Stock Traders

The Best Solution to End The Recession is Not Public Private Investment Program

noreply@blogger.com (Stock Traders) — Fri, 25 Jun 2010 20:21:00 -0700

PPIP is Evil:
The government thinks the solution to end the recession is the PPIP program (Public Private Investment Program). I hardly know the details of the program until I read the following article from thestreet.com. More Leverage Won’t Solve Bank Mess. The more I understand the program the more upset I get. Look at the following details it is basically a program to shift the risk of the banks holding the toxic asset to taxpayers. It is indeed

“An example of banks trying to profit through financial engineering at taxpayer expense, because the government would subsidize the asset purchases.”

PPIP Details:

Banks will remove troubled assets from their balance sheets and receive a value determined by a bid/ask negotiation process with investors bidding and the banks asking.
The negotiated price will be paid from the following sources: 7.5% private investor, 7.5% government (taxpayer) funds, and 85% loan from the FDIC.
The FDIC loan is non-recourse. If the assets ultimately prove to be worth less than 85% of purchase price, the 15% of investor funds are wiped out and the FDIC will own the assets.
The FDIC, a government sponsored enterprise (GSE), will be bailed out by the government (taxpayer), if necessary.

The PPIP program should not be implemented without taxpayer’s approval because you can see that FDIC will become the trash can holding the toxic asset eventually and the government have to use taxpayer’s money to bail it out. I emphasize it needs taxpayer’s approval. I am hard working taxpayer for the pass 11 years and I still didn’t get the dame right to vote. That really makes me angry.

The logic behind the government’s PPIP program is that the banks will become more willing to lend once the toxic asset is removed from their books. Does that mean the government through the PPIP program encourages the banks to do the 100% finance based on stated income for home buyers again? Does it mean the government encourages people to buy 3 or 4 houses while in fact they only need one? Suppose the PPIP works and housing price is pushed upward over the next two years gradually to 2006 price level. The current toxic asset become very liquid and can be traded and change from one hand to another. Then what? Another mortgage crisis? Another trillions of new toxic asset created? It doesn’t need an MBA degree to know it doesn’t make sense

The Solutions:
Frankly I think the US economic cycle is a cycle of bubble creation. We have the housing bubble. Before that we have the internet bubble and before that we have the saving and loan bubble. We simply need to create the bubble somewhere else to draw people’s attention to it, to make them believe into it and make them act on it. Creating bubble in the same place is just not going to work because the memory of the public is longer then an economic cycle.

Where is the best place to create the bubble? I guess it could be green energy or it could be some innovating technology like the invention of television and telephone many years ago. The smart grid could be one. What if we can’t find a place to create a big enough bubble to expand the economy long enough? Well I think inflate the currency is the only solution. Warren Buffet said Well Fargo could earn its way through the recession. Why it can? Because Wells Fargo can borrow money at zero percent interest from the Fed and lend it out at 4 or 5 percent to you and me who want to buy a house. That has no difference then the Fed printing money and giving it to the banks. I think the Fed instead of giving money to the banks it should just give very one who want to buy a house the down payment. Why should the bank owners be benefited in the middle when the ultimate purpose is to help the home buyers? It just doesn’t make sense.

Baidu September Option Pain Raised Again

noreply@blogger.com (Stock Traders) — Fri, 25 Jun 2010 20:18:00 -0700

I brought and closed the 2 Baidu September put contract I was holding. I net about $400 hundred on that deal. I didn’t wait for it to expire because that was quite a return given the small amount of investment ($600) in a short period of time. I feel there may be chance for me to sell put again at a good price before the option expiration day. It is the third time I make money on trading options. Baidu’s September put options pain was raised again at $320 currently. Looks like traders are not as bearish on Baidu as they were at the end of last month.

account balance 2009/09/05

My account balance is still short of my initial investment amount. But I am not eager to earn it back. I will just take it slowly. I feel comfortable with what I am holding and I think the day I recover my initial investment amount is not far. My focus recently is to get back to work. I really feel it is not easy to get a job nowadays. I feel the companies that are looking for people are pickier and they take it slowly. With 9.7% unemployment rate the companies that are hiring are sure to have a lot more choices than before.

