August Stock Talk 2007

This is interesting and I enjoy the trading of ideas as well as of stocks. I agree with most of what everyone here has said of late.One problem among many to me is figuring out how much of this fear is retail driven, and how much is insider stuff. Generally the major market movers are sitting out August, and the serious stuff starts happening in September. While in no way implying that the institutional players are ignoring and out of the market, I do wonder if they are not letting the markets roil and then see where they may sweep up bargains after the retail carnage has taken place.

 I also agree with this from WSC:

  only wish these options MMs would make contracts going out till 2009 on some alt energy stocks or tech stocks..if my thoughts end up being reality there will be some serious carnage..

RIMM at 200
BIDU at 200
FSLR at 100
AAPL at 140

That is just three names which could be cut in 1/2 or worse..

  I look for the cheapest ways to play this thought.I know there are funds that are essentially double bear funds on the DOW, and I am looking at them.But for trading purposes, I would love to hear anyone's ideas regarding which puts or other bear options strategies you deal with.
 I learned a long time ago there is as much money to be made going down as going up, as long as you are on the right escalator...

There is no way to really profit from the drop in bear mutual funds..they are too diversified and it should be that way.

Only way to profit is to short or get puts/sell calls.

Puts take a ton of capital, options dont run out long enough for the very high beta stocks..or the premium is huge and similar to shorting with heavy margin..

Grinder,

yeah the only problem is with the volatility so high the price of calls are expensive.

I am researching some stuff this weekend and if I find anything noteworthy I will post it here in regards to some candidates for shorts/puts

Grinder,

I didnt even know of LEAP..what a %^*&$# monster that stock has been..

Lets see if they try a test of the highs with a failure..

Look at THIS chart

The 50 day moving average has been STRONG support. If it breaks the 50, the 200 is about 15 pts below.

The Jan 08 80 strike puts would be reasonable.

Jan 70 puts on AMZN would be ok, only problem is I think they probably rally the market after labor day..we should get better prices on these stocks AND others.

If we think the market is going down there will be 50 stocks to make money on, like BIDU, GOOG, RIMM, FSLR, ISRG, MSTR, many oil stocks..

And you could REALLY be on to somthing with MA..

If credit issues spread and consumers start defaulting they will get hit too....problem is the PE ratio on the stock isnt that bad and the stock has dropped 30 pts in two weeks..



Jan 100s look interesting..dont know though.

An article I found very compelling.I will cut it in half and post the other half due to character limits.
 

 

What Will China Buy Next?
By Christopher Hancock
August 3, 2007

Last week we reported the inconvenient truth that M3 is increasing at 12% a year.

M3 is the fullest measure of the U.S. money supply… and it is going up three to four times faster than the GDP itself.

The Fed’s irresistible desire to print more fiat dollars helps explain why the world is saturated with liquidity right now. And many of those dollars have conveniently found their way into the war chests of the world’s top ten sovereign wealth funds.

Morgan Stanley estimates these funds now control $2.5 trillion dollars.

Relatively speaking, SWF’s are already equivalent in size to roughly half the gross official reserves of all countries.

And if these government-backed hedge funds weren’t large enough, Morgan Stanley estimates their reserves will increase to $5 trillion by 2010 on their way to hitting $12 trillion by 2015.

China alone holds more somewhere between $1.2 trillion in foreign exchange reserves. These reserves are traditionally invested in liquid assets like U.S. Treasury bonds. Buying U.S. Treasuries enables China to peg the RMB to the greenback.

We knew China’s thirst for American Treasuries wouldn’t last forever. Nothing does… not even world’s greatest empires.

So earlier this year, when China decided to set up its own sovereign-wealth fund, your editors became somewhat suspicious. This fund enables Beijing to shop for assets more exciting than stodgy, old government bonds. China can effectively take a chunk of that $1.2 trillion and search for things where it might make a better return… things like old-school British banks and white-shoed American PE funds.

What better way to own the world, right?

But when we read that China, for the second consecutive month, has been a net seller of U.S. securities, we stood up and took real notice.

China sold a net $6.6 billion of U.S. securities in May following net sales of $5.8 billion in April. The last time China sold U.S. securities for two consecutive months was during January/February of 2004.

We said that if this move proves to be more than a passing trend, this could put further pressure on the U.S. dollar.

Well, that may be the case.

I

 
 
 

article's end...

n The Turning Point in China's Economic Development , editors Ross Garnaut and Ligang Song point out:

"China has or is fast approaching reached the turning point in its economic development, at which 'surplus' labour from agricultural employment in the countryside ceases to be available to drive the growth of the modern economy; so that labour becomes scarce and valuable; forcing large real wage increases and real exchange rate appreciation; which generate structural change towards more capital-intensive and technologically sophisticated industrial structure at the relative expense of labour-intensive manufacturing and agriculture; and changes fundamentally the character of China's interaction with the international economy."

I've always believed China's path for floating the RMB would take place in three distinct stages. First, China would clean up the state banking system. Second, Beijing would gradually liberalize capital account convertibility. Finally, the Chinese RMB would be allowed to float alongside the dollar, euro, yen and pound.

