Tuesday, March 31, 2009

Books (entertainment)

I know I talk a lot about tv in my blog but never really mention books. That's because I haven't really read a book in ages. I used to love books when I was a kid, but even then, I had a lot of trouble keeping focus. This was especially true of "classics". I read half of Beloved, half of The Great Gatsby, half of Flowers for Algernon, half of Oliver Twist, two chapters of To Kill a Mockingbird, two chapters of Red Badge of Courage, ten chapters of Moby Dick, and I'm sure there are more half-read classics but those are just the ones off the top of my head.

When I read fantasy/sci-fi books I read Terry Brooks (which some people deem "Tolkien lite") and never touched Tolkien or any of the Harry Potter books. I've bought a few non-fiction books over the last few years and the furthest I got was half-way through Friedman's The World is Flat. I do better with short story collections, including books about traders and gamblers, and most recently I found both of Chelsea Handler's collections of short stories quite enjoyable.

The reason I suddenly feel like talking about books is that I've noticed a lot of people on the subway lately with Kindles, Amazon's electronic book device. I've read terrific reviews about the Kindle and I think it'd make a great present for most people. However, if I were to kill time on the subway, I'd use my video IPod. Not only to catch up on tv shows that I've missed, but even if I wanted a book, I'd do an audiobook. My favorite is Anthony Bourdain's Kitchen Confidential. It's a great read that I highly recommend for anyone, but I think the audiobook is even better because his voice really brings life to the narration.

Sometimes I feel it's kind of a shame that I don't read much nowadays. As a kid I was at the library a good amount. I used to fill those Scholastic book order forms month after month. My favorite author was Agatha Christie. My favorite book of hers was the ABC Murders, because it was the first time I'd come across the plot of a murderer with one intended victim creating fake serial killings to cover his tracks, something that reappears now and again in tv and movies. My only problem was that I often found her solutions to be a little far-fetched. It wasn't to the point of deus ex machina, but it wasn't often that one could logically come to her conclusions. When I felt that I wanted a shot at solving the mystery, I read Encyclopedia Brown.

I've heard so many times how "the book was way better than the movie" in reference to the LOTR, Harry Potter, DaVinci Code and other modern classics adapted to the big screen. I find that these films are usually more than adequate, especially the ones with decent budgets. Maybe someone can recommend a book that is great, not too long, and won't be made into a movie?

Upcoming market news and GM (stock)

So even though it still feels like we're going to be range-bound, I read somewhere that there was a good amount of action on May volatility, and so I took a second look at what's coming up. This Thursday is supposed to be the meeting/results on whether they should make any changes to mark-to-market accounting. Next week is supposedly when they make a decision on whether to reinstate the uptick rule. As I've mentioned before, I'm not a fan of the uptick rule, but I heard somewhere that they were thinking about only applying it to stocks that are already down 10%, which I think is a good compromise. Finally, in late April, we will get the results of the bank stress test. I guess all of these have the potential to move the markets, though I doubt they will do anything that's completely unexpected.

The thing that I found most interesting about the White House automakers meeting over the weekend was that they got Wagoner to step down without guaranteeing support for GM. I would have understood it if they said that they would support GM but only if he stepped down, but to have him step down just so GM gets a 2 month extension? That seems to me like an admission of total failure. Then I thought about it some more and came to this conclusion. If Wagoner was offered the ultimatum of no support at all versus a 2 month extension to come up with a better plan if he steps down, I think it makes complete sense to take it. If GM is immediately forced into bankruptcy, the stock will be worthless. This way, he gets to exit out of his stock (whether he believes they'll come up with a viable plan or not) while it's still worth something, without having any inside information. If this was actually what happened, it's an offer he can't refuse.

I also heard from a coworker that a Congressman said on CNBC that GM is essentially a health care company that happens to make cars on the side, or something like that. We thought that was amusing and a great way to put it.

