Turning the Tide...

I know I've been neglecting my duties and not updating this blog recently, but with final exams and graduation looming, I wasn't able to focus on the markets or, really, on anything else.  I wish I could promise that was changing - that I'll be posting regularly - but I can't.  With the bar exam coming up in a few weeks, I  imagine that most of my time will be devoted to a meaningful and fulfilling task.  Still, I wanted to provide my thoughts on the state of the financial system before they became stale.  

The market is overpriced.  Seriously overpriced.  How did we make a recovery so fast?  I literally started studying for exams, and saw the market increase 800 points.  What's changed?  What should I do in the future? 

What's changed?  The public-private investment plan (PPIP) is coming out at some point. The plan is insane and tantamount to welfare for the rich.  That's not to say I think the plan won't work; I just wish I was rich enough to get the free money that PPIP gives you.  (In case you're not fresh on the details, the PPIP program planned on promoting private purchases of residential and possibly commerical mortgage backed securities by provding government-backed loans to private parties who would then purchase the MBS' from banks)  Still, the plan has been cutback recently in terms of funding to purchase securitized loans, and I've heard rumors that the plan was going to be eliminated entirely in terms of whole loans.  This can't be it!  It's not this easy!  We can't have turned the tide from the rims of a recession, the greatest since World War II, to a bull market so fast.

But haven't we?  The stock market is nearly back up to where it began in 2009.  Treasury bonds are offering greater yields as inventors are less risk-averse and more willing to spend money in corporate and private securities.  Apple is selling at $140 a share, and I've actually made money on my investment in a FAS, a leveraged, bullish, financial ETF.

What else has changed? I'm not really sure.  Consumer confidence is up a bit, and I'm sure there are some other positive indicators out there.  But what about all these structured derivaties?  What about all the securitiziation?  That hasn't changed.  People are still losing jobs, and homes are sitll being foreclosed upon, brining home values down even further and incentizing homeowners to just leave their homes and let them be foreclosed.  The stress tests the Obama administration conducted seemed scary - Citi bank could lose a $100 billion in the next two years on top of what it has already written down.  So where's all this positive news coming from?  No idea.

What should you do in the future?  Short stocks.  I think they're overvalued, especially the financials.  I'm going to sell FAS within the next few weeks, and probably buy FAZ, a bearish, financial deriviative.  I'm also thinking about buying some puts in Goldman and Apple.  Apple is getting Steve Jobs back, which can't hurt the firm.  It looks as though day-to-day managment will be in the hands of Tim Cook, but Jobs will at least improve morale at the firm.  Additionally, Apple seems set to release a new version of the iPhone and possibly drop prices even more.  All these things are good things, but I intend on shorting Apple.  Here's why:  Any new iPhone won't be as compelling as the last iPhone.  3G speed was really important on something that was arguably a laptop in your pocket, but video on my iPhone won't be.  Nor will additional hard drive, or faster processing, or copy and paste.  If Apple puts an incredible camera on the phone (5 MP, 3x optical zoom), that may compel some to change from their 3G to the new model, but absent that, people are happy with the 3G and won't rush to switch to a new phone (in a recession, especially).  Additionally, the 3G phone allowed you to take advantage of rebates and corporate plans which discounted the monthly price of the phone, while the original iPhone did not.  Thus, there was a financial incentive to switch to the new phone.  Steve Jobs may be back, but Apple's going to need some new products to sell.  The new iPhone shuffle doesn't look that great either.  Finally, a lower price will encourage some to switch to the iPhone, but most users who were willing to pay $100 were also willing to pay $200 for the device.

Time is my enemy, so I am going to stop writing.  But I'm bullish on Wal-Mart for basically the exact same reasons that I'm bearish on the market - if the recession continues, Wal-Mart will benefit. 

Here's to hoping my next post isn't too far away...

The End Of The Last Dot Com Juggernaut

I used to love eBay. It used to be fantastic. I cleared out my garage of lots of crap selling things on eBay. I sold neon lights, used video games, used clothes, coffee machines...anything you can think of. Sometimes people didn't pay, but I never got discouraged. I didn't just sell things on eBay though; I also bought alot of things. I bought used cell phones, used video games, and even grab boxes. What's a grab box you ask?  You must not have lots of time on your hands.  A grab box is just a bunch of random crap someone puts in a box and sells on eBay; the items in the box aren't related to each other but the seller doesn't want to list each item separately. I'd buy the grab box, inventory its contents, and then sell the items separately to make a tiny (and I mean tiny) profit. I arbitraged eBay auctions.  Come to think of it, after fees, there's good a possibility I lost money.

That was a long time ago though. eBay was good then.  It was made up of people selling things they had laying around their homes; it was a huge garage sale and you could get decent goods at decent prices.  Certaintly, there were occasions where people didn't pay for items they purchased or refused to ship items they sold, but overall, the system worked and everyone really liked it.  Now, eBay is a pain in the ass to use.  Most items are incredibly overpriced and overbought!  What person in his right mind is willing to bid $25.32 for a $25 best buy gift card?  More than that, eBay is now dominated by powersellers.  It's no longer the world's largest garage sale but rather, the world's largest mall of crap.  If you've ever been to Istanbul, its like the grand bazaar but you don't get to actually see the goods.

I still like eBay when I need to buy a few things:  tickets to baseball and basketball games...electronic cords that I need to replace...used books.

IRC 306

Does anyone understand what tained stock is?  Who wrote the IRC?  This is impossible.  I promise to resume posting often as soon as exams are over.

MIA

I won't be able to update for a few weeks, as spring break is starting and I'll be doing a bit of traveling.  Hope everyone doing the same has a blast!

The Uptick Rule

Barring unforeseen calamity or luck, I plan on being a lawyer and generally like rules.  They give me some range within which I can act, and more importantly, require a client to pay for the services of someone like me.  To that extent I'm generally in favor of rules, I'm in favor of the uptick rule.

But has the elimination of the uptick rule really been a factor in this financial mess?  Or, in the words of President Bartlett, does Wall Street believe in the phrase "post hoc, ergo propteur hoc (after it; therefore, because of it)."  The phrase essentially relates to a confusion of causation, and I think that may be what's going on here. 

The uptick rule requires someone that is shorting a stock (after having borrwed it) to sell the stock at a price immediately higher than the last sale price.  That is, if you want to short GE, and it last traded at $9, you'd have to sell the borrowed stock at $9.01.  That's my impression of the uptick rule at least.  I say this because while Wall Street and CNBC and Jim Cramer have been railing against the elimination of the uptick rule and saying how it is the cause of our financial crisis, no one has explained what it is (except Wikipedia).

What you'll hear on CNBC:

Correlation:  The SEC eliminated the uptick rule in July of 07. 

Causation:  Look at what has happened since

Notably, the SEC suspended the uptick rule in July of 04, and in the six month period following the suspension. the Dow rose about 300 points.  Nothing incredible, but nothing shabby.  If the elimination fo the uptick rule caused all this insanity, why didn't we see insanity back then?  Just more proof that you should vote for President Bartlett for reelection.