No new fed-ops today.


Operations waiting to mature: (sorted by days-to-maturity)

 Op Date   Delivery  Maturity  Op Type       Settlement     Matures   Amount 
 -------------------------------------------------------------------------- 
 12-09-08  12-10-08  01-07-09  Repo          1 Day Forward   7 days   20 bil 
 12-16-08  12-17-08  01-14-09  Repo          1 Day Forward  14 days   20 bil 
 12-23-08  12-24-08  01-21-09  Repo          1 Day Forward  21 days   20 bil 
 12-30-08  12-31-08  01-28-09  Repo          1 Day Forward  28 days   20 bil 
 12-30-08  12-31-08  01-28-09  Repo          1 Day Forward  28 days   20 bil 
 

No new fed-ops today.


Operations waiting to mature: (sorted by days-to-maturity)

Op Date   Delivery  Maturity  Op Type       Settlement     Matures   Amount 
 -------------------------------------------------------------------------- 
 12-09-08  12-10-08  01-07-09  Repo          1 Day Forward   7 days   20 bil 
 12-16-08  12-17-08  01-14-09  Repo          1 Day Forward  14 days   20 bil 
 12-23-08  12-24-08  01-21-09  Repo          1 Day Forward  21 days   20 bil 
 12-30-08  12-31-08  01-28-09  Repo          1 Day Forward  28 days   20 bil 
 12-30-08  12-31-08  01-28-09  Repo          1 Day Forward  28 days   20 bil 
 

Thanks dude.

I feel better now.

I'm getting dizzy watching the market go up and down.

Someone please make it stop bouncing.


Thanks.

function RevEngRSISeries( Series: Integer; Period: Integer; RSIVal: Float ): integer;
begin
var Bar, UC, DC, AUC, ADC, ExpPer: integer;
var sName: string;
var Value: float;

sName := 'RevEngRSI(' + GetDescription( Series ) + ',' + IntToStr( Period ) + ',' + FloatToStr( RSIVal ) + ')';
Result := FindNamedSeries( sName );
if Result >= 0 then
Exit;

ExpPer := 2 * Period - 1;
UseUpdatedEMA( true );
Result := CreateNamedSeries( sName );
UC := CreateSeries;
DC := CreateSeries;
for Bar := 1 to BarCount - 1 do
begin
if @Series[Bar] > @Series[Bar-1] then
@UC[Bar] := @Series[Bar] - @Series[Bar-1]
else
@DC[Bar] := @Series[Bar-1] - @Series[Bar];
end;
AUC := EMASeries( UC, ExpPer );
ADC := EMASeries( DC, ExpPer );
for Bar := Period to BarCount - 1 do
begin
Value := ( Period - 1 ) * ( @ADC[Bar] * RSIVal / ( 100 - RSIVal ) - @AUC[Bar] );
if Value >= 0 then
Value := @Series[Bar] + Value
else
Value := @Series[Bar] + Value * ( 100 - RSIVal ) / RSIVal;
SetSeriesValue( Bar, Result, Value );
end;
end;

function RevEngRSI( Bar: integer; Series: Integer; Period: Integer; RSIVal: Float ): float;
begin
Result := GetSeriesValue( Bar, RevEngRSISeries( Series, Period, RSIVal ) );
end;

{$I
'RevEngRSI'}

var yPos: Integer;
yPos := 8;

Procedure drawLab(lab1, lab2: string; labColor: integer);
begin

DrawText( lab1+' ', 0, 600, yPos, labColor, 9);
DrawText( lab2, 0, 680, yPos, labColor, 9);

yPos := yPos+14;

end;


Function getLastAsString(theSeries: Integer): String;
begin

var v: float;
v := round(GetSeriesValue(BarCount-1, theSeries)*100)/100;

Result := FloatToStr(v);

end;


Procedure drawRSI(rsiLabel: string; rsiPeriod, rsiSetting, rsiColor: integer);
begin

var theSeries: integer;
theSeries := RevEngRSISeries( #Close, rsiPeriod, rsiSetting);

drawLab(rsiLabel, getLastAsString(theSeries), rsiColor);
PlotSeries( theSeries, 0, rsiColor, #Thin );

end;


var RSILENGTH, RSIENTRYLONG, RSIEXITLONG, RSIEXITLONG2: Integer;
var START, DAYSINTRADE, BAR, P, PBB: Integer;

RSILENGTH := 5;
RSIENTRYLONG := 25; // Set this at 21, 25 or 30
RSIEXITLONG := 45;
START := 10;

//========================================

Var HighRsiSeries, LowRsiSeries: Integer;
HighRsiSeries := CreateSeries();
LowRsiSeries := CreateSeries();

HideVolume;

// RSI is smoothed, in other words, averaged bar to bar

// Create initial TotalUp and TotalDown
Var Diff, TotUp, TotDn: Float;
TotUp := 0;
TotDn := 0;

Var i: Integer;

For i := (Start-RSILength)+1 to Start Do Begin

Diff := PriceClose(i+1) - PriceClose(i);
If Diff > 0 Then
TotUp := TotUp + Diff
Else
TotDn := TotDn + Abs(Diff);

