Selling Stocks Short

The Intelligent Trader; March 9, 2009

stcktradr@gmail.com (Robert) — Mon, 09 Mar 2009 17:11:00 +0000

Selling Stocks Short; March 1, 2009

stcktradr@gmail.com (Robert) — Mon, 02 Mar 2009 18:03:00 +0000

In an effort to streamline things, here's a link to my latest weekly piece.

The Long and Short of It, March 1, 2009

RAC
The Intelligent Trader

A day to give thanks

stcktradr@gmail.com (Robert) — Thu, 27 Nov 2008 16:18:00 +0000

Intelligent Trader 112708

We here at The Intelligent Trader would like to wish one and all a Happy Thanksgiving.

It’s been a difficult year for everyone in this orb we call planet earth and there is still plenty to be thankful for. I’m thankful that I have friends and family to share this holiday with.

As a veteran, I’m also thankful for the men and women in the military that are serving our country. Freedom isn’t free and it’s a mistake to think otherwise.

And lastly, I am thankful that I have loyal readers like you and that take the time to use this platform allows me to communicate my thoughts and ideas with you.

On this Thanksgiving Day, please give thanks for all that you have and if possible, give something back to this world that we live in.

Happy Thanksgiving,

RAC
The Intelligent Trader

From the Wall Street Journal

stcktradr@gmail.com (Robert) — Tue, 18 Nov 2008 14:28:00 +0000

There's a Better Way to Prevent 'Bear Raids'

The SEC should restore the uptick rule.

By ROBERT C. POZEN and YANEER BAR-YAM

When U.S. stocks plunged last summer, the SEC adopted several measures to constrain short selling, or betting that a stock's price will decline by selling borrowed shares. These included weekly reporting of short positions by large investment managers, requiring short sellers to line up in advance borrowed shares, and temporarily banning all short sales in financial stocks.

These measures proved ineffective. Even during the three-week ban starting on Sept. 22, financial stocks fell along with the market, after outperforming the market prior to the ban. Moreover, the liquidity of these financial stocks decreased, and the cost of trading them increased, as bid-ask spreads widened.

Given the continued turmoil in the financial markets, the SEC should reinstate the "uptick" rule, which helped limit downward spirals by allowing a stock to be sold short only after a rise (an "uptick") from its immediately prior price. Adopted in 1938, the uptick rule was repealed by the SEC on July 3, 2007, primarily on the basis of a pilot program conducted in 2005. In the pilot program the agency compared 943 randomly selected stocks from the Russell 3000 not subject to the uptick rule to the remaining stocks in the Russell 3000 (a broad-based index of U.S. stocks of all sizes) still subject to this rule.

The comparison was only for six months -- far too brief a time to draw conclusions about a rule that had been in effect for 70 years. The comparison also did not take place when repeal of the uptick rule could be stress-tested: 2005 was a year of rising stock prices with low volatility.

During these six months, the SEC found that the stocks not subject to the uptick rule had 2% lower returns than those still subject to the rule. This difference implies that removing the uptick rule goes farther than the SEC's apparent goal of attaining a neutral environment for stocks. As explained by a research analyst at University of Tennessee, Min Zhao, the SEC's lifting of the uptick rule for large stocks in the pilot "is associated with undervaluation . . . [and makes it easier] for 'predatory' short sellers to aggressively submit short orders and to manipulate stock price downward."

In today's Opinion Journal

REVIEW & OUTLOOK

TODAY'S COLUMNISTS

COMMENTARY

The SEC dismissed this 2% difference as statistically insignificant relative to the standard deviation of the Russell 3000 during the pilot period. However, if we eliminate a small number of outlier stocks in that index with returns over 100% during the pilot period, the 2% difference becomes statistically significant. More fundamentally, return differences of 2% within six months are economically important, because annual returns in the U.S. stock market since World War II average 6% to 7%.

The SEC was warned by two commentators not to repeal the uptick rule since it limited "bear raids" -- when short sellers drive down a stock's price in the hopes of scaring other investors into dumping the stock or triggering margin calls to force liquidations. In response, the agency approvingly summarized the views of three other commentators -- that bear raids "are highly unlikely to occur in today's markets, which are characterized by much smaller spreads, higher liquidity, and greater transparency than when the rule was adopted 70 years ago." This summary did not take into account another factor -- the advent of over $1 trillion managed by hedge funds with the ability to short stocks.

In fact, after the repeal of the uptick rule, there was a marked increase in the number of NYSE-listed stocks with price drops of over 40% in a day -- a rough proxy for a bear raid. In the 12 months following Sept. 30, 2007, the number of such huge drops doubled as compared to a prior period with similar market declines and high volatility -- the 12 months following March 31, 2000.

The passage of the Economic Stabilization Act of 2008 has not stopped bear raids, so the SEC is reviewing its tool kit on short selling. Instead of another blunt tool like a temporary ban, the SEC should promptly bring back the uptick rule.