Sunday, March 29, 2009

Sideways (stock)

Not talking about the movie, even though I really liked it. Talking about the possible market direction in the near future. Both a successful coworker and I feel that something has changed in our day-to-day trading. We both feel there's been more clashing of orders and less one-directional flow, and think that the market has entered into a consolidation phase.

It makes sense to me in that there's not a whole lot in the near term that could trigger dramatic optimism or pessimism in the market. Back when the DOW was in the 6000's, there was fear that Citigroup or Bank of America wasn't going to last through a weekend. That fear does not feel like it will come back anytime soon. On the upside however, I look at where we are in relation to the bottom at 2002. While we are still below that level on average, I can't say that I believe the economy is stronger than that period of time in any way. A lot more has already been done by the Fed versus back then, leaving less room for further triggers to the upside. I don't see a reason why we should be at a higher level.

Even if we are going to be sideways or in a range for a while, the important question to most people is for how long? I'm not going to make any bold predictions here, but I'm going to point out something that I think is interesting. The VIX, even though it feels like it's come down a lot, is still at 40. This is still a historically high number, and if we do settle into a range, it might be a while before that number pulls down.

More mind-numbing goodness (tv)

As more and more of my favorite shows are finishing/have finished off their seasons (Psych, Burn Notice, Monk, Leverage, Damages, etc.), I find that there's more and more reality crap on my DVR (specifically VH1 reality crap). That being said, I think there are two solid shows that have just turned the corner. Dollhouse (FOX Fridays) is starting to develop more of a story arc now that Whedon gets to have full say over the direction of the show, instead of the earlier "client of the week" type episodes that Fox wanted. Reaper (CW Tuesdays) also feels like it's matured both from a writing standpoint and in terms of developing story arcs, even though it will almost always be a "monster of the week" type of show. The writing has been sharper on both shows than in previous episodes, and I enjoy having them on the DVR. I continue to watch Lost, House, and the Monday night CBS comedy lineup.

Speaking of House, it looks like Fox has finally jumped on board the "clone the show until people get tired of it" train. There are multiple CSIs and Law and Orders, so here's Fox's clone of its most popular scripted show, according to a Fox press release: "Mental follows the story of Dr. Jack Gallagher (Chris Vance), a dynamic, young psychiatrist who becomes Director of Mental Health Services at a Los Angeles hospital. There he must reconcile his effective, yet highly unorthodox treatment methods with his conservative boss, hospital administrator Nora Skoff (Annabella Sciorra), a woman with whom he shares a romantic past. As Gallagher takes on new cases, he is confronted with patients battling unknown, misunderstood and often misdiagnosed conditions. Gallagher delves inside their minds to gain a true understanding of who his patients are, allowing him to uncover what just might be the key to their long-term recovery."

Sunday, March 22, 2009

Wiiiiiiiiiiiiiiiiiiii (entertainment)

Since I'm not in a good position to support my main source of entertainment (gambling), I've decided to go back to playing video games. Today I stopped by the Nintendo World store in midtown and bought both the Wii Fit and Mario Kart. This should keep me busy for a while.

But the game I'm most looking foward to is Grand Slam Tennis (by EA Sports) to be played in conjunction with the Wii Motion-Plus addon. Both are planned for summer releases. Here's a basic summary: http://www.gamespot.com/wii/sports/grandslamtennis/news.html?sid=6205994 the line that caught my eye was, "In fact, the controls are so sensitive that you can roll the Wii Remote in your hands and the player will roll the racket in sync." Here's an awesome video with the producer to show what it's going to look and feel like: http://www.gamespot.com/wii/sports/grandslamtennis/video/6206181

Actually the above is not completely true. The game I'm most looking foward to is G1 Jockey Wii from Koei. Anyone who has read my blog knows that I'm a huge fan of horseracing, even though I think I only write those related posts for my own benefit. The game however, will only be released in UK and Japanese versions, so as much as I want this game, I won't be able to play it. But you HAVE to check out the trailer. it uses the wii fit board and everything. Watch the little guy "experience the thrill of real jockey action!"