End;


For Bar := Start+1 to BarCount - 1 Do Begin

// Add in current bar into totals
Var HighUp, HighDn, LowUp, LowDn: Float;

// Create bar high
HighUp := TotUp * (RSILength-1);
HighDn := TotDn * (RSILength-1);
Diff := PriceHigh(Bar) - PriceClose(Bar-1);
If Diff > 0 Then
HighUp := HighUp + Diff
Else
HighDn := HighDn + Abs( Diff ) ;

HighUp := HighUp / RSILength;
HighDn := HighDn / RSILength;

// Create bar low
LowUp := TotUp * (RSILength-1);
LowDn := TotDn * (RSILength-1);
Diff := PriceLow(Bar) - PriceClose(Bar-1);
If Diff > 0 Then
LowUp := LowUp + Diff
Else
LowDn := LowDn + Abs( Diff ) ;

LowUp := LowUp / RSILength;
LowDn := LowDn / RSILength;


// Calculate RSI values
Var RsiHigh, RsiLow: Float;
RsiHigh := 100 - (100 / ( 1 + (HighUp / HighDn))) ;
RsiLow := 100 - (100 / ( 1 + (LowUp / LowDn))) ;

// Store into price series
SetSeriesValue(Bar, HighRsiSeries, RsiHigh);
SetSeriesValue(Bar, LowRsiSeries, RsiLow);

// Update TotUp, TotDn for this Bar
TotUp := TotUp * (RSILength-1);
TotDn := TotDn * (RSILength-1);
Diff := PriceClose(Bar) - PriceClose(Bar-1);
If Diff > 0 Then
TotUp := TotUp + Diff
Else
TotDn := TotDn + Abs( Diff ) ;

TotUp := TotUp / RSILength;
TotDn := TotDn / RSILength;

End; // End For


// Plot RSI
Var RSIPane: Integer;
RSIPane := CreatePane( 075, true, true );
Plotseries( HighRsiSeries, RSIPane, #red, #thin );
Plotseries( LowRsiSeries, RSIPane, #green, #thin );
//Plotseries( RSISeries(#close, RSIlength ), RSIPane, #blue, #thin );
DrawText( 'RSI(5) High/Low', RSIPane, 4, 4, #black, 10 );
DrawHorzLine(RSIentryLong, RSIPane, #green, #dotted );
DrawHorzLine(RSIexitLong, RSIPane, #red, #dotted );


drawRSI('RSI(5) at 50', 5, 50, #Red);
drawRSI('RSI(5) at 25', 5, 25, #Green);
drawRSI('RSI(14) at 30', 14, 30, #Fuchsia);


var BBUp, BBLow, MA: integer;
BBUp := BBandUpperSeries( #Close, 20, 2 );
BBLow := BBandLowerSeries( #Close, 20, 2 );
MA := SMASeries( #Close, 20);

PlotSeries( MA , 0, #Blue, #Dotted );
PlotSeries( BBUp, 0, 559, #Thin );
PlotSeries( BBLow, 0, 559, #Thin );

drawLab('BBands(20,2)', getLastAsString(BBLow)+', '+getLastAsString(MA)+', '+getLastAsString(BBUp), #Blue);

Cool. Glad you liked it.

-Chris

Rules for Living from Nassim Taleb


The Author of Fooled by Randomness and The Black Swan has some suggestions for you:

       Taleb's top life tips

       1. Scepticism is effortful and costly. It is  
        better to be sceptical about matters of large  
        consequences, and be imperfect, foolish and  
        human in the small and the aesthetic.

       2. Go to parties. You can't even start to know  
        what you may find on the envelope of  
        serendipity. If you suffer from agoraphobia,  
        send colleagues.

       3. It's not a good idea to take a forecast from  
        someone wearing a tie. If possible, tease  
        people who take themselves and their knowledge  
        too seriously.

       4. Wear your best for your execution and stand  
        dignified. Your last recourse against  
        randomness is how you act -- if you can't  
        control outcomes, you can control the elegance  
        of your behaviour. You will always have the  
        last word.

       5. Don't disturb complicated systems that have  
        been around for a very long time. We don't  
        understand their logic. Don't pollute the  
        planet. Leave it the way we found it,  
        regardless of scientific ‘evidence'.

       6. Learn to fail with pride -- and do so fast  
        and cleanly. Maximise trial and error -- by  
        mastering the error part.

       7. Avoid losers. If you hear someone use the  
        words impossible, never, too difficult  
        too often, drop him or her from your social  
        network. Never take no for an answer  
        (conversely, take most yeses as most  
        probably).

       8. Don't read newspapers for the news (just for  
        the gossip and, of course, profiles of  
        authors). The best filter to know if the news  
        matters is if you hear it in cafes,  
        restaurants... or (again) parties.

       9. Hard work will get you a professorship or a  
        BMW. You need both work and luck for a Booker,  
        a Nobel or a private jet.

       10. Answer e-mails from junior people before  
        more senior ones. Junior people have further to  
        go and tend to remember who slighted them.

