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The Stock Trading Advisor’s “From
the Trading Turret”
From: R. A. Christy
Editor, ‘From the Trading Turret’
President/CEO, Christy Investment Group
http://www.christyinvestments.com
Date: February 4, 2008
I just rolled in from my trip to Pennsylvania. I got
there just in time for the winter storm and I must say that there was a
nip in the air. I haven’t been that cold in 30 years. Plus it was a tad
windy. There’s nothing quite like an 18 degree day with a 30 mph wind.
I was up there to address the students again and to be
the keynote speaker at the Entrepreneurial major’s kick-off dinner. As
luck would have it, my glasses broke and I couldn’t see a thing. My
notes were useless and I think I hit all of the high points.
(GCC Students: Never fear though --- look for the written
version of my talk in a day or so. I’ll post it to the main page of the
website.)
This week’s diatribe …
On Friday, the Dow went up another 93 points. Oil slipped
below $90. The dollar is holding at $1.48 per euro. And gold dropped
$14.50 to $913.50.
That was the good news for the week.
A WSJ article put a somewhat positive spin on our
current economic woes. "Make no mistake, the U.S. economy is weak and
getting weaker. Recession odds have elevated to Condition Red. But the
probability remains that what our economy faces is less a plunge into
the dark ages than a cyclical purging of excesses -- perhaps akin to the
eight-month recession in 2001." Speak English please …
And --- I saw that newspapers are reporting “first job
losses in four years” and warning of an economic slowdown...or
recession. Polls of economists put the odds of recession at 40% to 50%,
for whatever that is worth.
No kidding – Captain Obvious rides to the rescue again.
These are the same guys that didn’t see a recession at all six months
ago.
Can Anyone Win?
The candidates for President don’t know what to say. It’s
Super Tuesday Eve and they are a lost bunch. They promise to “bring back
the American dream” but have no idea what happened to it...or what made
it possible in the first place.
The Democrats propose higher taxes on “the rich” and more
regulations on Wall Street. The Republicans propose more
giveaways...higher spending...and hint vaguely that, when it comes to
money, they know what they are doing. But no one really knows anything.
One thing is for certain, it’s time for the Clinton’s to
pull the worst economy in the last 50 years out of the bag. I expect
that to the headline come Wednesday or Thursday.
As for me, “None of the Above” is still in the lead.
Sub-Prime.
As for the sub-prime mess, The Wall Street Journal
is reporting that the total
sub-prime write-downs now top $100 billion...”
The FBI has “opened criminal investigations into 14
corporations as part of a crackdown on improper sub-prime lending.” The
investigation, which includes accounting fraud and insider trading,
reaches across the industry to include developers, sub-prime lenders,
companies that securitized loans and investment banks that held them.
Some of the FBI investigation overlaps an ongoing SEC investigation into
the sub-prime market collapse.
And don’t forget – the States want in this action as
well. We won’t even go there now.
The iceberg is exposing itself. We haven’t seen it all
yet, but we’re getting close.
Dollar Woes Continue.
The dollar is falling against almost everything...even
against Iraq’s dinar. Both Bernanke’s rate cuts and Bush’s ‘tax rebate’
plan really stink. The tax ‘rebates,’ for example, will not return any
money to its rightful owners. The U.S. government can’t afford it. So,
Uncle Sam is sending out checks to 117 million people – including many
who never paid any tax in the first place, encouraging people who have
already spent too much to spend even more. Where will the money come
from?
In China, there is some worry about the declining value
of the dollar. I’ve been waiting on this one for a while. China is said
to have about 70% of its $1.53 trillion reserve currency pile in U.S.
dollars. Cheng Siwei, Vice President of the Popular National Congress:
“In terms of the structure of our international reserves, we must take
advantage of the appreciation of strong currencies in order to offset
the depreciation of weak currencies.” Have you ever heard the term ‘Sell
the buck’?
Make a Note:
I haven’t gone into detail about this before, so here
goes. One of the reasons that China has so many dollars in their bank
vault is that you have to pay for OIL
in dollars. I think this is going to change in the not too
far future AND when it does, the sucking sound you hear will be our
economy being flushed down the toilet. The deficit spending that has
gone on unabated for years will turn on us in the worst way possible.