I am not convinced that the recession is ended. I believe the problems of the banks are not over yet. I kind of think that the real estate market is better only because of the government’s incentive for first time buyers. Retail sales didn’t have major improvement. Further more I believe foreclosure will continue to raise as more option ARM reset occurs. I am maintaining a major portion of cash in my portfolio and waiting for opportunity.

Seems That Baidu is Able to Predict the Market Trend

noreply@blogger.com (Stock Traders) — Fri, 4 Sep 2009 08:09:00 -0700

I mentioned in my previous post that Baidu’s September option pain was $300. I checked it again and the option pain was higher a little bit at $310 at the moment. What would be your guess if you predict Baidu’s price movement without looking at the option pain a couple weeks ago when Baidu was about $340? I would probably think it would go up instead of retreating. Obviously option pain can really tell something. It can tell how institutional traders see a particular stock. If option volume on an issue is large enough option pain on that issue may be able to tell how institutional traders see the market overall.

I checked INTC and BAC September and October option pain. They are trending downward. They seem to tell the bearish sentiment of the market should be extended into October. However Baidu’s Oct option pain is at $330 which is higher than September’s. I am not sure if you agree or not but I have already convinced that option pain is a very good leading indicator on the underlined issue or even the overall market.

Anyway I didn’t trade for a while. I was busy looking for a new job. I add 200 shares of CSKI at $13.09 and I sold 2 contract of Baidu Sep 290 Put at $3. I was thinking if Oct Baidu option pain is $330 I wouldn’t mind to have it at $290 in the mid of September. There is $20 difference or about 9% difference between $290 and Sep option pain. I thought it could be safe. But again who knows. We will see how it goes.

Baidu Option Went Well and I Saw a War Between CSKI Management and Professional Short Seller

noreply@blogger.com (Stock Traders) — Mon, 31 Aug 2009 02:21:00 -0700

My Baidu put option went well finally. I collected the $420 option premium. In my previous post I mentioned I sold a contact of Baidu Aug 320 Put. The market took a deep a few days ago. I thought the put would end up in the money and I would be forced to buy Baidu at $320. I didn’t mind if that happen though. But magically on expiration day which was the passed Friday Baidu closed at $344, a price very closed to its option pain. Seems to me the option pain theory has some credibility. It is the second time I sold put and it is the second time I saw stock price closed near option pain on expiration day. Baidu’s September option pain is $300. Does that mean institution traders are bearish on Baidu? I really want to fine out next month.

I believe CSKI is under value and I did some research on the stock to find out what was holding back this company. I found there was a so called professional short seller spreading news that he had reason to believe CSKI management was providing incorrect financial information. He even has a web site to tell his story http://waldomushman.com/. I don’t know whether I should believe this rumor. Maybe the short seller used to be a potential investor on CSKI but got opt out and felt pissed off. That is wild a guess and I hope that is the case. CSKI has to proof to all investor that the short seller is wrong. I feel there is a war between CSKI’s management and the professional short seller. I am still holding CSKI and of course I hope CSKI management will win the war at the end.

I Have Got Harsh Comments From CAP

noreply@blogger.com (Stock Traders) — Mon, 31 Aug 2009 02:20:00 -0700

I haven’t update the stock traders blog for a while because I was busy. I took a look today and I found someone name CAP posted some really harsh comments. I deleted most of them. Sorry about that CAP! I hope it is not because CAP followed some of my trades and lost money on them. The information on my blog can not serve as investment or trading advice by any means.

I was wrong on many of my trading positions taken lately. Especially the put position on Baidu. I sold one contract of Baidu Put and I am still holding it. As I mentioned before Baidu likes to follow its home market, the Chinese stock market. At this time PST 1:47 AM 2008-08-19 the Chinese stock market dropped some 5%. Seems to me the US market will be ugly when it open later today. In fact US future already dropped almost 100 points. If Baidu drop 5% today it will be below $320, the strike price of my Puts. There is a very high chance that I will lost money on the Puts. I will know this weekend. I added another stock to my portfolio though. That is Monlia Healthcare(MOH). I bought it at $19.95, 100 shares. And I am losing money on that again. CAP said I almost lost money on every trades and can’t believe I am holding an MBA. That’s almost true.

Indeed I wasted a lot money getting my MBA. If I didn’t take it I would have saved a lot of tuition. If I didn’t take it I wouldn’t trade stocks and I wouldn’t lost $70K. Do I regret taking it? I don’t think so. I might have gain something not in monetary terms while I lost this money. At least I felt OK that I still survive after this kind of lost.