Ok, to get the wealthlab charts to work, change the "www" to "wl4" in the address, like this:

[ chart ]www.wealth-lab.com/cgi-bin/WealthLab.dll/wlchart?id=37517&width=970&height=570&sym=^spx[ /chart ]


to this:

[ chart ]wl4.wealth-lab.com/cgi-bin/WealthLab.dll/wlchart?id=37517&width=970&height=570&sym=^spx[ /chart ]

-del-

Hi Susie.

Naw, the repubs are going to take the senate and house. It will be a permanent republican majority. As soon as Cheney starts bombing Iran, its over for the dems.

Wave the flag for more tax cuts!

Go Bush!

informative posts? i think you give me way too much credit...

lol... i wish i were talented enough to write a haiku

through the
forest and

to the woods

the sound
of familiar

trees

the sound0Aof familiar0A0Atrees0A

Reminiscences of a Stock Operator






Michael Covel's site (he's the author of Trend Following) offers up a full PDF of Jesse Livermore's bio 'Reminiscences of a Stock Operator'. Its now in the public domain

Its one of the best market based books you will ever read . . .


complete PDF



Permalink

 
 	JHUDZ	QYBCX	QYBCD	 
 				 
 Type	RNVS	OXPS	OXPS	 
 	APR 2007	MAR 2007	MAR 2007	 
 	2.5 Call	22.5 Call	20 Call	 
 				 
 Bid/Ask	0.8/1	1.9/2	3.5/3.6	 
 Delta	0.7883	0.5727	0.7721	 
 Gamma	0.2158	0.0883	0.0635	 
 				 
 1.00	1.69	2.52	4.32	 
 0.90	1.61	2.47	4.24	 
 0.80	1.53	2.41	4.17	 
 0.70	1.45	2.35	4.09	 
 0.60	1.37	2.29	4.01	 
 0.50	1.29	2.24	3.94	 
 0.40	1.22	2.18	3.86	 
 0.30	1.14	2.12	3.78	 
 0.20	1.06	2.06	3.70	 
 0.10	0.98	2.01	3.63	 
 				 
 0.00	0.90	1.95	3.55	 
 				 
 -0.10	0.82	1.89	3.47	 
 -0.20	0.74	1.84	3.40	 
 -0.30	0.66	1.78	3.32	 
 -0.40	0.58	1.72	3.24	 
 -0.50	0.51	1.66	3.16	 
 -0.60	0.43	1.61	3.09	 
 -0.70	0.35	1.55	3.01	 
 -0.80	0.27	1.49	2.93	 
 -0.90	0.19	1.43	2.86	 
 -1.00	0.11	1.38	2.78	 
 				 
 				 
 Loaded	1/2/2007	1/2/2007	1/2/2007	 
 	3:02:27 AM ET	3:02:33 AM ET	3:02:39 AM ET	 
 				 
 

To be clear, i think there are plenty of reasons to be bearish, but i'm trying to find at least a few reasons to be bullish on tech.

I won't make any predictions about winners because of Vista. Too dicey. I'm not seeing a lot of pent up demand. But never under estimate the power of Microsoft's marketing budget.

Not a prediction, but i do think a couple of software companies that make security software could get hurt by Vista.

 
 	JHUDZ	QYBCX	QYBCD	 
 				 
 Type	RNVS	OXPS	OXPS	 
 	APR 2007	MAR 2007	MAR 2007	 
 	2.5 Call	22.5 Call	20 Call	 
 				 
 Bid / Ask	0.8 / 1	1.9 / 2	3.5 / 3.6	 
 Delta	0.7883	0.5727	0.7721	 
 Gamma	0.2158	0.0883	0.0635	 
 				 
 1.00	1.69	2.52	4.32	 
 0.90	1.61	2.47	4.24	 
 0.80	1.53	2.41	4.17	 
 0.70	1.45	2.35	4.09	 
 0.60	1.37	2.29	4.01	 
 0.50	1.29	2.24	3.94	 
 0.40	1.22	2.18	3.86	 
 0.30	1.14	2.12	3.78	 
 0.20	1.06	2.06	3.70	 
 0.10	0.98	2.01	3.63	 
 				 
 0.00	0.90	1.95	3.55	 
 				 
 -0.10	0.82	1.89	3.47	 
 -0.20	0.74	1.84	3.40	 
 -0.30	0.66	1.78	3.32	 
 -0.40	0.58	1.72	3.24	 
 -0.50	0.51	1.66	3.16	 
 -0.60	0.43	1.61	3.09	 
 -0.70	0.35	1.55	3.01	 
 -0.80	0.27	1.49	2.93	 
 -0.90	0.19	1.43	2.86	 
 -1.00	0.11	1.38	2.78	 
 				 
 				 
 			 
 <PRE>

A reason to be bullish on PC stocks in '07: Vista



Feeding Frenzy: Digital Rights Management is really just an ecosystem for selling our own stuff to us again and again.