Thursday, March 19, 2009

The Fed, buybacks, and currency (stock, economy)

Yesterday, the Fed announced a bold plan, including purchasing up to $300 billion in government bonds. My first reaction was one of confusion. The US Treasury creates money by issuing these bonds but the Fed is also printing money to buy them? As my friend explained to me, they're not necessarily going to buy newly issued ones, but ones that are already in the marketplace. My next reaction was that it sounds kind of like a stock buyback. Oh boy, that's not good.

I am very much against stock buybacks. I feel that it is a short-term manipulation that doesn't really help long term investors. Have you noticed how many companies were buying back loads of stock as the market went up, but that few of them are buying at these much lower prices? As I mentioned in a previous post, Trading vs. Investing 2, the open market is not a way to invest money directly into a company. Similarly, a corporation cannot invest in itself. It makes no sense to me why a company buys back shares at an open market price while raising cash at a discount to the open market price. It may boost numbers on paper and market metrics, but it weakens the company. Here is an interesting essay I found online about the fallacies of buybacks: http://www.capital-flow-analysis.com/investment-essays/buyback_fallacies.html

So will this plan be detrimental to us longterm? The aforementioned friend thinks so. In a battle against deflation, it's also very easy to set yourself up for hyperinflation. Noone can predict the future, but this move by the Fed will help some aspects of the economy in the near term, just like buybacks will boost a stock's price short term. This move should increase reserves in the banking system, which I feel is still the one thing the Fed is most worried about failing. The Fed doesn't really print money, as explained here: http://www.econbrowser.com/archives/2007/09/money_creation.html

This reminded me of a research paper I wrote back in senior year of college. It was about the cost of change, ie. lower denomination currency. It was a teaser of observations about the inefficiencies and limits of physical currency. Some points include:

People often would prefer to get rid of pennies instead of keeping them, yet the government continues to spend money to make them.

How people would feel if their employers suddenly decided to pay them their monthly salary in quarters.

Some denominations that some people feel are inefficient, such as the $10 bill and the fact that the largest US denomination is $100 (although I think that's for anti-smuggling purposes, considering that you're supposed to declare cash in excess of $10,000 through customs).

In the end, my conclusion was that it makes sense for us to move toward a cashless society. With the Fed and Treasury continuing to "create" large amounts of money by writing zeroes on a balance sheet, maybe this is a good time to move in that direction?

Wednesday, March 18, 2009

The whole AIG mess (stock)

I can't stand this whole "outrage" over AIG's (as well as other financial institutions') bonuses. To me, it's an example of wanting to have your cake and eat it too. As I've mentioned before, I'm a fan of nationalization for some of these institutions at this stage. But the government didn't want that. They didn't want to run these companies. They wanted to keep them afloat so that "the financial system doesn't crumble" while allowing business as usual. Well, this is business as usual. This is how they've always done things and I don't think the government is allowed to complain when they created this situation. I'm not saying that what AIG is doing is right, but that the government is also at fault. Strangely enough, I think the most sensible thing I've heard about this came out of Barney Frank's mouth yesterday when he said that the government needs to view themselves as owners and act accordingly. I agree with this. The government/taxpayers may not be full owners of AIG, but they own enough to try to put some new people on the board who represent their interests. They have to get all Icahn on this stuff.

I think a possible solution for situations like this is to set up a joint venture with a private equity firm. I understand that there probably are a lot of difficulties regarding feasibility and implementation, but this would solve a few problems. A joint venture takeover of AIG would allow new private money to flow in (with the government backstopping losses like earlier bank deals), allow an outside company to reorganize AIG so that the government doesn't have to do it, and let them pay a realistic premium to existing shareholders so that there's no panic about everyone's equity going to 0 on the occurrence of nationalization.

