Top Down

I had to be in the car toward the end of the market session yesterday and I heard a segment on the radio (CNBC on satellite) that included a value manager of some sort. He made a comment that I think sums up the difference between top down and bottom up very well. He said (and I am paraphrasing) this is a time to seek out the stocks that can do well in this environment. Finding stocks that should do well during a bear market is not easy to do. Finding stocks that are doing well during a bull market is pretty easy to do (not talking about beating the market just talking about stocks going up in a bull). Anytime the market is on its way to a bear market decline I think just protecting what you have makes more sense and is easier to do than, for example, finding the one or two bank stocks that are up over the last 12 months. The big macro is that stock markets go up most of the time (this sets aside the discussion of whether returns will be lower than normal or not). People that save enough, capture the market over long periods of time and avoid major panic sales at the wrong time are very likely to have what they need when they need it. Again that is the big macro. From there the details fill in with things beyond the individual (market related) and things that are solely about the individual (savings rate and tolerances). Given that simplicity, there are times where growth should be the priority...

Mid Morning

Oil goes below one twenty whatever and now it’s going to $80? A few weeks ago (was it less than that?) oil was going to $200. The assumption/extrapolation of the immediate trend and the willingness to flip flop is obviously very common. The thing that I think is more important is supply and demand. Recently estimates for US consumption were cut to 19 million barrels per day for 2008. This doesn’t make a whole lot of sense to me unless demand destruction turns out to be real. So maybe oil has put in a high for the foreseeable future but what is your opinion for long term supply and demand globally? If you think demand must go up then selling too much of your energy exposure now, despite what you might hear on TV or read on the interweb, might turn out to be a mistake in two or three years if oil stocks turn up when no one expects them to and then get away from...

Mid Morning

Oil goes below one twenty whatever and now it’s going to $80? A few weeks ago (was it less than that?) oil was going to $200. The assumption/extrapolation of the immediate trend and the willingness to flip flop is obviously very common. The thing that I think is more important is supply and demand. Recently estimates for US consumption were cut to 19 million barrels per day for 2008. This doesn’t make a whole lot of sense to me unless demand destruction turns out to be real. So maybe oil has put in a high for the foreseeable future but what is your opinion for long term supply and demand globally? If you think demand must go up then selling too much of your energy exposure now, despite what you might hear on TV or read on the interweb, might turn out to be a mistake in two or three years if oil stocks turn up when no one expects them to and then get away from...

You Lika The Juice?

Yesterday on CNBC there was a segment about options where one of the guests suggested buying Matercard (MA) which was at $255 during the segment and selling the August 270 call for $12. That’s a lot of juice, baby! When I looked after the close yesterday I saw the common at $253, the options bid at $10.30 and the volume in the call stood at 1562 compared to previous open interest of 1805 so maybe quite a few people liked that juice, eh? Big call premiums are often a siren song that some cannot resist. One observation I would make is that often when there are big premiums, the premiums are big for a reason. There was a catalyst cited during the segment of an upcoming earnings report. I seem to remember Adam saying it is better to buy increasing volatility than to sell it and according to iVolatility.com, volatility in the name has gone up quite a bit in the last couple of months. I may have that wrong from Adam but often with such a fat call premium the stock will either go down a lot or go rocketing past the strike. Although there are no absolutes to this sort of thing, changes in volatility usually happen for a reason. Different subject; in this past weekends video I posited that last week’s feel good rally might extend up to 1300 or 1310. One day out that looks very wrong but it is probably too early to know for sure that it is wrong. What I will say is that from the standpoint of lower highs, a high...

You Lika The Juice?

Yesterday on CNBC there was a segment about options where one of the guests suggested buying Matercard (MA) which was at $255 during the segment and selling the August 270 call for $12. That’s a lot of juice, baby! When I looked after the close yesterday I saw the common at $253, the options bid at $10.30 and the volume in the call stood at 1562 compared to previous open interest of 1805 so maybe quite a few people liked that juice, eh? Big call premiums are often a siren song that some cannot resist. One observation I would make is that often when there are big premiums, the premiums are big for a reason. There was a catalyst cited during the segment of an upcoming earnings report. I seem to remember Adam saying it is better to buy increasing volatility than to sell it and according to iVolatility.com, volatility in the name has gone up quite a bit in the last couple of months. I may have that wrong from Adam but often with such a fat call premium the stock will either go down a lot or go rocketing past the strike. Although there are no absolutes to this sort of thing, changes in volatility usually happen for a reason. Different subject; in this past weekends video I posited that last week’s feel good rally might extend up to 1300 or 1310. One day out that looks very wrong but it is probably too early to know for sure that it is wrong. What I will say is that from the standpoint of lower highs, a high...