Several readers asked me to comment this week on a very entertaining blog post from New Zealand: A Cost Analysis of Windows Vista Content Protection, by Peter Gutmann (it is in this week's links). The essay characterizes the Digital Rights Management in Windows Vista as a suicide note from Microsoft because Vista's DRM is so draconian and is built into the hardware on such a low level that it is going to piss off the market and ultimately hurt (possibly even destroy) Microsoft, itself.

Except it won't.

This is Microsoft attempting to lead a revolution by running from behind. They didn't invent any of it, but they still want to control it. In order to make that kind of move a success, you have to mobilize immense resources primarily for the purpose of bribing potential partners into becoming partners, which is exactly what Microsoft is attempting to do. And the bribe comes in the form of exactly the currency for which both Big Media and the consumer electronics industry yearn for -- new stuff.

The most sublimely yet stupidly profitable periods for the recording and movie industries, respectively, were when music transitioned from vinyl records to Compact Discs and when home video transitioned from VHS cassettes to DVDs. Everybody bought new stuff -- the same stuff we already had but rebuilt using the new technology. We replaced our record collections with CDs and our video tape collections with DVDs -- exercises that generated untold billions for record companies and movie studios without any risk at all because all they were doing was repackaging established hits.

Having been through these seminal experiences in the 1980's and 1990's respectively, of course they now want to do it all over again, which Microsoft proposes to assist through their DRM technology.

But this desire to sell all new stuff goes far beyond movies and music and Microsoft, all the way to the televisions and stereo systems upon which these old hits are played. This is an especially exciting time for TV manufacturers, because they have never really been in a position to participate in such a feeding frenzy. In the U.S., the old NTSC video standard made all video content backward compatible right up until today. You can still watch American Idol just fine, for example, on an old DuMont TV from 1948, but not for much longer.

And it is not just TV and stereo manufacturers who want in on the game: PC hardware vendors, too, are eager to sell us all new parts, just as they always have been.

And into this confluence of greed and shared interest strides Microsoft and Bill Gates promising a technical solution that gives every potential partner exactly what they want. Content owners get a chance to sell everything over again and this time they'll be supposedly protected from piracy. Everyone will have to buy a new TV with an HDMI connector as well as all new video and stereo components of every type, just so long as they, too, use strictly HDMI connections. Problems of deliberate signal degradation and driver horrors will make all video cards and most processors obsolete, so we'll have to buy all new PCs. Mr. Gutmann characterizes this lack of backward compatibility or any shred of technical elegance as suicidal on Microsoft's part when, in fact, it is Microsoft's best imitation of brilliance.

Intel and AMD love it. ATI and nVidia love it. Thomson and Philips and Sony and Matsushita and Samsung and LG love it. Every movie studio, TV network, and record company loves it. The only people who don't love it are consumers, and neither industry nor government really cared much about them, ever.

Ironically, even the class of nerds represented by Mr. Gutmann loves it, because they LIKE to buy new stuff, too, even if they bitch about having to do so at the same time. In fact, that makes it even better because they can buy new stuff, complain about having to do so, and of course try to hack their way around the DRM technology all at the same time. Is this an anti-Linux strategy on Microsoft's part? Sure! Does it really bother the Linux vendors? Heck no, because they get to sell new stuff, too!

Remember that, as I wrote in an earlier Vista column just a few weeks ago, the OS (just as every earlier release of Windows) is entirely about getting people to buy new computers and that any lip service to upgrading current equipment is just that, lip service. If you want a Windows Vista media PC to deliver high-quality video and audio with no driver problems, just buy a new Windows Vista media PC from some big vendor like Dell, HP, or Sony and match it with other big-vendor stereo and video components that use strictly DRM-preserving HDMI connectors and therefore create no points of signal degradation along the path from hard disk to eye or ear.

And to a certain extent we'll all go for it, too, because this is, for the most part, virgin territory. Most of us don't yet have media PCs OR HDTVs, so an all-HDMI strategy isn't crazy at all. And if the strategy appears to be anti-Linux or anti-Mac, that's only discriminating against 4 percent of the market, right?

So I simply don't buy Mr. Gutmann's argument. Microsoft's DRM strategy isn't a suicide note at all.

But that doesn't mean Microsoft will succeed with it and in this case IT refers to Microsoft's hope to take from Howard Stern the title King of All Media.

For one thing, Windows Vista will fail as both a preserver of digital rights and a maintainer of pristine end-to-end DRM'd content. Vista will fail because the job it is attempting to do is too hard, because Microsoft isn't especially good at these huge integration jobs, and because there is a smart hacker community determined to break Vista over and over again, which it will.

None of this means that Microsoft won't succeed in its real goal of maintaining PC market dominance. But the real threat to Microsoft in the mid- to long-term is Redmond's concentration on Big Media as the key source of content and that is bound to fail in time.

We are poised at the start of a revolution in user-generated content that is actually both useful and valuable. Social networking's ability to create small but measurable markets and new content creation technologies' ability to make cost-effective -- even brilliant -- programming for those new markets will mean more media moguls but smaller and none of those moguls will have a use for DRM OR for Microsoft. So enjoy it while you still can, Bill.


http://www.pbs.org/cgi-registry/cringely/mt-xsearch.cgi?blog_ids=10,12,13&search_key=Tags&de...