We may be on the verge of reaching step number two. Meaning, China's appetite for U.S. dollars may not be with us too much longer.

This may help explain the gradual shift taking place on Beijing's shopping list.

But the real question is… If you had a $300 billion shopping budget and you knew the world's demand for U.S. dollars was about to fall as M3 kept growing at a double-digit pace, what would you buy?

We have talked (well I have blabbered on about M3 many times here) about this issue and to me it is easy to see and nobody seems to care.

The FED stopped reporting M3 for phony reasons (cost to report, what crock of sh!t) which is a total joke.

M3 bloating has kept this economy from both imploding growth wise and inflation from going out of control. Keeping credit loose and mortgage rates low helped the mortgage industry, the home building industry and made it possible that the consumer could manage debt.

One thing that China wont buy, or SHOULDNT buy is US Treasuries..anyone who buys a treasury at this low yield is going to get killed on the principal when these cheap rate notes and bonds area worth less and less when rates do end up going higher.

I have to think China would probably invest in technology and energy companies, not to buy rather invest..so maybe ETF investments...

You are exactly right about the Fed and the M3. They can't report it because it shows the diluted nature of the $. Bad faith in every respect.
 Naturally these sovereign funds need liquid instruments, but liquidity can't justify the miserable returns on treasuries.
 Should they invest as you say, in energy and technology stocks as you say, would they be prudent to avoid American stocks that return profits in declining dollars? Would we, as American investors be better served as well by investing in companies that not only offer growth, but currency gains as well?
 One last question that makes me wonder...these funds represent an enormous pool of money.That in itself should be bullish for ALL stock markets. Does it not cushion the depths to which the correction of the American  market  can get to, and lessen the likelihood of an American recession? Or is America still so powerful that if its market gets ill, other markets get sicker?



 

claycourt,

Yeah to the novice the reasoning for M3 reporting being stopped doesnt matter, to those who know what M3 represents and WHY the FED and likely the entire executive branch of the government wanted to hide it its a huge deal.

What eliminating M3 did, it gave Bush and the FED the way to disguise our economy and the troubles which have to be dealt with and also the way we financed the invasion of Iraq.

I am shocked that nobody even cares about the signifigance the decades low value of the dollar. It is similar to selling your product below market price at a LOSS just to gain sales to meet fixed cost.

When we devalue our currency to support the economy, the effects are going to be disasterous..just think of when the Fed starts raising rates and slowing the printing press..what will happen to foreign investment and the economy?

Grinder, I am speaking about a technical trading..so this retest could not even happen, but it would be STRONGER if it failed the high and went lower from there..

A failure of the 50 day with volume would be somthing new technically and who knows if it retests the 200 day or starts a new downtrend..

Technicals arent perfect, but I would prefer trading with technicals of course.

Vermeer, our assumption that China will invest or buy here might not be the correct assumption. I have to think their economists see what some others see and the kind of trouble we are in. They might not do a thing..maybe they sit on the cash and wait for better timing, or for a slowdown of their economy and the need to invest.

Here is an interesting note posed a few days ago.Of course, China is not sweating temporary losses, they being the ultimate in long term investors I would suspect...still being down a half billion in a few days must sting a little, no matter who you are.

2007.07.28

Did Blackstone Give China A Black Eye?

Blackstone screwed everyone but themselves.

That is one stock I wont care to own, it is the "lesser than" portion of the company..the real good stuff wasnt part of the IPO.

claycourt, that is not completely true..companies sell product, make profits and returns for investors so they are worth more than the paper printed on, but the ratios to which they sell can fluctuate over time as we know. If we are thinking the companies are worth paper only, then we have larger problems than the stock market to consider...

I see the market being truly disappointed this week as I do not think the Fed cuts rates, nor should they.Yet people seem to be pricing that they will.A temporary bounce up, followed by a decline if/when the Fed fails to cut rates??

Talk about bad trading..

I bot in on IDMI after the implosion and the sucker does nothing but go down..killing my small position.

In fact out of all the positions I have, there are none in the green..

Anyone check some home builder stock quotes lately?

Most are slumming on lows and I read that BZH might file for BK protection.

wallstreet

Citadel did a little dumpster divign last week and picked up 5% of BZH the day the bankruptcy rumors started

Koaj,

Did you see the article about them today?

LINK

Naughty naughty Beazer.....

From 48 to 10, that is amazing..

When a stock is selling at .28 times book, .10 times past 12 month sales and the chart looks like

THIS

I wouldnt want to be too early buying if I was Citadel. I could see a builder or two get crushed and go out of business..the market is swamped with public builders and we are definately in a slow down. If you are leveraged too high and cannot make the note/loan payments and now you are not making a profit, well BK could easily happen.

I didnt even notice that my comment about MSTR already happened, stock went from 96 to 66 in the last month or so.

Interesting how for the lofty levels we are at I am seeing some 52 week lows already popping up...