Under Valued Stock - CHINA SKY ONE MEDICL (CSKI)

noreply@blogger.com (Stock Traders) — Mon, 31 Aug 2009 02:19:00 -0700

It is very hard to find under valued stock nowadays but I came across a stock that I believe under valued based on its financial statements. The company I mentioned was CHINA SKY ONE MEDICL (CSKI). I found its business is simple and its operation and its book are very easy to understand not like those banks you don’t know what is true and what is not. I brought 200 shares of this stock today at $15 something and I am planning to hold it for a while. I sold my Fortress Investment holding at $5 today. I made about $350 on that stock.

As I mentioned I like CSKI because its business is simple and easy to understand. It produces and sells over-the-counter drugs in China. I went to its web site. It has a portfolio of over-the-counter drugs. So its sales are not relying on a single drugs and it has a pretty stable sales trend. More importantly it has a very healthy cash flow. It makes profit for the past four quarters and its trailing 12 month P/E was lower than 8. Forward P/E is a bit more than 6. Price to cash flow is less then 10. Net income grow was more than 30% for the past three years. I don’t think I can find a second company like this. It was under valued by all measure.

If you are reading this post I hope you can take a look at it and post what you think about it. Are you able to find any company comparable to this one? I am thinking about all in again. By the way I bought 500 shares Dry Ship again at $6.45 a couple days ago. Planning to hold it for a while too.

Can I Be All in Selling Baidu Put

noreply@blogger.com (Stock Traders) — Mon, 31 Aug 2009 02:17:00 -0700

Once a while I have this crazy thoughts. I did not have too much crazy act though. Evey time I act crazy I got burned. I mentioned I ever short 300shares of Well Fargo using margin capital almost 2 times of what I had in my account. Today I had a crazy thought again. I thought about using all the cash in my account selling Baidu August 320 Put. I really don’t think that Baidu will go back to $320 a share by August 22nd. If it does I believe it will create a buying opportunity. That is why I want to sell Baidu August 320 Put. At the end I only sold 1 contract for $420. I ever mentioned that selling put is a strategy to earning more than CDs rates if you have cash sitting idl. I still believe so. But we’ve got to be very careful picking the stock and option strike price when doing that.

After I sold Baidu put I saw my account requires me to remain $6,374 of cash. So if I want to be all in the maximum number of contract I can sell is 4 only. 4*420 = $1680. So if everything works out the all in strategy can net me $1680 by August 22nd. It looks like Baidu is not going back to $320 given the current market sentiment. But my experience told me it is very hard to predict. Market sentiment can have 180 degree change over night triggered by a single story. So I dare not to be all in. Anyhow I am holding two positions now. 500 shares of Fig (Fortrest investment group) and 1 contract of short Baid Put. The picture shows my balance.

As to Fortrest investment group. I feel it will reach 6 if the market remain positive. Blackstone drop a lot today and it seem to me it will go up tomorrow and so will Fortrest investment group. let’s see what happen tomorrow.

I Bought Something Today

noreply@blogger.com (Stock Traders) — Tue, 4 Aug 2009 21:07:00 -0700

I finally decided to buy something today. I bought 500 shares of FIG (FORTRESS INV GP LLC). That is not much and I am planning to hold it for a while. I just bet it will report a good quarter. I thought Bank of America would go down after its earning release but that thought was proven so wrong. BAC just kept going up with the other big banks and with the overall market. If I don’t remember wrong almost all data released these few weeks exceeded expectations. The Dow went from 8150 to 9300 in a few weeks. It turned out that we should be all in when the DOW was at about 8000. And it clearly showed a V share recovery at least during the past two quarters.

Thinking back I was quite stupid to liquidate my entire portfolio back in March when the market was close to its lowest. As I mentioned I had a portfolio of about 100K back in year 2000 and when I liquidated my portfolio I got back about 30k. I still keep track of my original portfolio and my original portfolio has MSFT, INTC, ORCL, JNPR, EMC and SNPS. If I didn’t touch it I would have 65K today instead of 27k. So I started to question my new ways of investing - day trading. What I see is that there is no one way of investing to work well at all times. I bet no day trader worked better than someone that bought and held for the past couple of quarters.