Nasdaq Trend Break

I started out in this business as a trader, and one of the first rules they teach you is "the Trend is your friend."

I was a decent trader, but always curious as to why this or that was happening. When the opportunity arose to explore these issues on the research side (many years ago), I jumped on it.

One of the more difficult aspects of transitioning from gunner to macro strategist is reconciling the short term technical aspects of the market (1-3-6 months) with the longer term macro environment. Since July, we have seen a decaying macro picture concurrent with a strong market trend. If you follow both, it can make you schizoid.

As a Trader, you don't care about the macro -- your timescale and benchmarks are much shorter. If you are an Economist or Equity Strategist, you are not supposed to care about the shorter term trend.

I try to use both disciplines. If I ignored the trend, then based on the macro picture, I would be totally short -- and getting killed. If I ignored the decaying macro, then I would be leveraged totally long -- and likely to get slaughtered sometime in the future.

Which leads us to today's chart: The SPX and the Dow remain firmly in their trend channels, in place since July. Nasdaq, on the other hand, has broken its trend. That implies increasing potential near term for downside in the NDX.

Note also that yesterday was the last day for Mutual funds to make purchases that will show up on their books for 2006 (T+3). Wednesdays trades will clear by Friday; Anything bought today or tomorrow will not clear until 2007.


SPX & Nasdaq, Equivolume Chart, 6 Months



chart courtesy of Dick Arms


Note: Expect the markets to be closed -- either a whole or half day -- for President Ford's funeral service likely to be Tuesday.


Source:
Uptrend Hangs by a Thread
Dick Arms
RealMoney.com, 12/27/2006 9:09 AM EST
http://www.thestreet.com/p/rmoney/technicalanalysis/10329707.html



Permalink

Not yet.


I've read Elders's "Trading for a Living".

Best book on trading i've seen.

"In truth, most professional Wall Street traders have made many trading mistakes, according to trading experts. The key to their eventual success, however, is that the professionals study their mistakes and learn how to minimize them going forward. It's all right to make mistakes. If you aren't making mistakes, you aren't learning. But it's absolutely unacceptable to repeat those mistakes."

-Dr. Alexander Elder, psychiatrist and author of Come Into My Trading Room.

Don't think heliocopter Ben will have much of a choice but to cut rates next year. The mess that Greenspan built is going to have some real problems, as folks run out of their cash-out loan money.




Debt and its Discontents

Lots of Bulls -- and quite a few commenters here -- agree there is a worldwide boom going on. What is fueling it, you may ask? Organic growth? Government stimulus? Innovation? An expanding economy? China?

Well, all of that contributes. These items have had an impact. But the biggest factor by far, according to MacroMavens' Stephanie Pomboy, is, in a word, Debt:

       IT ISN'T MONEY OR LOVE THAT MAKES the world go  
        'round -- it's debt. That's certainly true of  
        this blessed land of ours. At last count, Uncle  
        Sam was in hock to the tune of $4 trillion or  
        so, and every day the big fellow borrows a ton  
        more. According to Goldman Sachs, the U.S.  
        private sector, not to be outdone, in the first  
        three quarters of this year has been borrowing  
        like mad as well and runs a financial deficit  
        of 4% of GDP, second only to 2000's peak 5½%  
        shortfall.

       Debt and its discontents also happens to be the  
        theme of Stephanie Pomboy's latest MacroMavens  
        commentary. But her focus, while large in  
        potential import for the economy, the markets  
        and the legions of poor souls who have borrowed  
        neither wisely nor well, is more specific and  
        provides insight into how the consumer has  
        managed to keep bubbling along without the easy  
        access to cash and credit his house provided.

       Pure and simple, as a source of funds, Jane and  
        John Q., with the well gone dry on the home  
        equity front, have turned to plastic. They've  
        also increasingly frequented other such  
        usurious lenders as pawnshops, check cashers  
        and that ilk -- which she dubs payday lenders  
        -- where customers typically pay $793 for a  
        $325 loan.

       Stephanie reports that while home-equity loans  
        have dwindled to a mere sliver of their former  
        bulge, credit-card borrowing has been zooming,  
        accounting or 47% of the increase in total  
        consumer credit.

       As to the payday lenders, they're enjoying a  
        truly big payday: Their 33,000 storefronts  
        exceed in number the outlets of McDonald's,  
        Burger King and Wendy's combined.

       The top five payday lenders -- America Cash  
        Advance, Cash America, Dollar Financial, EZCORP  
        and ACE Cash -- do an aggregate $2.3 billion in  
        revenues; that's 50% more than they did a scant  
        three years ago. Stephanie muses, though, that  
        perhaps business is too good and "it's just a  
        matter of time before their embarrassment of  
        riches attracts the attention of the  
        regulators."

       As for the credit-card lenders, she predicts  
        that it's just a matter of time, too, before  
        what has laid the subprime lenders low affects  
        them. "It's a little thing," she explains,  
        "known as 'adverse selection,' " of borrowers.  
        The irony is that while "their home-equity  
        lending counterparts are beginning to turn down  
        risky borrowers, the credit-card companies are  
        rolling out the red carpet for them."

