger claim to being "too big to fail". We shouldn't really be shocked at this, since the banks have shown us that they can't be trusted to govern themselves to the point of near suicidal risk taking were it not for the government rescue.

Now the government has begun discussing how to unwind itself from these institutions as well as creating new regulations to keep banks from taking on excessive risk.

Of course the banks don't want any new regulations as that would mean less profits, so they will push back. Expect to see banks start barraging the airwaves with anti-government commercials trying to stop any changes from happening beyond the most superficial.

Their task won't be easy since the effects of their risk taking are still being felt all around, but they will try. I sincerely hope we're smart enough to let let them succeed in keeping the status quo in place.



You Can Lead a Horse to Water.....

4/14/2009 10:01:00 PM / Posted by Soullfire / comments (0)

.....but you can't make them drink.

This is referring to the Roth IRA. It's an awesome investment vehicle that not many really know all the details about. For the occasions that I do take the time out to explain how it works to people, I'm surprised by the number of folks who can afford to put some money in a Roth but choose not to do it.

The Roth basically works in reverse of a traditional IRA or a 401K if you have one. With traditional IRA's and 401K's, the money you contribute is tax deductible so it reduces your reportable income for that year. When you hit retirement age and start taking money out, you will then start paying taxes on that amount. With a Roth, you fund it with after-tax money, so you get no deductions, but all the money and interest/profit you earn will be forever tax free.

The cool part about a Roth account is that you have access to the money you put in at any time without penalty. If you decided you need the money now, you can take out what you put into the Roth with no restrictions. Not so with a traditional IRA or 401K. With those, you are committed to keeping it in the account until you reach retirement age. If you take any money out before then you are hit with big penalties that make it very undesirable to do so. So there's no risk of committing money you might need soon when putting it in a Roth account.

Most banks and brokerages have them and it takes just minutes to open. The deadline for opening/funding a Roth for the 2008 tax year is by April 15, 2009 via electronic funding or sent via snail mail and postmarked by that date.

To qualify to contribute to a Roth, it has to be from earned income, not savings- which means you have to have a job. There are also income restrictions such that if you have a six figure salary, you may not qualify. For those who do qualify, it's a great investment and shouldn't be passed up. Even if the contribution that can be afforded is small, it's better than nothing.

More info:

Link 1

Link 2

Tax Stats Yields Performance and Revelations

3/29/2009 04:05:00 PM / Posted by Soullfire / comments (1)

This year I'm ahead of the time curve and managed to completed my tax calculations for 2008. I paid extra care in making sure I included everything so as to avoid any more unintended "stimulus notes" from the IRS such as my experience last year.

Well comparing the current years return with last year's provides some interesting info for my short term trading account......

In 2007, I traded stocks amounting to $300K in transactions. Note, I said "transactions", not sales, as in I didn't make $300K...although that would have been awesome if I did.   For 2008 my stock transactions went up to over $3 Million - a great than 10X increase.
The explanation for that has to do with the fact that I added more money to my account so I had more liquidity to do extra trades, and I had less overtime at work which allowed me to spend more time focusing on trading.

Now for performance: in 2007 my net return was about 15%, and my goal at that time was to improve on that. Well, 2008 was the year of Wall Street's meltdown so was I able to get a better return? The answer is...my return for 2008 was over 35%!!  Not only that, but it would have been even more had I not taken some big losses in day trading mistakes.

The time I was able to spend indulging in additional trading has painted a clearer picture of where my strengths lie. I now know that I don't really excel at "day trading", as in buying and selling stocks on a minute by minute basis constantly watching the stock chart during the day. In my opinion, it's too close to Vegas style gambling and comes with all the emotional excitement - and emotions are a bad thing when it comes to trading stocks. My biggest losses last year were the result of day trades going from bad to worse. The worse thing is, I look back and can clearly see they were stupid trades from a longer term view. As punishment, I made a "play by play"chart of those big losses so I can always see them and never forget what happens when you make stupid mistakes.