I ask myself do I want to go back to buy and hold? I don’t know the answer yet. I feel there are some companies worth to buy and hold. I am recently looking at something very conservative like Q(Quest Communication), OB (OneBeacon Insurance Group) and BP. I might be too late on OB because I feel its price is going to jump starting today. I am watching the big banks also. The big banks were doing very well but somehow I feel they are just very good at hiding the bad news or postponing them. I still think they are overvalued unless they resume a reasonable size of dividend payout which could be years away.

I haven’t report my balance for a while and there is not much change. My balance stood at $27,107 and I am holding 500 shares of FIG at the moment

Off Balance Sheet Financing Example

noreply@blogger.com (Stock Traders) — Sat, 1 Aug 2009 21:01:00 -0700

There are a lot of concerns about the banks’ off balance sheet asset lately. New accounting rule will take effect starting next year and require banks to move certain off balance sheet asset back to their balance sheet. This change was triggered by the shady practice of using off balance sheet financing in the Enron case. Many analyst expect when that happens banks with large off balance sheet asset will be forced to raise capital again.

I tried to find an example of bank’s off balance sheeting financing but didn’t really find one. However I found the following was very close to an example and it is the best explanation about off balance sheet financing. “Uncovering Hidden Debt“

Wells Fargo and Bank of America were said to have huge off balance sheet asset.

2009-07-24 Wells Fargo’s Balancing Act
2009-07-21 Analyst sees $12 bln reserve charge for B. of A.

That was why I didn’t trade any financial stock lately. I don’t want to short. I don’t want to trade in and out as frequent as I did. I don’t believe in the banks’ balance sheet. All of these make me trading nothing lately. I am still waiting for the DOW to come down below 9000. I believe it will happen.

Wells Fargo Earning Highlights Compare

noreply@blogger.com (Stock Traders) — Wed, 29 Jul 2009 21:21:00 -0700

I read through Well Fargo’s first and second quarter earning releasing and jog down the hightlights of the report in a comparable list. Hightlights number 24 and 27 to 30 are the focus. I will blog more about them in later post.

Reference: https://www.wellsfargo.com/invest_relations/earnings.

Wells Fargo 2009 Second Quarter Earning Highlights

1, Net income: $3.17 Billion
2, Net income applicable to common stock: $2.58
3, Diluted earnings per common share: $0.57
4, $0.7 billion ($0.10/per common share) credit reserve build
5, $0.24 billion ($0.03/per common share) merger-related expenses. $0.57 billion ($0.10/per common share) FDIC assessment
6, Revenue: 22.5 Billion
7, Legacy Wells Fargo revenue 13.6 billion
8, Net interest margin 4.30%
9, Core deposit: $765.7 billion
10, Tangible common equity: 54.9 billion, TCE ratio 5.24%
11, Tier 1 capital ratio 9.80%
12, –
13, Allowance for credit losses to $23.5 billion. 2.86 percent of total loans and 1.5 times nonperforming loans
14, $0.04 billion write-down of impairment on debt and equity security
15, Pre-tax pre-provision profit: 9.8 billion
16, Net interest income: $11.8 billion
17, Total loans were $833.9 billion
18, Noninterest income of $10.7 billion
19, $1 Billion MTM gain. $2.3 billion increase in the fair value of the MSRs offset by a $1.3 billion economic hedge loss in the quarter
20, Trust and investment fees of $2.4 billion
21, Service charges on deposit accounts of $1.4 billion
22, Card and other fees of $1.9 billion
23, Trading revenue of $0.75 billion
24,
Net unrealized losses on securities available for sale reflected in equity of only $0.4 billion down from losses of $4.7 billion at March 31, 2009. “The net unrealized losses were virtually eliminated as credit spreads narrowed during the quarter and as unrealized gains emerged on new mortgage-backed securities (MBS, purchased during the quarter at the peak in MBS yields)”
25, Noninterest expense was $12.7 billion
26, $0.57 Billion FDIC assessment. $0.24 billion merger-related expenses
27, Wachovia’s total net charge-offs in first quarter were only $0.98 billion
28, Second quarter net charge-offs were $4.4 billion
29, Total nonperforming assets were $18.3 billion. $15.8 billion of nonaccrual loans (nonperforming loans)
30, Loans 90 days or more past due and still accruing totaled $16.7 billion
31, –