Mr. Pozen is chairman of MFS Investment Management. Mr. Bar-Yam is president of the New England Complex Systems Institute.

Sell Stocks Short; November 16, 2008

stcktradr@gmail.com (Robert) — Sun, 16 Nov 2008 22:16:00 +0000

This week's Long and Short of It has been posted.

Click here to read

RAC
The Intelligent Trader

Answering Pam's question

stcktradr@gmail.com (Robert) — Thu, 13 Nov 2008 22:37:00 +0000

I got an email today from an old friend. Her question was this - between Apple and Disney, which one would you buy?

The answer is simple looking at the 2 stocks. I would be a BUYER of Apple and a SELLER of Disney.

Here's why...

Even though both are in down trends, Apple fell to 87 today before turning and finishing the day north of 94. Barring anything really weird on Friday, the stock will return to a column of Xs and will have held its ground at the double bottom on 86.

(Please note - I am LONG Apple stock and own the April 100 Call option)

Disney is another story.

Disney has a solid top quadruple top formation. Since not breaking out, it has made lower highs and lower lows. Plus the stock has just scored a triple bottom sell signal.

As for support, Disney's best support lies in the vicinity of 13-14.

There you have it - one for the BUY side and one for the SELL side.

RAC
The Intelligent Trader

Veteran's Day 2008

stcktradr@gmail.com (Robert) — Tue, 11 Nov 2008 16:10:00 +0000

Today's is Veteran's Day. A day to remember that freedom isn't free. My grandfather served in the Army during WWI, my father was in the Navy during the Korean War and I was an officer in the Marine Corps. I know that all gave some and some gave all.

To all who served,

Semper Fi

RAC
The Intelligent Trader

The Long and Short of It

stcktradr@gmail.com (Robert) — Mon, 10 Nov 2008 14:50:00 +0000

From: RAC

I have just posted my weekly Long and Short of It
Click here to read this week's commentary

Have a great trading week.

RAC
The Intelligent Trader

Sell Stocks Short'; October 28, 2008

stcktradr@gmail.com (Robert) — Wed, 29 Oct 2008 00:23:00 +0000

OPEC cut oil production last week and after today’s upswing, the timing looks right to be shorting the airline sector.

I have never been a fan of airlines and it is no different. The most endearing qualities about airlines are that they are badly run, have lousy on-time records, even worse customer service. Throw in a host of union problems and the fact that avgas is their biggest expense and you have a proven formula for non-profitability.

I am looking to short AMR (stop @ 13); DAL (stop @ 10.50); UAUA (stop at 16). I am looking to first borrow the shares or I’ll buy put options if I need to.

RAC
The Intelligent Trader

The Intelligent Trader; October 8, 2008

stcktradr@gmail.com (Robert) — Wed, 08 Oct 2008 15:40:00 +0000

Sell Stocks Short 100808

From: JM

I don't believe in this market and I am now more confident that we have a long ways to go. I made some smart moves a couple weeks ago by buying put options against a few of my long positions, but I was silly to get out of them early. I think put options against the longs rather than straight short positions might be the best strategy in this down trend because the chances of a market correction to the positive is much greater than normal.

I might be able to come by tonight or tomorrow. I also need to build a longer term strategy so I can be prepared when the market has fully turned. Good things will come sometime and I need to be able to take full advantage.

To JM:

You made an interesting point in your email.

Put options are used in a variety of ways. The 2 most common are as insurance and synthetic shorts.

The notion of using protective puts against current positions is a good one in a sideways or down market. It's best to use this strategy when the indicators indicate defense and the market moves into the principal preservation mode.

The key to success in using protective puts is to (1) set a stop loss level - this is the zone in which you are willing to sell your stock and (2) use time as an asset

for example - GE which is one of the stocks you own. Current price is $20.80

The strategy would be to buy the 17.50 Jan09 puts - when you buy a put option as insurance (i.e. protective put) you either let it expire worthless or exercise it. The one thing that you don't do is to trade it out at a profit.

Protective puts are designed for investors who's holding period is a number of years. I am not an advocate of protective puts because I use stop losses directly and have no problem getting out of a name that is not working.

The other strategy is trading puts and using them as synthetic shorts. This is the method that I use most and do this as a way to take on a short position without the hassle of buying borrowing the stock and having to deal with the margin requirements of the trade.

RAC
The Intelligent Trader

How a Short gets Short

stcktradr@gmail.com (Robert) — Tue, 30 Sep 2008 15:00:00 +0000

Bubba left a comment the other day and I wanted to respond to him because it was a pretty good question.

Bubba wanted to know why anyone in the world would lend out there shares to anyone and how is the person compensated for it?

Every transaction has 2 sides - the buyer and the seller. So when you sell something you do not own (short selling), you are still required to deliver shares to the new owner.

You do this by borrowing the shares from your broker. Virtually all of the shares today are held in book entry form or street name (which is in the name of the broker holding the shares). The reality is that "borrowing" is just an electronic book entry done at the broker level.