As far as "the financial system crumble" that would happen had they not bailed out AIG, a friend of mine thinks that AIG was bailed out because they had so much exposure to Goldman Sachs. I mean, if you look at the actual numbers, a good amount of the bailout money has gone to paying off bank counterparties with Goldman receiving a decent chunk of that money. He also thinks that they would have saved Lehman if Lehman had more Goldman exposure as well. Remember, one of the key guys making those decisions was Hank Paulson, an ex-GS CEO.

As far as how AIG got into this mess to begin with, here's an interesting story about how AIG's London office may have been where it all started and where all those CDS's were written without control over how much is lost if a loss occurs. http://abcnews.go.com/Business/Story?id=7045889&page=1

Saturday, March 14, 2009

Food shows I watch and master chefs (food, tv)

I don't watch cooking shows. I don't wish to replicate any recipes, and I am rarely wowed by the food being shown. The only exception is probably Lidia Bastianich's show, because her food looks so rustic and has that straight from her home passion to it. On the rare occasion when I do catch an episode of Iron Chef America, I usually just watch the presentation, eating, and judgement.

That being said, I do watch a lot of food shows. Shows that showcase fine food around the world that I might want to try some day. These are shows that I DVR because it's about food and its cultural importance. On the travel channel I watch Anthony Bourdain's No Reservations, Bizarre Foods with Andrew Zimmern, and to satisfy my inner glutton, Man vs. Food. On the food network, there is only one show I DVR. Diners, Drive-ins, and Dives is my favorite show because it's a great showcase of good American food and the people who make it and the how these places become such an important part of a neighborhood. There is great American food out there. It's just hard to find even in the US itself, let alone the food that gets sent overseas being presented as American food.

Then there are the restaurant related shows. I watch these to see top chefs trying to inspire with their passion for food and how the restaurant business works. I've mentioned before that I enjoy Ramsay's Kitchen Nightmares and Hell's Kitchen. Two other shows of this genre that I watch are NBC's new show, The Chopping Block, with Marco Pierre White, and Last Restaurant Standing on BBC America with Raymond Blanc.

These two chefs are not that well-known over here in the US, but both are amazing in their own way. Raymond Blanc has a two-Michelin star flagship restaurant in Oxford, and his passion for food can be seen very clearly throughout the show. I feel that he also truly cares about the people and tries his best to get the contestants to open their minds with regards to food and the business of running a restaurant. One of the most amazing things about him is that he never really worked under a master chef like many current top chefs have. He was also a key mentor to Marco Pierre White and took him to the next level. Here's a terrific article about the two of them reminiscing about MPW's year at Blanc's restaurant, Le Manoir: http://www.caterersearch.com/Articles/2007/09/05/315884/marco-pierre-white-dines-with-raymond-blanc.html

Marco Pierre White. Before he was on NBC wagging his finger and going, "tsk tsk tsk", he was the man who brought English cooking to the highest level. He was, at the age of 33, the youngest recipient of 3 Michelin stars (a record since broken in 2002) and perhaps the first mainstream celebrity chef. He retired in 1999, right before the celebrity chef boom, and so there are many Americans who do not know who he is. Like Kurt Cobain, there are people who question whether his legendary status was overhyped due to a short career, as opposed to a fad that was going to fade away at some point.

I knew of Marco from the early 90's, when a 4 episode documentary-type show was shown in Hong Kong. That show ran once in the UK before Marco pulled it off the air. He didn't want to be on TV. He wanted to be the chef. Thanks to the wonders of the internet and youtube, you can find all 4 episodes online. While the show order begins with him cooking for Albert Roux: http://www.youtube.com/watch?v=NfbbY30vyL0&feature=channel_page, I am most drawn to his meal with Raymond Blanc: http://www.youtube.com/watch?v=a-D8Wzqs-xc&feature=related . Just look at that amazing terrine, trotter, and dessert!! Please watch all 4 episodes if you love good food.