Wells Fargo 2009 First Quarter Earning Highlights

1, Net income: $3.05 billion
2, Net income applicable to common stock: $2.38 billion
3, Earning per common share: $0.56
4, $1.3 billion ($0.19/common share) credit reserve build.
5, $0.2 billion ($0.03/common share) merger-related expense. $0.34 billion FDIC assessment
6, Revenue: $21 billion
7, Legacy Well Fargo revenue: $12.3 billion
8, Net interest margin: 4.16%
9, Core deposit: $756.2 billion
10, Tangible common equity: $41.1 billion. TCE ratio 3.28%
11, Tier 1 Capital: $88.9 billion. Tier 1 capital ratio 8.28%
12, Credit write downs from the Wachovia acquisition: $40 billion
13, Allowance for credit losses: $22.8 Billion. 2.7% of total loans. 2.2 times nonperforming loans
14, $0.5 billion write-down of impairment on debt and equity security
15, Pre-tax. Pre-provision profit $9.2 billion
16, Net interest income: $11.4 billion
17, Total loans: $843.6 billion. $119.4 billion of consumer loans
18, Noninterest income: $9.6 billion
19, $0.88 Billion MTM gain. $2.8 Billion Reduction of (MSRs) mortgage servicing rights and $3.7 billion hedge gain.
20, Trust and investment fees of $2.2 billion
21, Service charges on deposit accounts of $1.4 billion
22, Card and other fees totaling $1.8 billion
23, Trading revenue of $0.79 Billion
24,
The net unrealized loss on securities available for sale declined to $4.7 billion at March 31, 2009, from $9.9 billion at December 31, 2008. Approximately $850 million of the improvement was due to declining interest rates and narrower credit spreads. The remainder was due to the early adoption of FAS FSP 157-4, which clarified the use of trading prices in determining fair value for distressed securities in illiquid markets, thus moderating the need to use excessively distressed prices in valuing these securities in illiquid markets as we had done in prior periods.
25, Noninterest expense: $11.8 billion
26, FDIC assessments: $0.34 billion. $0.12 billion additional insurance reserve. $0.2 billion merger related costs. Total integration expense to be $7.94 billion and will be spread over the integration period
27, Wachovia’s total net charge-offs in first quarter were only $0.37 billion after a total of $40 billion of credit write-downs have already been taken through purchase accounting adjustments.
28, Net charge-offs for the combined Company were $3.3 billion
29, Total nonperforming assets: $12.6 billion. $10.5 billion of nonperforming loans
30, Loans 90 days or more past due and still accruing totaled $15.1 billion
31,
“We have built reserves for six consecutive quarters, dating back to fourth quarter 2007 when credit deterioration became evident,” said Atkins. “These reserve builds have strengthened the balance sheet and position us for the future. We view a considerable portion of the $23 billion allowance to be essentially like capital since we won’t draw on this reserve until the credit crisis ends and loan losses decline. Current accounting policies will then require us to reduce the allowance, increasing profit and increasing capital ratios at that time.”

Trading is 90% Mental and Momentum

noreply@blogger.com (Stock Traders) — Wed, 29 Jul 2009 21:19:00 -0700

If you followed my blog you know that I was betting on the wrong site of the market for a while. I closed all position I was holding today and I am currently down 10% from my initial investment. In order to recover my investment I need to earn more than 10% now. I am not going to be trading as often as I did going forward because I think I made too many stupid mistakes trading in and out. Just a few days ago I shorted 1000 shares of HIG (Hartford Financial Service) at $14.18 and cover it at $15.83 yesterday.

One past experience told me not to take the short side so easily but another one told me if I could hold on to my short position I would eventually see profit. I shorted HIG not without reason backing it. HIG is one of the insurer that needs TRAP money. If HIG were able to return to profit so easily it wouldn’t need TRAP money in the first place. Because of this and the later experience I shorted HIG without carefully evaluating the news that bumped HIG (U.S. insurers to get 2nd-quarter investment boost). I might be right and I might be able to see profit if I hold on to the short HIG position till tomorrow. I might be able to see profit on my puts on Starbucks Coffee and US Bank if I hold on to them. But somehow I feel it doesn’t worth to take the risk. Risk on the short side is much bigger but return doesn’t seem to be better. So going forward I will not take the short side any more.

One last thing I want to remind myself again and again: Trading is 90% Mental and Momentum.. It is news driven. My blog’s commentator also reminded me that. I have got to take it seriously.