Unless the customer is so huge (like Calpers), the buyer will likely never know that his shares have been lent out.

Here's the downside for the seller.

1. Since the original buyer still owns the shares he loaned, he is entitled to the dividend if there is one. So as a short seller, I am obligated to pay the owner any dividends that he entitled to. So when I want to short something, I want to make sure there is no dividend or a really small one. The last thing I need is somebody's dividend being debited from my account.

2. The bigger snag happens when the original buyer wants to sell his shares. Since the original owner is still the rightful owner, he can sell his shares at any time.

When that happens, the person who borrowed the shares to short gets bought in at the very moment. No ifs ands or buts about it.

So if the buyer wants out, I get bought in and possibly at a time that just sucks from a trade standpoint. If I am short and have a loss because the price went up, too bad. My broker closes the trade and I get a confirm telling me I am out of the position.

That's one of the risks of being an outright short seller - I have no control over when I close my trade. There's only been a couple of times where I was bought in and each time it was at a loss for me.

The next obvious question is why not just re-short the position. That's when the wash-sale rule comes into play which simply means that I need to wait 30 days before re-establishing a position in the same or like security.

Hope this helps answer the question.

RAC
The Intelligent Trader

Being a Short Seller Sucks

stcktradr@gmail.com (Robert) — Fri, 19 Sep 2008 18:56:00 +0000

It sucks to be a short seller. The SEC has banned short sales in most of the financial stocks. As someone who shorts stocks for like his living, this is not happy meal time for me. Look, “buying low and selling high” is way we do it. I just want to do it in any particular order.

If I get my clock cleaned shorting stocks, people just smile and think he got what was coming to him. But, when I make some money on the short side, people scream bloody murder. You can’t have both sides in the argument.

For those out there that call themselves free market types, please don’t applaud what is going on right now. Is there a problem, yes there is. But the problem is not with the short sellers.

The problem lies in the suits who bought into the view that derivatives of any color were better than the real thing. Should the CDSs (Credit Default Swap) be regulated? Yes – they should and in a big way. This market is subject which means that no order is really firm and there a host of conflicts and abuses.

Another day in the life – at least it isn’t boring.

RAC
The Intelligent Trader

The Intelligent Trader - RIP Bear Stearns

stcktradr@gmail.com (Robert) — Fri, 30 May 2008 20:32:00 +0000

The Wall Street Journal has a blurb in it this morning on the last day at Bear Stearns. I’m sad in a way because another firm has faded into the history books. Bear was a culture. I interviewed there once and found the management to belligerent, pompous, and just downright full of crap. The brokers were aggressive more so than even Lehman Brothers and Oppenheimer. The research was solid and their prime brokerage unit was a notch above the rest. The ones that I knew worked hard and played harder. Those that can find jobs will and the rest will move on, but the rough and tumble culture that was Bear Stearns … I’ll miss that.

Wake Up America

stcktradr@gmail.com (Robert) — Thu, 29 May 2008 12:42:00 +0000

Wake Up America. We're Driving Toward Disaster.

By James Howard Kunstler
Washington Post
Sunday, May 25, 2008

Everywhere I go these days, talking about the global energy predicament on the college lecture circuit or at environmental conferences, I hear an increasingly shrill cry for "solutions." This is just another symptom of the delusional thinking that now grips the nation, especially among the educated and well-intentioned.

I say this because I detect in this strident plea the desperate wish to keep our "Happy Motoring" utopia running by means other than oil and its byproducts. But the truth is that no combination of solar, wind and nuclear power, ethanol, biodiesel, tar sands and used French-fry oil will allow us to power Wal-Mart, Disney World and the interstate highway system -- or even a fraction of these things -- in the future. We have to make other arrangements.

The public, and especially the mainstream media, misunderstands the "peak oil" story. It's not about running out of oil. It's about the instabilities that will shake the complex systems of daily life as soon as the global demand for oil exceeds the global supply. These systems can be listed concisely:

The way we produce food

The way we conduct commerce and trade

The way we travel

The way we occupy the land

The way we acquire and spend capital

And there are others: governance, health care, education and more.

As the world passes the all-time oil production high and watches as the price of a barrel of oil busts another record, as it did last week, these systems will run into trouble. Instability in one sector will bleed into another. Shocks to the oil markets will hurt trucking, which will slow commerce and food distribution, manufacturing and the tourist industry in a chain of cascading effects. Problems in finance will squeeze any enterprise that requires capital, including oil exploration and production, as well as government spending. These systems are all interrelated. They all face a crisis. What's more, the stress induced by the failure of these systems will only increase the wishful thinking across our nation.

And that's the worst part of our quandary: the American public's narrow focus on keeping all our cars running at any cost. Even the environmental community is hung up on this. The Rocky Mountain Institute has been pushing for the development of a "Hypercar" for years -- inadvertently promoting the idea that we really don't need to change.