       At this point, Stephanie suggests, investors  
        might do worse than to short, and certainly  
        underweight, the stocks of credit-card outfits,  
        while going long subprime lenders; short the  
        shares of regional banks and mortgage brokers  
        and go long or add to positions in Fannie Mae,  
        which regulators, by restricting its lending  
        capacity, have predictably impaired housing  
        liquidity in general when housing needs it  
        most, but lessened Fannie's own vulnerability  
        to the shakeout in mortgage credit.

Merril Lynch expects aggressive rate cuts in 2007/2008


David Rosenberg, Merrill Lynch North American Economist, made the following comments regarding his interest-rate outlook for 2007-2008:

The main economic theme we continue to highlight in 2007-2008 is a sharper slowdown in consumer and business spending than the consensus expects. Consequently, we continue to adhere to a view of a more aggressive sequence of Federal Open Market Committee (FOMC) interest-rate cuts than both the markets and the consensus expect.

http://askmerrill.ml.com/res_article/1,2271,19619,00.html

Stocks -- Coach Class of Capitalism: Michael Lewis (Update1)

By Michael Lewis

Dec. 11 (Bloomberg) -- One of the miracles of Wall Street is its ability to create a class system without class resentment.

At any given time in the capital markets there are at least two sets of rules -- one for the rich and well-connected, another for the middle class, the Wall Street proletariat. The upper class rides in the front of the plane with their venture capitalists and hedge-fund managers; the proles ride in the back, with the mutual-fund managers.

There is, you might think, a war waiting to happen between the Haves and the Have-Mores. And yet no one much complains. One group of people simply expects to earn 20 percent or more per annum on their capital, the other is more or less content when their mutual fund underperforms the market only slightly.

That's not to say that the proles from time to time don't work themselves into a tizzy. When some Wall Street analyst is getting caught speaking ill in private of a company he has promoted in public -- especially if he is caught immediately after a general stock market collapse -- the proles take to the streets with their pitchforks and torches.

But they don't seem to be disturbed by the inequality inherent in the financial markets in good times. So long as common stocks are rising and their money isn't obviously stolen -- that is, so long as the proletariat enjoys steady, if unspectacular, returns on its capital -- the investment lower class is surprisingly docile. It's as if the pleasure of any return at all has distracted investors from a comparatively low rate.

Reshaped Markets

But it's going to be hard to keep them distracted. In the past few years the financial markets have reshaped themselves in the most extraordinary ways, and put an even finer point than usual on the class distinctions inside them. The upper class is now serviced by a vast and growing industry, loosely called Private Equity.

The job of the private-equity investor is -- again, speaking loosely -- to exploit the idiocy of the ordinary investor, and the corporate executives and mutual-fund managers who purport to serve him. Private Equity Intelligence says this year private-equity firms have raised $300 billion, up from $283 billion for all of last year -- which is up from an ignorable $10 billion or so 10 years ago.

Even those gargantuan numbers fail to do justice to this peculiar financial event. Private equity is not served up without piles of debt -- the typical debt-to-equity ratio of a company after it has been bought by a private-equity firm is 2- to-1 --and so the actual purchasing power in the hands of private equity fund managers is something like three times as much as they have in their bank accounts. It's as if a giant and especially successful new stock market has been created alongside the old one. But to invest in this new market you must already be rich, and well-connected.

A New Field

What's odd about this is that so much of the financial drama of the past five years -- the rise of Eliot Spitzer, the Sarbanes-Oxley law, the muckraking in the financial press -- has been staged, ostensibly, to level the playing field on Wall Street. But the players have responded by building a new field, apart from the old one.

The regulation, by raising the cost of doing business to public companies, has had the perverse effect of reducing the value of a company simply because it IS public, and thereby creating further incentive to take it private. Sarbanes-Oxley has done many things, but one of them is to create a lot of cheap assets for private-equity firms to buy.

It has also helped to make the relationship between the upper class and the proles more explicitly parasitical than it usually is.

Sorry Souls

The recent deal to buy, and then sell, the car-rental company Hertz Global Holdings Corp. nicely illustrates the current state of play in that relationship. In December 2005, a pair of private-equity firms, Clayton Dubilier & Rice Inc. and the Carlyle Group, bought Hertz from the Ford Motor Co. -- which is to say they bought it from the sorry souls who own shares of Ford. Eleven months later, in November 2006, they turned around and sold Hertz back to the proles in an initial public offering.

In buying the company they put up $2.3 billion in equity capital. By the time they sold it they had gotten $1.3 billion of their money back, and held shares -- which they no doubt plan to get rid of as soon as they can -- valued at another $3.5 billion or so. In less than a year they had netted a fairly clean $2.5 billion profit.

I suppose one might argue that it isn't as simple as that - -for instance, that it is riskier to invest money through a private-equity firm than it is to invest in common stocks, and so the private-equity investor is merely being paid for the added risk. But it's hard to see how Hertz is a riskier investment simply because it is owned by the Carlyle Group and not by Ford.