Namstocktraders Ratio, Tangible Common Equity, Tangible and Intangible Assets, Tier 1 Capital Ratio

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:40:00 -0700

I don’t feel like to post my trades until I break my losing streak. I guess that is understandable. The more I want to guess bank earning right the more I want to understand what all the financial terms means. I almost read through Wells Fargo’s first quarter financial report. Wells Fargo Earns Record $3.05 Billion, $0.56 EPS. I found it was daunting to understand all the information there as I didn’t remember the meanings of all the financial terms in the report. So I am going to understand it bit by bit and understand it a few terms at a time.

Namstocktraders Ratio
It stands for Tangible common equity ratio. It equals total tangible common equity divided by total tangible assets.

Tangible Common Equity
Tangible common equity is the amount of tangible asset that common shareholders would receive if the company were closed. So it doesn’t include intangible asset

Intangible Asset
Assets that do not have a definite existence are called intangible assets. They have neither a physical form nor give their owner definite financial rights. Deferred tax assets, good will, patents and copyrights and capitalized R & D, trade names and franchises are intangible assets.

Intangible Asset
Assets that have a physical existence, or give the holders definite set of financial rights. Land, machinery, bank deposits and investments security are tangible assets.

Tier 1 Capital Ratio
The Tier 1 capital ratio is the ratio of a bank’s core equity capital to its total risk-weighted assets (Source: Wikipedia). Risk-weighted assets are the total of all assets held by the bank which are weighted for credit risk according to a formula determined by the Regulator. Assets like cash and coins usually have zero risk weight, while debentures (also called note or unsecured corporate bond) might have a risk weight of 100%. Core equity capital consists primarily common stock and retained earnings. Tier 1 capital ratio is seen as a metric of a bank’s ability to sustain future losses.

I don’t know what is deferred tax asset but it shouldn’t affect me to understand Wells Fargo’s financial report

Trade Options Again Today

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:40:00 -0700

Well Fargo released earning and exceeded earning expectation today. I thought it wasn’t able to do so. I think analyst will still need time to look at its earning component to decide whether it worth to buy going forward. In fact it was to my surprise that Wells Fargo was able to exceed expectation. It was to my surprise too that it stock price went down. Will see what analyst have to say on its earning report.

I brought some puts on Star Bug Coffe and US Bank. I am betting they will go down and I am at lost again.

Account Blance 2009/07/22

Account Balance Changes: -$254.98

Loan Loss Reserve, Loan Loss Provision and Net Chargeoffs I am Really Confused by Them

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:38:00 -0700

I read many articles that talk about loan loss reserve, loan loss provision and net chargeoffs. I don’t really understand what they mean and all of a sudden I want to spend sometime to dig into their meanings. One thing I am clear is that loan loss provision, is like cost of good sold on income statement, should be subtracted from revenue to calculate net income. I did some research and find the following from A Loan Loss Reserve Primer: Beyond Simplistic Ratios

The loan loss reserve (or allowance for loan losses) is a contra-asset account on a bank’s balance sheet that is netted against gross loans. Each quarter the loan loss reserve rises by the amount of the loan loss provision (an expense item;) and reduced by the level of net chargeoffs.

I still remember this general accounting principle: Asset = Liability + Owner’s Equity. So loan loss reserve can be viewed as negative asset sitting on the asset side. The increase of loan loss reserve will decrease the total asset value. And this loss of asset value is reported on income statement as loan loss provision. Loan loss reserve on the balance sheet is similar to the stocks a company holds. Its value can fluctuate from time to time. But the stocks a company holds is normal asset type and the increase of stock price creates a gain item on income statement whereas the decrease of stock price creates a loss item on income statement. Loan loss preserve may go down and when it happen it will create negative loan loss provision and bring up net profit. It can happen when the management decides that they are over reserved for loan loss. It was the number 4 arguing point of the quote in this post The Reasoning Behind Bank of America’s Upgrade. I think he really means BOA has over 100 billion loan loss reserve(not provision) and at some point in the future when the economic turns around Bank of America may find it is over reserved. We can see loan loss preserve is a pretty flexible item where every banks can make its own decision to increase it or decrease it base on its own view on its own loan portfolio although some general guidelines apply

Net chargeoffs are loan amounts considered absolutely not collectible. It shouldn’t change the total value of asset as far as my understanding. People can look at net chargeoffs to evaluate whether loan loss is over or under reserved.