Years ago, U.S. negotiators at a U.N. environmental conference told their interlocutors that the American lifestyle is "not up for negotiation." This stance is, unfortunately, related to two pernicious beliefs that have become common in the United States in recent decades. The first is the idea that when you wish upon a star, your dreams come true. (Oprah Winfrey advanced this notion last year with her promotion of a pop book called "The Secret," which said, in effect, that if you wish hard enough for something, it will come to you.) One of the basic differences between a child and an adult is the ability to know the difference between wishing for things and actually making them happen through earnest effort.

The companion belief to "wishing upon a star" is the idea that one can get something for nothing. This derives from America's new favorite religion: not evangelical Christianity but the worship of unearned riches. (The holy shrine to this tragic belief is Las Vegas.) When you combine these two beliefs, the result is the notion that when you wish upon a star, you'll get something for nothing. This is what underlies our current fantasy, as well as our inability to respond intelligently to the energy crisis.

These beliefs also explain why the presidential campaign is devoid of meaningful discussion about our energy predicament and its implications. The idea that we can become "energy independent" and maintain our current lifestyle is absurd. So is the gas-tax holiday. (Which politician wants to tell voters on Labor Day that the holiday is over?) The pie-in-the-sky plan to turn grain into fuel came to grief, too, when we saw its disruptive effect on global grain prices and the food shortages around the world, even in the United States. In recent weeks, the rice and cooking-oil shelves in my upstate New York supermarket have been stripped clean.

So what are intelligent responses to our predicament? First, we'll have to dramatically reorganize the everyday activities of American life. We'll have to grow our food closer to home, in a manner that will require more human attention. In fact, agriculture needs to return to the center of economic life. We'll have to restore local economic networks -- the very networks that the big-box stores systematically destroyed -- made of fine-grained layers of wholesalers, middlemen and retailers.

We'll also have to occupy the landscape differently, in traditional towns, villages and small cities. Our giant metroplexes are not going to make it, and the successful places will be ones that encourage local farming.

Fixing the U.S. passenger railroad system is probably the one project we could undertake right away that would have the greatest impact on the country's oil consumption. The fact that we're not talking about it -- especially in the presidential campaign -- shows how confused we are. The airline industry is disintegrating under the enormous pressure of fuel costs. Airlines cannot fire any more employees and have already offloaded their pension obligations and outsourced their repairs. At least five small airlines have filed for bankruptcy protection in the past two months. If we don't get the passenger trains running again, Americans will be going nowhere five years from now.

We don't have time to be crybabies about this. The talk on the presidential campaign trail about "hope" has its purpose. We cannot afford to remain befuddled and demoralized. But we must understand that hope is not something applied externally. Real hope resides within us. We generate it -- by proving that we are competent, earnest individuals who can discern between wishing and doing, who don't figure on getting something for nothing and who can be honest about the way the universe really works.

James Howard Kunstler is the author, most recently, of "World Made by Hand," a novel about America's post-oil future.

The Intelligent Trader; May 28, 2008

stcktradr@gmail.com (Robert) — Wed, 28 May 2008 17:44:00 +0000

I came across this article by Doug Kass earlier this morning. If you don’t know Doug, you’re missing out on his sage wisdom. He is a short seller without peer. His insights as always are right on the money.

Kass: Don't Follow Bulls Off the Cliff

"Convictions are more dangerous enemies of truth than lies."

-- Friedrich Nietzsche

Back in April, I wrote the following:

I continue to be fascinated by the renewed optimism and conviction, particularly from those talking heads who had it dead wrong into the entire market decline. They are shameless -- and know nothing. Or they are revisionists who have no sense of history. The unrelenting and sometimes non-rigorous conviction and authority of opinion (of both the bullish and bearish cabals these days) is nonsensical -- particularly within the context of rapidly changing credit market and economic conditions.

On CNBC's "Kudlow & Company" and through my sparring with bulls over other media platforms, I have consistently played the role of the market skeptic. I call it fighting the good fight.

To read the rest of the story: http://www.thestreet.com/story/10418450/1/kass-dont-follow-bulls-off-the-cliff.html?puc=btlhome

The Intelligent Trader; The Long and Short of It - April 27, 2008

stcktradr@gmail.com (Robert) — Sun, 27 Apr 2008 15:50:00 +0000

The market over the past month has been on a tear. When our indicators went to OFFENSE a while back, I was deluged with emails asking me why I was not heeding the sage wisdom of the all-knowing talking heads. In my defense, all I can say is this: when the “Money Honey” and the rest of her friends tell me to do something, I will continue to ignore them and listen to the indicators. The reason is that the indicators have a better track record and they don’t have an agenda.

Click here to read the rest of this week's Intelligent Trader; The Long and Short of It ...

RAC
The Intelligent Trader

The Death Cross

stcktradr@gmail.com (Robert) — Mon, 21 Apr 2008 17:01:00 +0000

From time to time, people ask me why I like to sell short stocks. It’s simple – I want to be able to make money regardless of the direction of the market, interest rates or the dollar. Period.