I found this series to be very interesting and strangely prophetic. He was only 27(!!!) at the time, and all the chefs knew that he was on his way to burning out at the pace he was going. There was also that part where MPW said that he wanted to be out of the business in 10 years and be in Italy. I also liked the part where he was blunt with Raymond about the fact that maybe 5% of his customers really knew and appreciated what was going on. Of course that number is much higher in the current culinary world than it was back then, but it's still probably on the low side. People don't understand guys like MPW. They understand guys like Jamie Oliver. But in terms of genius, I think they're worlds apart. It's also fun to watch a young Gordon Ramsay and Stephen Terry in his brigade. Heston Blumenthal also came through one of MPW's kitchens.

Speaking of Gordon Ramsay, I still like his shows and I believe he's the right fit for them. He's the drill sergeant. If you need a restaurant remade in a week or a 12 week crash course on becoming a head chef, he's your guy. But his lack of respect to other great chefs rubs me the wrong way. It's been noted that he's not had kind words to say about MPW, Blanc, or even Joel Robuchon. My guess is that he's jealous. You can tell he's worked really hard to get to where he is, but while the other ones have worked hard too, I feel they have more genius/talent in them and he's jealous of that.

Wednesday, March 11, 2009

How the system works (entertainment)

This comic illustrates pretty well how I feel about Congress' role during this financial crisis:


I'm tired of their stupid questions during these Congressional hearings and testimonies. Can't they at least go on wikipedia and learn a little about how the financial system works?

By the way, Saturday Morning Breakfast Cereal http://www.smbc-comics.com and Cyanide and Happiness http://www.explosm.net are two of my favorite comics and are updated very frequently. They are both so very crude and usually so very very wrong, but both are hilarious and I'm sharing them with you in the hopes that they will give you a nice chuckle right before you start hating yourself for enjoying their brand of humor.

Wednesday, March 4, 2009

One thing about the Oscars (entertainment)

I know it's a bit late, but I've only just recently come to this conclusion. I think the academy needs to stop giving out best actor awards to stars of biopics. While I haven't seen Milk and I did enjoy both lead actors' portrayals in Walk the Line and Ray, I just don't think it's acting in the purest sense.

I think that when an actor is given a character, it is the actor's job to make us believe that he/she is in fact that character. No matter how great Jamie Foxx's performance was, noone is going to say that he's Ray Charles. On the other hand, when Mickey Rourke played Randy the Ram in The Wrestler, I felt that he was that character. This is also why I thought Heath Ledger's Joker was so outstanding. He didn't need a backstory. He just was the Joker. And it made you want to know his backstory, but you'd only want to hear it specifically from him.

Trading vs. Investing 2: What a stock market investment really means (stock)

Way back when I wrote a post about what I thought was the difference between trading and investing http://ramblingsandgamblings.blogspot.com/2007/12/trading-vs-investing.html and I have generally received pretty positive feedback on it.

While having dinner with a friend last week, the topic came up of what market capitalization actually means. I thought this was interesting from a trading vs. investing perspective, and that this might be an issue that some people are confused about. Simply put, market capitalization represents the market value of all the outstanding shares of a company's stock. The two key points to take away from this are that it is the open market value of the outstanding shares.

The reason I emphasize these two points is that people often don't understand what they're actually investing in when they buy shares of stock on the open market. Yes, you theoretically have a piece of the company. You may have a right to vote. You may be entitled to dividends. However, your investment does not actually go to the company. Investing x amount of money on a purchase of stock does not mean that you're adding to the company's books and funding their R&D or their employees' salaries. The company already got their money from the initial offering of the stock, and can't make any more money from the same shares they already sold. So unless you are a subscriber to the initial offering, your money isn't a direct investment in the company itself.