Trade For Blogging Purpose

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:38:00 -0700

I shorted BAC again and made a small profit. In my previous post I was asked why I dump BAC with such a small change in price. The question really make me think a lot whether it worth while to trade in and out so often. I don’t know. I don’t find I am comfortable to hold anything.

I didn’t think it worth while to hold long position on BAC. The market is already up a lot. After this earning season I think we will see profit taking. I don’t see much excuse for the market to pump BAC with its unclear earning picture. In other words I feel BAC will have more bad news coming then good ones. How about the short side? Hold a shorted BAC position for a couple of weeks. I don’t want to hold short position either because I feel uneasy holding a short position especially after I missed a better short entry point above $13. But my reasoning keeps telling me that I may see BAC touching $11 soon. Please convince me if you think I am wrong.

It was like I traded this few days for blogging purpose so that I had somthing to talk about here. It should’ve been the other way around. I blog for better trading. I am searching for some kind of confidence that I had before and I still didn’t find it back. I have no confidence in holding anything.

Anyway Wells Fargo is going to report earning tomorrow before market open. It will be the focus of the financial sector tomorrow.

Account Balance 2009/07/21

Transaction 2009/07/21

Account Balance Changes: +89.80

Earning Potential is Ultimate Driving Force of Stock Price

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:33:00 -0700

I lost again all because I didn’t trust my own analysis. In a previous post, “Baidu is Holding up Well Today”, I mentioned that BAC’s earning was not good in fact. Because of general market sentiment I didn’t take the short side today and I bought into BAC today at $12.32. I thought it was low enough to expect a same day rebound. It didn’t happen. I lost again. Bank of America dropped big time today all because its earning potential. I guess BAC will make no profit for the rest of the year so did many analysts. Earning Potential is ultimate driving force of stock price and that is why BAC dropped. I guess BAC will see profit only when loan loss preserve start to decline. With rising unemployment it probably won’t happen still next year. $13 is probably the CAP for BAC in the coming months. I am very disappointed as I haven’t seen a decent green amount on my account for a long while.

Account Balance 2009/07/20

Transaction 2009/07/20

Account Balance Changes: -$160.30

Kelly criterion - the Systematic Trading Methodology

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:33:00 -0700

In a previous post Systematic Way of Trading - Stock Board Advice I quoted an advice post on yahoo stock board by a trader. It mentioned a term called “Kelly Criterion” which I never heard of before. I did some research and found this is a term from probability theory. I studied probability theory in my MBA classes before but I didn’t recall this term. I guess MBA classes didn’t cover probability theory that deep. The following is an explanation on Wikipedia.com about Kelly criterion

The Kelly criterion, or Kelly strategy or Kelly formula, or Kelly bet, is a formula used to determine the optimal size of a series of bets. In most gambling scenarios, and some investing scenarios under some simplifying assumptions, the Kelly strategy will do better than any essentially different strategy in the long run.

For simple bets with two outcomes, one involving losing the entire amount bet, and the other involving winning the bet amount multiplied by the payoff odds, the Kelly bet is:
f* = (bp - q)/b.
where

f* is the fraction of the current bankroll to wager;

b is the net odds received on the wager (that is, odds are usually quoted as “b to 1″)

p is the probability of winning;

q is the probability of losing, which is 1 − p.

As an example, if a gamble has a 60% chance of winning (p = 0.60, q = 0.40), but the gambler receives 1-to-1 odds on a winning bet (b = 1), then the gambler should bet 20% of the bankroll at each opportunity (f* = 0.20), in order to maximize the long-run growth rate of the bankroll. If the gambler has zero edge, i.e. if b = q/p, then the criterion will usually recommend the gambler bets nothing

It might be daunting to understand for someone never get trained on probability theory. I seem to understand it well. I presented similar concept in an early post stock trading vs gambling . But to apply this theory on stock trading a very complex mathematical model is needed to accurately determine the probability of wining and losing. I believe hedge fund and trading firm would hire a troop of Phds to work on mathematical model that calculates the probability. Believe it or not a colleague of mine is recently interviewing with a company doing such research. For general investor like me without using any proprietary software the only way is to take a guess.