We all make money “Buying Low” and Selling High”. I just believe that you can do it in any order that you choose.

Have I made money? I have and when you look at today’s market conditions -- the plunging dollar, soaring unemployment, record home foreclosures, uncontrolled government spending and massive consumer debt -- I’m confident we can improve on those results.

One of the screens that I use from time to time is called the “Death Cross”. This set up is simple – all you need is 2 moving averages – one long term and one short term. Some folks use the 50 and 200 day moving averages. I like the 18 and 50 day moving averages.

You get a death cross signal when the shorter term average moves under the longer term average. If you get heavy volume to accompany this, you have a pretty nice trade on your hands.

Be forewarned. This strategy is not for everyone and it is not a long term trade. I normally hold my shorts for a week or two at the most.

So the next time you are looking at your charts or hear a company reporting less than positive results – take a gander at the moving averages. You may have a nice trade on your hands.

Until Next Time,

RAC
The Intelligent Trader

Wachovia's Loss a Grim Sign for Banks

stcktradr@gmail.com (Robert) — Tue, 15 Apr 2008 14:25:00 +0000

Selling Stocks Short; April 15, 2008

Saw this in the paper - makes for some interesting reading. We're not out of the woods yet which means there is life on the short side.

RAC
The Intelligent Trader

Wachovia's Loss a Grim Sign for Banks

NEW YORK (AP) - The shocking first-quarter loss at Wachovia Corp., a company long viewed as a relatively conservative player during the mortgage boom, suggests that 2008 will be at best a rebuilding year even for the nation's better-positioned banks.

Results this week from large banks such as JPMorgan Chase & Co., Citigroup Inc., Washington Mutual Inc. and Wells Fargo & Co. should shed more light on how much fixing-up the industry has to do. So far, it's not looking pretty—and that means fewer loans for consumers, skimpier dividends for shareholders and more job cuts.

Wachovia's $393 million quarterly loss was accompanied by a 41 percent dividend cut, plans to eliminate 500 jobs in its corporate and investment bank, and a move to sell $7 billion worth of stock. Many banks have already tried to raise cash through stake sales—Wachovia itself raised $8.3 billion earlier this year, Citi has raised about $20 billion, and WaMu has raised $5 billion, just to name a few.

Read the rest

Selling Stocks Short; April 14, 2008

stcktradr@gmail.com (Robert) — Tue, 15 Apr 2008 02:55:00 +0000

Selling Stocks Short April 14, 2008

Last week the Dow gained more than 3%, the S&P was up more than 4%, and the Nasdaq picked up almost 5%. And all that came in the context of weak economic news, the worst employment number in years, and a newly slumping dollar.

Even though the indicators are on offense, bear market rallies are sometimes the strongest and the sharpest that we see. While the talking heads are getting everyone back into the game, it’s important to realize what is really going on. In times like these, it makes sense to sit still and watch what’s going on.

Since I live and die by my indicators, I am not primarily on the long side. That said, I am still looking to short the USD/JPY (forex) on rallies.

Hang in there – we haven’t seen the bottom yet.

RAC
The Intelligent Trader

Selling Stock Short - Soros and the Demise of the Dollar

stcktradr@gmail.com (Robert) — Fri, 11 Apr 2008 13:19:00 +0000

Every once and a while, I stumble across something that holds a lot more meaning than you think it would. I pulled this piece from the NY Times. Read this once and then read it again - this time between the lines. Then think about the implications.

I'll be back later to put my 2 cents in on this.

RAC
The Intelligent Trader

April 11, 2008
The Face of a Prophet
By LOUISE STORY
The New York Times

George Soros will not go quietly.

At the age of 77, Mr. Soros, one the world’s most successful investors and richest men, leapt out of retirement last summer to safeguard his fortune and legacy. Alarmed by the unfolding crisis in the financial markets, he once again began trading for his giant hedge fund — and won big while so many others lost.

Mr. Soros has always been a controversial figure. But he is becoming more so with a new, dire forecast for the world economy. Last week he rushed out a book, his 10th, warning that the financial pain has only just begun.

“I consider this the biggest financial crisis of my lifetime,” Mr. Soros said during an interview Monday in his office overlooking Central Park. A “superbubble” that has been swelling for a quarter of a century is finally bursting, he said.

Mr. Soros, whose daring, controversial trades came to symbolize global capitalism in the 1990s, is now busy promoting his book, “The New Paradigm for Financial Markets,” which goes on sale next month.

And yet this is not the first time that Mr. Soros has prophesied doom. In 1998, he published a book predicting a global economic collapse that never came.

Mr. Soros thinks that this time he is right. Now in his eighth decade, he yearns to be remembered not only as a great trader but also as a great thinker. The market theory he has promoted for two decades and espoused most of his life — something he calls “reflexivity” — is still dismissed by many economists. The idea is that people’s biases and actions can affect the direction of the underlying economy, undermining the conventional theory that markets tend toward some sort of equilibrium.