On the other hand, I also now know where I my true strength in trading lies - longer term position trading. This is where you analyze a stock and make a forecast for it's future movement based on current business and market conditions. It typically takes longer for trades to pan out - on the order of weeks to months, so there's no day trading immediate excitement, and in reality that's a good thing. The excitement comes later if your trade performs as expected and results in a good profit.

My goal for this year is to take what I learned from all that trading last year, and apply it to this years trades. It's all about striving to gain the superior skills that come from combining book smarts with actual experience. Even in today's rocky economy, there are a ton of opportunities to make money in this market.


Geithner Reveals Toxic Assets Plan = Bank Bailout Part Upty Ump- Market Sizzles

3/23/2009 11:28:00 PM / Posted by Soullfire / comments (0)

The market held a major rally today on hearing the details on the new plan by Treasury Secretary Geithner to rid banks of their toxic debt.

It's not surprising that Wall Street took off like a rocket....

fp-trans-quotes3

The government is shouldering 85% of the debt for private investors that only need to put up 15%. In English, that means we the taxpayer are soaking up the bad debt with a risk 6X greater than the private enterprise that buys into these assets.

So the banks screw things up, and get to unload the vast majority of their crap on the US....which is "us"......nice. I just hope all this extra debt we are taking on doesn't lead to a bigger devil down the road - runaway massive inflation.

Perhaps this couldn't be helped in order to stave off a depression type scenario- but I do know this- I better see the government move to change the way things are run on Wall Street. No company should ever be "too big to fail". Those that are need to be reduced in size starting NOW.

CNBC Still Doesn't Get It - Stop Defending Wall Street over Main Street!

3/16/2009 06:04:00 PM / Posted by Soullfire / comments (0)

I just tuned into CNBC to see a congressman under attack from CNBC anchor Melissa Lee and another person for daring to attempt to tax the profits of AIG's 160 million bonus package they plan on shelling out to thier employees. At least Donny Deutsch was chiming in siding with the congressman.

What galled me most was Melissa's argument when Donny asked her who she was being so averse to Govt taxing those bonuses.

She said it was the governement's fault for giving AIG the money with no strings attached. Her exact words ended with "That's just the way the cookie crumbles...."

In the interest of remaining civil and not spouting a littany of 4 letter expletives, I'll try to keep composed.

It's the goverment's fault for for giving AIG money with no strings attached, and that's just the wau the "cookie crumbles"? Excuse me? Wasn't the help given out quickly with "no strings attached" due to all the companies AND CNBC proclaiming financial armageddon if we didn't give immediate help to the Wall Street firms and there was no time to delay and look at details? Now you have the utter gall to blame the governemnt for acting swiftly with little restrictions- what the hell is wrong with you Melissa?!?

Pardon me if I as a taxpayer have an issue with misuse of MY MONEY. Just because the government didn't tie a ton of restrictions to the initial bailout money does NOT give them free reign to do as they please with it.It's irresponsible actions like doling out millions in bonuses when under heavy goverment aid that invite tighter restrictions meing imposed. If a company can't or won't govern themselves properly, then they lose the right of autonomy when taxpayer dollars are involved.

This is want sickens me about CNBC and Fox Business and other slimy financial news networks. They're quick to come to the defense of Corporate America, and label government intervention as evil, but remain strangely silent when it comes to looking out for the interests of the average citizen.

Where was your sense of indignation when AIG and similar firms caused the melt down Melissa? You kept your mouth shut then, so kindly keep it closed now.

Six Figure Salaries

3/07/2009 05:51:00 PM / Posted by Soullfire / comments (0)

Did you know that only five percent of Americans earn a six figure income or higher?

Here are some jobs that pay that level with what it takes to get them (credit to writer Clare Kaufman):

Pharmacist

Earnings (2007): $48.31/hour $100,480 salary

Health care workers are gaining earning power by the day, as an aging population boosts demand for qualified professionals. Pharmacists play a critical role in long-term care regimens, dispensing medications and advising patients about their use, possible side effects, and interactions with other drugs. Demand for pharmacists is expected to grow by twenty-two percent through 2016.