Of course the company can issue more stock in a secondary offering. Again, if you are one of the actual subscribers, your money is going directly to the company. Secondary offerings are important because it is one of the few ways in which the company can take advantage of the market and their market capitalization to strengthen itself. However, sometimes a company doesn't take advantage and it becomes a big missed opportunity. For example, imagine a stock that was at $100 and exploded up to $300 within a year. As the market turned for worse, the stock returned to its $100 price, but if the company did not issue a secondary offering or use its shares in an acquisition, that tripling of the market cap meant nothing to the actual company's day-to-day operations.

A great example of an excellent secondary was Wynn Resorts (WYNN). Steve Wynn is a smart guy and the kind of shrewd CEO who knows what to do for the company without just being selfish and greedy. Back during the late summer of 2007, the stock WYNN ran up 60% in a 2 month span. The company came out with a secondary and raised $700 million in capital. Now the stock price is down at around $17.5 today (he managed to raise money again when WYNN fell to the mid$40s in the fall of 2008). When asked about the secondary back in 2007, he basically said the equivalent of, "The stock's gone up by more than half in 2 months, we figured we'd take advantage of it." (not a quote, I remember hearing this mentioned somewhere but I don't remember the source)

So the point I'm trying to make here is that when you invest in a growth stock by buying shares in the secondary market, you are essentially making a trade. The money you put in doesn't go to the company, any money the company makes probably goes back to R&D, and so you end up needing the company to become big enough such that someone else is willing to pay higher for it. An investment in a mature, dividend paying stock is a different matter I feel. Because you are constantly getting returns, it becomes an investment in the company's ability to make money, which cycles back to you instead of to the company itself.

This leads me to think about certain basic stock manipulations like stock splits. One of the reasons I always heard about why companies do stock splits is that by having a cheaper nominal value for a share of stock, it allows more people to invest in the company. But wait, this whole entire post is about how the money is not going to the company. So... the only thing it allows more people to do... is pay off the existing shareholders. You gotta wonder who's in those offices making these decisions.

Monday, March 2, 2009

The bottom of the market? (stock)

As we close today right at the 700 level in the S&P 500 and below 6800 on the Dow, it's getting to that time when people have been asking me whether the market is reaching a bottom. Even though we've continued to fall a lot in the recent weeks, whenever I ask other traders, most of them tell me that they've yet to sense capitulation in this market.

Capitulation is a sell-off categorized by extremely high volume and a sharp fall in prices. It represents when many market players just give up. Whatever the reason for giving up (technical levels, margin calls, etc.), many tend to view that right after capitulation is the best opportunity for a turnaround. For the shorts, capitulation triggers either the catalyst they've been waiting for or skews their risk/reward such that it makes sense for them to begin covering. For the people who have been waiting patiently to get into the market, the point when everyone else gives up is the best opportunity, as those who have a reason to sell have just sold and less downward pressure will follow.

In the last 7 trading days, the S&P 500 has fallen 10% (775 to 700) with average daily volumes about 40% higher than the average daily volume previously in 2009. This sharp fall and increase in volume might be signs that the capitulation we've been waiting for is already occurring or will happen very soon.

My guess as to a big part of why we've gone down methodically and without capitulation is that it's the government's (or whoever's in charge) fault. The S&P 500, which many perceive to be a bellwether for the American economy, is being weighed down by having a large chunk of financials in the index. As the government continues to refuse to nationalize certain banks, and continues to throw money into the abyss created by these financials, the stocks continue to have slow downward pressure on them and drag the whole market down. If they nationalize these banks or AIG, we can remove them from the index, and have a cleaner perspective on the American economy instead of continuing to track these anchors that pretty much are failed businesses at this point.

We have CNBC on during the day in the office even though we don't really pay attention much. I thought I heard Kudlow saying that because the government continues to throw taxpayer money at these institutions in exchange for equity, Americans are just going to end up owning a lot of penny stocks (Citigroup was at a low of $1.15 today).

How the &%(^$ do you lose 61 BILLION US dollars in a quarter?

If you borrow $150 billion and lose $61 billion in 3 months, it's not really a loan, is it, AIG?