Mr. Soros said all aspects of his life — finance, philanthropy, even politics — are driven by reflexivity, which has to do with the feedback loop between people’s understanding of reality and their own actions. Society as a whole could learn from his theory, he said. “To make a contribution to our understanding of reality would be my greatest accomplishment,” he said.

Mr. Soros has been worrying about the fragile state of the markets for years. But last summer, at a luncheon at his home in Southampton with 20 prominent financiers, he struck an unusually bearish note.

“The mood of the group was generally gloomy, but George said we were going into a serious recession,” said Byron Wien, the chief investment strategist of Pequot Capital, a hedge fund.

Mr. Soros was one of only two people there who predicted the American economy was headed for a recession, he said.

Shortly after that luncheon Mr. Soros began meeting with hedge fund managers like John Paulson, who was early to predict a crisis in the housing market. He interrogated his portfolio managers and external hedge funds that manage his fund’s money, and he took on new positions to hedge where they might have gone wrong. His last-minute strategies contributed to a 32 percent return — or roughly $4 billion for the year.

The more Mr. Soros learned about the crisis, the more certain he became that he should rebroadcast his theories. In the book, Mr. Soros, a fierce critic of the Bush administration, faults regulators for allowing the buildup of the housing and mortgage bubbles. He envisions a time, not so distant, when the dollar is no longer the world’s main currency and people will have a harder time borrowing money.

Mr. Soros hopes his theories will finally win the respect he craves. But, ever the trader, he hedges his bets. “I may well be proven wrong,” he said. “I would say that I’m the boy who cried wolf three times.”

Many of the people Mr. Soros wants to influence may view him with skepticism, in part because of how he made his fortune. In 1992, his fund famously bet against the British pound and helped force the British government to devalue the currency. Five years later, he bet — correctly — that Thailand would be forced to devalue its currency, the baht. The resulting bitterness toward him among Thais was such that Mr. Soros canceled a trip to the country in 2001, fearing for his safety.

Asked if it bothers him that people accuse him of causing economic pain, his blue eyes dart around the room. “Yes, it does, actually yes,” he said.

Asked if those people are right to blame him, he says, “Well no, not entirely.”

No single investor can move a currency, he said. “Markets move currencies, so what happened with the British pound would have happened whether I was born or not, so therefore I take no responsibility.”

Mr. Soros, came of age in Nazi-occupied Hungary and has for decades longed to write a masterpiece that might put him among thinkers like Hegel or Keynes, said Michael T. Kaufman, who wrote a book about Mr. Soros. “He spent years writing papers and letters to people, but everyone ignored him,” Mr. Kaufman said.

But when Mr. Soros became rich, people began listening. He also started giving large sums to charities, and in Eastern Europe, as the Soviet Union crumbled, he distributed copy machines to encourage free speech in his native Hungary. So generous was Mr. Soros with his money that “Sorosovat” became a new verb in Russian, loosely meaning to apply for a grant.

He continues to be one of the top givers to charities around the world, and has given more than $5 billion away through his foundations.

Yet even Mr. Soros acknowledges that many economists still slight his theories.

“I am known as a hedge fund manager and I am known as a philanthropist, and it’s very hard for, say, academics to accept that a hedge fund manager may actually have something to say about economics,” Mr. Soros said. “So that has been difficult for me to overcome.”

But Joseph E. Stiglitz, a professor at Columbia who won the Nobel for economics in 2001, said Mr. Soros might still meet success. “With a slightly different vocabulary these ideas, I think, are going to become more and more part of the center,” said Mr. Stiglitz, a longtime friend of Mr. Soros.

Mr. Soros’s firm, Soros Fund Management, has been through several turbulent years. Stanley Druckenmiller, his longtime No. 2, left in 2000, in part because he was tired of the constant media attention Mr. Soros attracted. (Mr. Soros credits Mr. Druckenmiller for the winning gamble on the British pound, saying he added the encouragement to bet more money on the trade.)

Several outside investors also left, and Mr. Soros overhauled the company as more of a wealth management tool for his own family and related charities. Mr. Soros said in 2000 that he no longer desired returns like the 30.5 percent his fund returned on average, after management fees, from 1969 to 2000.

In 2004, Mr. Soros tapped his oldest son, Robert, to become the chief investment officer, despite Robert’s reluctance.

At that time, Mr. Soros, was busy trying to turn public opinion against President Bush. He donated $27 million to anti-Bush organizations and traveled the country speaking out against the president. This time around, he is less involved. He endorsed Senator Barack Obama but kept his distance from the campaign trail.

Robert Soros, 44, who once claimed his father based his trades not on grand theories like reflexivity but rather on his back pain, never shared his father’s enthusiasm for the markets. “When you’re a billionaire’s son, you’re less hungry than when you’re a Hungarian immigrant,” one former Soros Fund Management executive said.