Needed: Doctor of Pharmacy degree.
The qualification, which has replaced the bachelor's degree in Pharmacy, is much more accessible than a medical or doctoral degree. It begins with the standard two-year undergraduate core curriculum, followed by four academic years (or three calendar years) of professional pharmacy career training. About a quarter of the Pharm.D. program is dedicated to hands-on training in a clinical setting.

Actuary (Management & Technical Consulting)

Earnings (2007): $51.48/hour $107,080 salary

In the wake of two major economic bubbles--the 2001 tech revolution and the 2008 mortgage crisis--better risk analysis suddenly looks like a good idea. The private sector is already putting renewed emphasis on calculating and hedging risk. Actuaries specialize in risk assessment, analyzing statistical data to calculate the probability of different outcomes and forecast risk. 

Job opportunities look strong through 2016, with 24 percent growth predicted across the industry. The Department of Labor indicates the most optimism for health care and consulting firm jobs, where demand and earnings are highest.

Needed: Bachelor degree in Math, Statistics, Corporate Finance, Economics, or Business

Marketing Manager

Earnings (2007): $54.52/hour $113,400 salary

While engineers and industrial designers develop a company's goods and services, marketing managers determine how to make money from these products. Marketing professionals develop pricing strategies, monitor market trends, and oversee the presentation of the product. They are, in effect, the liaison between the company's product or services and its customer base. As a marketing manager, expect to add management and leadership skills to your job description.

Needed: Masters in Business Administration


High School Principal

Earnings (2006): $44.70/hour $92,965 salary

K-12 education administrators enjoy the perks of a teaching career--helping students, summers off--without the "labor of love" salaries. In fact, the administrators at the pinnacle of their profession earn close to six figures. High school principals develop and coordinate the school's program, implementing a curriculum, monitoring students' progress, and managing the school's budget.

Needed: Masters degree in Education Administration (M.Ed). Administrators often start their careers as teachers and work their way up to a leadership role as they gain the necessary experience and credentials.

Petroleum Engineer

Earnings (2007): $54.75/hour $113,890

Engineers command the highest starting salary among bachelor's degree holders--and petroleum specialists rank at the upper end of the engineering salary spectrum. Demand for qualified petroleum engineers is expected to soar in coming years, as energy issues dominate the national agenda. Petroleum engineers create and optimize methods of extracting and processing oil and gas.

Needed: Bachelors degree in Engineering with a program specializing in energy or petroleum engineering curriculum.

These jobs all need degrees, but there are also 6 figure jobs that don't- while I'll create a future post on.



The Grim News: U.S. jobless rate hits 25-year high at 8.1%

3/06/2009 11:37:00 PM / Posted by Soullfire / comments (0)

Another 651K jobs lost in February brings us up to these current record levels. In addition, the January jobs loss numbers were revised upwards to include an additional 161K jobs going bye bye.

Now here's the nasty little secret that's not being proclaimed loudly in the news- the 8.1% figure only reflects those who are receiving unemployment compensation. It doesn't include those who are under-employed, as in working a part time or lower wage job out due to the shrinking market as well as those who have given up looking for work and are no longer getting unemployment compensation. Include these folks and the "true" unemployment rate jumps to around 15%. Not good. It's at the point where just about everyone knows someone who has been impacted by layoffs, if not themselves.

The New Dollar Menu Grows



Company 3/6/2009 Closing Price Closing Price 1 Year Ago (3/6/2008)
American International Group: $0.35 $42.88



CitiGroup: $1.03 $21.17



General Motors: $1.45 $22.35



Bank of America: $3.14 $36.52



Alcoa: $5.22 $38.37



General Electric: $7.06 $32.86



Dell: $8.37 $19.43



American Express Company: $10.26 $41.29


Meanwhile the number failed banks going under FDIC continues to grow:

Bank Name Closing Date
Freedom Bank of Georgia, Commerce, GA 6-Mar-09
Security Savings Bank, Henderson, NV 27-Feb-09
Heritage Community Bank, Glenwood, IL 27-Feb-09
Silver Falls Bank, Silverton, OR 20-Feb-09
Pinnacle Bank of Oregon, Beaverton, OR 13-Feb-09
Corn Belt Bank and Trust Company, Pittsfield, IL 13-Feb-09
Riverside Bank of the Gulf Coast, Cape Coral, FL 13-Feb-09
Sherman County Bank, Loup City, NE 13-Feb-09
County Bank, Merced, CA 6-Feb-09
Alliance Bank, Culver City, CA 6-Feb-09
FirstBank Financial Services, McDonough, GA 6-Feb-09
Ocala National Bank, Ocala, FL 30-Jan-09
Suburban Federal Savings Bank, Crofton, MD 30-Jan-09
MagnetBank, Salt Lake City, UT 30-Jan-09
1st Centennial Bank, Redlands, CA 23-Jan-09
Bank of Clark County, Vancouver, WA 16-Jan-09
National Bank of Commerce, Berkeley, IL 16-Jan-09


That brings the failed bank count up to 17, in a little over 2 months into the new year. For comparisons, in 2008 there were a total of 25 banks that failed, and just 3 for the entire year of 2007.

I find it humorous that there are folks trying to blame Obama for this wreck even though he's only been in office for about all of 6 weeks and the market was already well into free fall under Bush. You really have to wonder about people who think things can magically change overnight with a new presidency- as in if McCain were elected instead, the current situation would be drastically different and life would be rosy. These folks need to get a dose of common sense - we didn't get here overnight, and no one should expect any quick fixes. The problem is too many people tend to ignore finances and have little understanding even now about what the problems are. Of course when the Fed Chief Bernanke continues to pump misinformation out like saying the economy may turn around next year when he really has no clue, it just makes it harder for people to get to the truth.

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Wall Street's "Way-Back" Time Machine: 1996 Revisted

3/02/2009 10:38:00 PM / Posted by Soullfire / comments (0)

Attention- Wall Street has possession of a bonafide time machine!

The year is 1996....

Top Hits:

1. Macarena (Bayside Boys Mix), Los Del Rio
2. One Sweet Day, Mariah Carey and Boyz II Men
3. Because You Loved Me, Celine Dion
4. Nobody Knows, Tony Rich Project
5. Always Be My Baby, Mariah Carey
6. Give Me One Reason, Tracy Chapman
7. Tha Crossroads, Bone Thugs-N-Harmony
8. I Love You Always Forever, Donna Lewis
9. You're Makin' Me High / Let It Flow, Toni Braxton
10. Twisted, Keith Sweat
11. C'mon N' Ride It (The Train), Quad City Dj's
12. Missing, Everything But The Girl

Top Ten News Headlines:


Israel elects Netanyahu
Crash of TWA Flight 800
Russia elects Yeltsin
U.S. elects Clinton
Hutu-Tutsi conflict in central Africa
Peace, elections in Bosnia
U.S. base bombed in Saudi Arabia
Centennial Olympic Games
Advances against AIDS
Unabomb suspect Ted Kaczynski arrested

S&P 500

October: ~ 700 in October

Wall Street has managed to return the S & P once again to October 1996 levels.
One year:


Ten year:




In the movie "Back to the Future", plutonium or lightning was used to power their time machine:



Wall Street's power source is a never ending supply of grim news such as this latest tidbit:

AIG records a 62 billion dollar loss for the 4th quarter of 2008- setting a new record of ALL corporate losses EVER reported.

Even better news- AIG reportedly offered out 500 billion in insurance obligations but kept only 10% in reserve as collateral....I guess they thought no one would ever need to collect on their insurance...

Not to worry through, since the US Govt is bailing out AIG yet again with an additional 30 billion dollar life line.

And people wonder why the arrow continues to point down.....

Whipsaw Wednesday

2/25/2009 09:52:00 PM / Posted by Soullfire / comments (0)

Today the market was falling...then moving up...then going down...then rising ........down again...a big up move to go positive for the day....only to fall again into the close:



There were more pronounced whips in separate stocks like my current short, AZO:




Whipsawing markets can beat up both Bulls and Bears.

Technical Bounce Tuesday

2/24/2009 09:36:00 PM / Posted by Soullfire / comments (0)

The market bounced today off the 7100 area support line, giving the market a reprieve from the continual declines.

If the 7100 area fails, which I think it eventually will, the next support level is around 6300..ouch!

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