Buy Cheap, Sell Dear

In effect, the smartest, best-connected money has separated itself from the rest of the stock market, and has gone into the business of trading against that market. It seeks to buy from the stock market cheap, and sell to the stock market dear, and if you need evidence that this is possible you need only look to the returns on private equity, which have been running three times the returns of the public stock market.

With the shrewdest and most sophisticated investors armed with essentially unlimited capital, any company that is available to the public is almost by definition an inferior asset, i.e., an asset that the private-equity people have no interest in. We may not have arrived at the point where the publicly traded shares in a company are a sure sign that those shares are a poor investment. But that's the obvious, ultimate destination.

Which raises the question: Why do the proles continue to invest in publicly traded companies? And the obvious answer is: They have no choice.

One day the private-equity markets may expand to the point where even proles are offered a little piece of the action. That will be the day the action is no longer worth having. Trust me. The ordinary investor is now and forever cast in the role of the peasant at the king's banquet. He's so happy to have any food at all that he fails to notice that bone between his teeth isn't the meal. It's the scraps.

(Michael Lewis, the author, most recently, of ``The Blind Side,'' is a columnist for Bloomberg News. The views he expresses are his own.)

To contact the writer of this column: Michael Lewis in Berkeley, California at mlewis1@bloomberg.net .


http://www.bloomberg.com/apps/news?pid=20601039&sid=a0wzLWr5Lbm8&refer=columnist_lewis

OT:

Craigslist Meets the Capitalists

Jim Buckmaster, the chief executive of Craigslist, caused lots of head-scratching Thursday as he tried to explain to a bunch of Wall Street types why his company is not interested in “monetizing” his ridiculously popular Web operation. Appearing at the UBS global media conference in New York, Mr. Buckmaster took questions from the bemused audience, which apparently could not get its collective mind around the notion that Craigslist exists to help Web users find jobs, cars, apartments and dates — and not so much to make money.

Wendy Davis of MediaPost describes the presentation as a “a culture clash of near-epic proportions.” She recounts how UBS analyst Ben Schachter wanted to know how Craigslist plans to maximize revenue. It doesn’t, Mr. Buckmaster replied (perhaps wondering how Mr. Schachter could possibly not already know this). “That definitely is not part of the equation,” he said, according to MediaPost. “It’s not part of the goal.”

“I think a lot of people are catching their breath right now,” Mr. Schachter said in response.

The Tech Trader Daily blog ponders this question: “If YouTube was worth $1.65 billion, who knows what Craigslist would be worth if Jim and [site founder] Craig Newmark ever considred becoming — what’s the word? — capitalists.”

Craigslist charges money for job listings, but only in seven of the cities it serves ($75 in San Francisco; $25 in the others). And it charges for apartment listings in New York ($10 a pop). But that is just to pay expenses.

Mr. Schachter still did not seem to understand. How about running AdSense ads from Google? Craigslist has considered that, Mr. Buckmaster said. They even crunched the numbers, which were “quite staggering.” But users haven’t expressed an interest in seeing ads, so it is not going to happen.

Following the meeting, Mr. Schachter wrote a research note, flagged by Tech Trader Daily, which suggests that he still doesn’t quite get the concept of serving customers first, and worrying about revenues later, if at all (and nevermind profits). Craigslist, the analyst wrote, “does not fully monetize its traffic or services.”

Mr. Buckmaster said the company is doubling in size every year, as measured by page views and listings.

Larry Dignan, writing on Between the Lines blog at ZDNet, called Mr. Buckmaster “delightfully communist,” and described the audience as “confused capitalists wondering how a company can exist without the urge to maximize profits.”

Realtime Data to the Mobile Handset

I've been pushing realtime relentlessly here, but I haven't made the connection to mobile as often as I should have. Let me be clear: Most of the more interesting realtime apps going forward will bring realtime's immediacy to mobile.

I could give you myriad examples from two stealthy projects with which I'm involved, but I'll settle for pointing you to a news release from the New York Board of Trade. Its NYbotLive service is now mobile, with live commodity and option price data being streamed to subscribers using a Blackberry or equivalent.

Welcome to the next generation crackberry. It's not going to be just email anymore.

http://paul.kedrosky.com/archives/2006/12/15/realtime_data_t.html

Parsing the FOMC Statement


Via the public section of the WSJ:

       "THE FED'S STATEMENTS reflect how the members  
        of the central bank's Federal Open Market  
        Committee perceive the economy. The slightest  
        changes are scrutinized for clues about where  
        interest rates may be headed. The Dec. 12  
        statement announced that the Fed was keeping  
        rates steady at 5.25%, its fourth pause in a  
        row after 17 increases in 17 meetings. The Fed  
        is betting slower economic growth and falling  
        energy prices are easing inflation pressures --  
        meaning no reason to raise rates more, but no  
        need to cut rates yet, either. Below are the  
        differences between the October statement and  
        the December one."

You might want to trade small, like just a single contract, while you get a better feel for how options trade.

Enough to get some skin in the game, but not enough to do major damage to your portfolio.