Even so, the Soros fund performed well under the younger Soros, and as recently as last June, it was up 10 percent for the year, according to a letter to investors. At the end of July, Robert stepped down from his head investment role, just before his father returned to trading. Robert and his brother Jonathan remain deputy co-chairmen, under their father, the chairman of the fund.

This week, Mr. Wien illustrated the knack of Mr. Soros for timing with an old story. In 1995, Mr. Soros asked Mr. Wien why he bothered going to work every day. Why not go to work only on days when there is something to do?

“I said, ‘George, one of the differences between you and me is you know when those days are, and I don’t,’” Mr. Wien said.

Selling Stocks Short; April 8, 2008

stcktradr@gmail.com (Robert) — Tue, 08 Apr 2008 13:34:00 +0000

The Intelligent Trader; April 8, 2008
Selling Stocks Short

I had the opportunity to meet Doug Kass several years ago at a hedge fund conference hosted by Jim Cramer. I had been following his research for some time and found his writings to be both thoughtful and engaging. He is one of the best, if not the best, short sellers in the marketplace.

RAC
The Intelligent Trader

Doug Kass: Recession Will Run Deep
Blog post originally appeared on RealMoney Silver on April 4.

Will Technicals and Sentiment Continue to Trump Fundamentals?

7:38 a.m. EDT

Thus far, the market's internals are better than after the two previous one-day wonders.

Specifically breadth has remained positive, and volume has subsided into the two-day aftermath since Tuesday's soaring stock market. Sentiment remains another constructive element to the investment mosaic, gauging by the 10-day CBOE put/call ratio -- though lower than the recent peak, it still seems elevated and at levels that have typically been associated with market strength. Moreover, ISI's survey of hedge fund exposure is unchanged over the last four weeks.

Beyond the financials' dead-cat bounce (my view), the prior market leader -- namely, the materials sector -- seems to be the current and possibly future market leadership group.

With the technicals and sentiment, thus far, in relatively sound condition, here are some critical questions for your consideration:

1. To what degree has the market's decline discounted the current economic weakness?

2. How long will the domestic economy remain shaky?

3. And to what degree will it contribute to disappointing corporate profit growth?

I am still mildly bearish on the near-term prospects of the market and a little more bearish on medium intermediate-term outlook.

We Are in a Recession.

Soros Sees More Downside to US Market

stcktradr@gmail.com (Robert) — Thu, 03 Apr 2008 14:29:00 +0000

Sell-Stocks-Short; April 3, 2008

April 3 (Bloomberg) -- Billionaire George Soros called the current financial crisis the worst since the Great Depression and said markets will fall more this year after a brief rebound.

``We had a good bottom,'' Soros said yesterday in an interview in New York, referring to the rally in stocks and the dollar after JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. on March 17. ``This will probably not prove to be the final bottom,'' he said, adding the rebound may last six weeks to three months as the U.S. moves closer to a recession.

To read the full article: Soros Sees Additional Market Declines After Temporary Reprieve

RAC
The Intelligent Trader

Closing GM Short

stcktradr@gmail.com (Robert) — Tue, 01 Apr 2008 15:50:00 +0000

Selling Stocks Short; April 1, 2008

The market strength this morning is a bit much and I think it's time to pull the plug and nail down our profits on General Motors (GM). We closed it at $19.72 giving us a pretty respectable profit.

As of right now, The Intelligent Trader Long-Short Portfolio is 100% net long. Our indicators tell us that we're on OFFENSE and we'll heed those for the time being.

RAC
The Intelligent Trader

Selling Stocks Short: Get the Emotions Out of Your Decisions

stcktradr@gmail.com (Robert) — Sun, 30 Mar 2008 23:13:00 +0000

Selling Stocks Short; March 30, 2008

I’ve never been a big proponent of emotion investing, but given the number of phone calls this past week, I thought now might be a good time to address it.

Buying stocks is pretty easy. People do it all the time. Knowing when to sell is something else entirely and most investors miss the boat on this one. The talking heads remind us daily that selling shouldn’t be an emotional process. No kidding.

(Note: Most of the talking heads don’t own any stock or mutual funds at all. Those that espouse the most are ones who have their money in money market funds and CDs. They want you to heed their wisdom, but these folks don’t eat their own cooking.)

Professional traders and investors use an array of tools to set selling objectives. Sometimes they work and sometimes they don’t. Trust me – I know this from experience. I’ve had a number of stops jumped recently and have the scars to prove it. I use a number of charts and technical indicators to set selling points on both positions and the entire portfolio. Sometimes this works like a charm and sometimes it doesn’t. The one thing that I don’t do is to let my emotions get in the way of things. I trust the numbers – period.

Everyday investors don’t have the luxury of knowing what I do, nor do they have my experience. When emotions enter the fray, they wreak havoc on a portfolio. The two most dominant emotions people have are fear and hope. When it comes to deciding whether to hold onto a stock or to get out, fear and hope are the worst of all combinations.