Say Hello To My Little Friend.
Mr. Jerome Kerviel was in the news this week. Let’s just
say that he had a couple of bad days. Mr. Kerviel is a low level trader
at Societe General and by low, I mean runt of the litter. It seems that
our Mr. Kerviel has single handedly created the biggest trading loss in
history of finance costing the bank $7.3 Billion.
Can you say Gallic arrogance? This nut job was trying to
impress some folks with his trading prowess. Societe Generale SA, is
France's second-largest bank and the management appears to be as hapless
as Chief Inspector Clouseau, he of Pink Panther fame.
This guy has been at it since 2005. He was able to keep
the bosses in the dark, because he had access to the back office
operations of the bank. When an operation peon leaves the department, do
you think it makes sense to change the key? How about a password or two?
It seems that our fine French bankers did neither.
Mr. Kerviel was had made bets totaling more than the
entire bank’s net worth.
But it gets better … they panicked like the dumbest of
dumb investors.
They handed all Kerviel's positions to one trader who
unwound all the positions in one day of massive selling. As word got
around about the massive unwinding, everyone and his uncle stepped back
and let the idiot sell at what became distress prices, thereby tripling
Kerviel's paper losses and exposing Societe Generale's management for
the idiots they were."
Yet the sordid details aside, what really caught my eye
were the revelations by Mr. Kreveil as to exactly how he got himself
into this pickle. "Beginning of 2008, I was long because the market has
significantly evolved (changed) and I see the market coming back in the
next three months, and I still believe that in the next three months the
market will go up."
Mr. Kreveil committed the oldest trading sin in the book
by refusing to admit his mistake. As the markets went against him, he
kept adding to his positions.
And the lesson is … The difference between professional
traders and bad amateurs is that professionals seek to constantly reduce
risk while bad ones just pile it on.
As for management, OFF WITH THEIR HEADS
Put them in Time-Out.
“Should Bankers Pay for Their Mismanagement?” is the
title of an article in the NY Times by Eduardo Porter and he
posed the question: “What is to be done with the bankers? From the
savings and loan meltdown in the 1980s to the current housing-led
seizure, financial institutions have proved unable to curb their
appetite for risky assets — blowing up the bank and spreading economic
mayhem. After every crisis, regulators say they will cure the financial
system of the recent folly, reassuring the public that the caustic asset
du jour — Latin American debt, Internet stocks, mortgages in Florida —
will never again be allowed to bring the banks down. Yet the recurrence
of disasters suggests that the risky cravings of the masters of the
universe are uncurbed. All that happens is that the next crisis takes a
somewhat different form from the last, using some newly noxious
financial product that used to be considered safe as, um, houses.” We
are with Eduardo. He even proposes some solutions.
That’s for now. I’m car-lagged from 12 hours of driving.
Look for more from me this week. You can either check the website or the
blog for updates. Subscribers should be on the look out for a trade or
two because the dust is starting to settle. It’s time to make some money
in this market.
RA Christy
The Stock Trading
Advisor
P.S. Please fee
free to forward this to your peers, friends and associates you think
would benefit from its contents. They will thank you for it - and so
will I!
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R. A. Christy is a professional stock
trader, money manager and author. Mr. Christy is the President CEO of
Christy Investment Group, Ltd., a registered investment advisory firm.
He is also the Managing Partner and Portfolio Manager of Plato Advisors,
LLC. At the time of publication, Mr. Christy may from time to time write
about stocks in which he, Christy Investment Group Ltd or Plato Advisors
LLC has a position. In such cases, appropriate disclosure is made.
Under no circumstances does the information in this column represent a
specific recommendation to buy or sell stocks. Mr. Christy appreciates
your feedback and invites you to send it to
rac@christyinvestments.com.
The Stock Trading Advisor
c/o Christy Investment Group
P.O. Box 625
Alpharetta, GA 30009-0625
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© Copyright 2008 RA Christy
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