>>> 2) Both offset each other as underlying security changes in value. <<<


This trade is known as "selling a straddle". If you google "option straddle" you can find many detailed discussions on it.

Good luck with the trade, doc.

Water is the New Oil

A just-released CIBC report makes the argument that water is the new oil. I have made the same case in various presentations lately -- the global water industry is larger and faster-growing than the global software biz -- so people won't be surprised to find that I think the CIBC report is good reading:

       CIBC economist Benjamin Tal, author of the  
        "Tapping into Water" report, estimates it will  
        take "hundreds of billions of dollars" to fix  
        dated water infrastructure in North America and  
        Europe. 

       Federal governments are not rushing to fix the  
        infrastructure and municipalities lack the  
        means to do so. "As a result, governments are  
        now much more open to the notion of privatizing  
        their water infrastructure which, in turn, is  
        providing a substantial boost to the private  
        water industry," Mr. Tal said.

       ... Mr. Tal sees parallels between today's  
        water industry and the oil industry in its  
        golden era, before and after the Second World  
        War. "The market is paying attention," he said.  
        "Capital investment, deregulation,  
        consolidation, and privatization of global  
        water assets and services are advancing at a  
        pace not seen before." 
 

       In the last three years, U.S.-based water  
        companies — as measured by the Bloomberg U.S.  
        water index — have surged 150 per cent, three  
        times the rise seen by companies on the S&P  
        500, while paying twice as much in dividends.  
        International water players are doing even  
        better, Mr. Tal said, with their stock values  
        rising twice as fast as their American  
        counterparts in the past year alone.

Not seeing anything on the emini futures, but this looked interesting...




Have we already enjoyed the Year End Rally?

A NYT column last weekend asked: Have we already enjoyed the Year End Rally? Today's action makes that query all the more relevant -- especially in light of last week's Dollar whackage:

Here's the ubiquitous excerpt:

       "THE stock market has had a great run over the  
        last few months, but as the holiday season  
        begins, some analysts are worrying that the  
        traditional year-end rally on Wall Street may  
        have already come and nearly gone.

       Mary Ann Bartels, technical research analyst at  
        Merrill Lynch, wondered in a note to investors  
        whether the tendency for stocks to climb in the  
        last couple of months of the year had been  
        rescheduled this year for September and October.

       “We think yes,” she wrote. She then acknowleged  
        feeling torn between what her charts have told  
        her and what the calendar and history have led  
        her to expect.

       “It is not our favored stance to be more toward  
        the bear camp looking for a cyclical correction  
        of 8 to 10 percent, but all of the market  
        indicators suggest this is the more likely  
        scenario over the coming weeks,” Ms. Bartels  
        said. “What is surprising is that these  
        readings are occurring at this time of year.  
        Most years see a bullish year-end rally.”

       She highlighted several exceptions that prove  
        the rule, including three years in the 1990s  
        when the Standard & Poor’s 500-stock index lost  
        at least 6 percent at some point during the  
        last two months of the year. What signs suggest  
        that 2006 will play out as those three years —  
        1991, 1994 and 1996 — did?

       Trading volume has shrunk, something that often  
        precedes a price decline, she noted, and  
        several sentiment indicators, including opinion  
        surveys of investment advisers and measures of  
        market volatility, show the sort of complacency  
        that typically occurs near market tops.

Recession: The Stage Is Set

Fascinating interview With Richard Arvedlund, Founder, Cypress Capital Management, who is not particularly optimistic on the economy going forward:

       WE CAN ALWAYS COUNT ON RICHARD ARVEDLUND to  
        take a different tack. Independent and bold  
        calls on the economy come easy to this longtime  
        money manager, who's seen it all in his  
        30-plus-year career. But his balanced  
        investment approach, with a focus on  
        high-yielding, big-cap stocks combined with  
        some bets on bonds, helps his clients preserve  
        their capital as much as build it. The founder  
        of Wilmington, Del.-based Cypress Capital  
        Management, which has $450 million in assets  
        and is now a unit of WSFS Financial, is at his  
        best in troubled times. Trouble, the way he  
        sees it, is straight ahead.

       Barron's: It took a year, but the calls you  
        made when we last spoke are looking pretty good  
        now.

       Arvedlund: Well, until midyear the economy was  
        running much stronger than I had thought it  
        would. However, a GDP [growth domestic product]  
        slowdown has clearly begun. The GDP growth rate  
        dropped to 1.6% in the third quarter from 2.6%  
        in the prior quarter and 5.6% in the first  
        quarter. We have not seen GDP growth below 2%  
        for four or five years. We now have  
        preconditions in place for a recession.

       Preconditions?

       The preconditions would be the following:  
        Whenever housing starts and permits drop by the  
        rates of decline that have been exhibited --  
        10% to 20% -- it has always preceded a  
        recession. What is remarkably different in  
        housing than just about any other sector of the  
        economy is that whenever housing cycles turn  
        down, and that's happened twice in the last 30  
        years, once in the late 'Seventies and once in  
        the late 'Eighties, the downturn tends to last  
        much longer than people dream. The average  
        cycle is three to four years.

       Continue reading "Recession: The Stage Is Set"