If one of your stocks is losing money, you have two options – hope it turns around or be afraid of losing more money. The thing to do is to cut your loss and wait for a better opportunity to present itself.

If one of your stocks is making money, you have two options – hope to keep making money or be afraid that you’ll leave points on the table by not getting out at the top. The thing to do is hope that you keep making money.

The idea in all of this is to get out of stocks that are falling and to stay in ones that are rising. The problem is that this is easier said than done because a winner that stops going up causes you to fear losing money.

So the question is this – how do you separate your emotions and your investment portfolio? I’m not a psychologist or a behavioral scientist. I am a student of human behavior. If you want to keep your emotions out of your investment portfolio, consider the following:

Step one is to get to know the face in the mirror. It’s the one with wrinkles and blood-shot eyes looking back at you every morning. That’s your best friend and your worst enemy. How emotional are you? How much risk do you really want to take? In other words, how much of loss can you take before you walking the halls at night screaming like a land starved longshoreman?
Make it hard for you to screw up. If you use a broker, place sell stop orders with them in advance. If you trade online, use GTC (good-till-cancelled) orders. If you place the orders in advance, don’t change them. Also, give yourself plenty of room to maneuver. In days of yore, it was common to use stops of 5 to 7 percent. With today’s gyrations, daily moves of 12-15 percent aren’t uncommon. If your stops are too close, you’ll get stopped out prematurely – leading to too much trading activity.
Understand this – THIS IS YOUR MONEY THAT YOU ARE DEALING WITH. It’s your future and your families. If you don’t keep your eye on it, know one will. The more you know and understand what you’re doing, the more successful that you’ll be.

You need to know the upside potential, the downside risks, how will my portfolio behave if interest rates go up or down, what happens if the dollar gets stronger or weaker, and a host of other things. Do you need to be an expert? No you don’t. But, don’t be in the dark either. Your cousin’s latest tip or the one from the guy with the awful necktie at work don’t cut it. That’s not a strategy – it’s a bet. Ordinary people don’t win many bets. If you don’t believe me, just hop a plane to Las Vegas, Reno or Atlantic City.

Look – I’ve been in this game since 1982 and this is a fact - your emotions will either make you or break you. It’s that simple. You will never conquer all of your emotions, but you can get your arms around them. Stock trading isn’t about picking the right stocks – that’s a really small part of the overall picture. It’s about coming to grips with your hopes and fears. Once you have your emotions under control, you’re well on your way to being successful.

Investing isn't about conquering your emotions. It's about handling them. If you have a handle on your emotions without using any of the above tools (or other tools of your choosing), you're the rare investor indeed. As for the rest of us, letting our money management and investment tools guide and control our financial decisions is a necessary step toward successful investing.

RAC
The Intelligent Trader

The Slump Worsens for US Auto Makers

stcktradr@gmail.com (Robert) — Thu, 20 Mar 2008 13:16:00 +0000

The Slump Worsens for US Auto Makers

which is good news for us. We are SHORT General Motors (GM) and will remain so.

From the Wall Street Journal ....

The Big Three U.S. auto makers are preparing cost cuts and other belt-tightening measures in case a slumping U.S. economy hurts sales more than expected.

General Motors Corp. has pushed some capital expenses from the first quarter to later in the year to make sure it has enough cash if the downturn in the U.S. market worsens, the company's chief financial officer said yesterday.

Ford Motor Co. executives said the auto maker is considering options to cut costs further to reach its goal of becoming profitable by 2009.

Chrysler LLC, meanwhile, said it completed previously planned moves that will lower production at several plants in anticipation of weak sales this year.

Most auto makers have been forecasting industry sales of 15.5 million to 15.7 million cars and light trucks this year, down from nearly 17 million two years ago. But turmoil on Wall Street has raised concerns that vehicle sales could come in even lower. A new forecast by J.D. Power & Associates earlier this week put industry-wide sales of light-duty cars and trucks this year at 14.95 million, the lowest level since 1994.

Speaking at an analyst conference, GM Chief Financial Officer Ray Young said his company is sticking with its forecast that vehicle sales will pick up in the second half of the year. GM expects total U.S. vehicle sales, including heavy trucks, in the low 16 million-unit range, meaning light-vehicle sales of roughly 15.7 million.

Mr. Young said GM has taken about $500 million in "management actions" to mitigate a possible downside scenario. To conserve cash and help its liquidity amid tight credit markets, he said, GM will look to take advantage of government-funding programs in certain capital-spending programs in some countries, including Brazil, that could provide needed capital.

GM ended 2007 with liquidity of $27.3 billion and access to about $7 billion of undrawn U.S. credit facilities. Mr. Young said he is monitoring liquidity on a quarter-by-quarter basis.

GMAC LLC, in which GM owns a 49% stake, is adequately capitalized, and the auto maker doesn't plan on making a cash injection, Mr. Young said. Concerns that GM might have to contribute money to its former lending unit have sent its share price down in recent weeks.

RAC
The Intelligent Trader