Having said that it reminds me a period of time when I didn’t watch the market closely and just set up a limit order to buy or sale. Actually that was before I started this blog. I remember I was able to grow my balance from $30,000 to $40,000 within a month. Maybe a programmed trading is better then manual trading. I found my emotions always take control of my buy and sale decision when I watch the market closely.

Baidu is Holding up Well Today

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:31:00 -0700

Yesterday I thought about shorting Baidu at $318. I am glad I didn’t do so. Baidu is holding up above that price and didn’t follow Google dropping. I guess traders are waiting for its earning report on Jul 23rd.

I traded again today I was tire of watching. And I lost again. I short Bank of America at $13.30. It went up to $13.47 after that. I covered it when it fell back to $13.33. It kept falling after I covered it. I shorted it because its earning was not a good one basically. It reported profit only because the big gain on selling stake in China Construction Bank. The gain was more than 5 billions instead of 2 billions that I guessed in this post “Bank of America Earning Forecast and Financial Statement Analysis”. If the gain was 2 billions then Bank of America will show 1 billion lost as I was expecting.

Seems to me Bank of America will report no profit or will report loss for the coming quarters. I kind of think Bank of America will keep falling starting from here. But again I don’t trust my judgment.

Here is the trade today and balance.

Transaction 2009/07/17

Transaction 2009/07/17

Account Balance 2009/07/17

Account Balance 2009/07/17

Account Balance Changes: -$50.33

Should I Short Baidu at $318

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:30:00 -0700

I thought about a few trades yesterday and today but as I said in my previous post I lost confidence about my judgment lately so I didn’t make the moves. It turned out that if I made the move I would make good profit. I thought about shorting 2000 shares of Bank of America yesterday after market close at $13.40 but I didn’t do it. I thought about buying 2000 shares of BAC this morning when it dropped to 13.04 a couple times but I didn’t do it.

Now I am thinking about shorting 100 shares of Baidu at $318. As you see Google dropped $14 dollars after market close. It is like selling on the earning report. Baidu usually follow Google or the Chinese market. So I kind of think Baidu will drop and will drop $10 at some point tomorrow. I am still thinking about the move. I will have the chance to short it till 5:00PM

I post the same question on Baidu board. http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_B/threadview?m=tm&bn=22855&tid=273994&mid=273994&tof=6&frt=2. Seems like no one really have the same feel. I let go that thought again.,

I Need a Break

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 21:29:00 -0700

Like I felt yesterday Intel’s result dragged up the market. I lost on the Baidu put and I sold them. I traded on GCI (GANNETT CO INC) today. I noticed this stock in my trading tool’s news window. I felt this company was kind of under valued even at today’s closing price but I didn’t follow this company for long. It reported 2nd quarter profit of $0.46 a share and its stock price was at $4.50 at close. Its forward P/E is quite low. I have no confidence on my own judgment any more so I am not going to keep it. I feel I just need a break. After more than a month of hard work I am still at loss. So I may not be trading for the rest of the week.

Transaction 2009/07/15

Transaction 2009/07/15

Account Balance 2009/07/15

Account Balance 2009/07/15

Account Balance Changes: -$260.59

Again Never Underestimate the Tie Between Oil and Energy Stocks

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 10:44:00 -0700

Yesterday I kept my 800 shares of PCX (patriot coal) in hope that it would rebound when oil price rebound. In early today there was report that oil price was held stead above $60 a barrel and PCX was up at around $5.45 not long after market open. The DOW was up 40 some points at the time. I thought that was it and the rebound of PCX was disappointed to me. I was eager to find a chance to sell PCX. I sold it at $5.47 early in the morning. Looked at how it closes. PCX was at $5.63 and the Dow was only up 5 points. So once again don’t under estimate the tie between oil price and energy stocks. Energy stock can be affected by oil price more then by the general market. So this is a bad move I made today. I brought these 800 shares at $5.76 a couple days ago.

I did make a good move. I bought some Bidu (Baidu) puts and sold them later net about $120. So my total gain today is about $250. Not a lot but my account is back above my initial capital of $30,000. I have learned to be happy with small gains and I love this thinking “Go slow. Preserve capital. Learn the fundamentals. Achieve consistency”

Account Balance 2009/07/09

Account Balance 2009/07/09

Stock Trades 2009/07/09

Stock Trades 2009/07/09

I feel the overall sentiment of the market is still bearish. The market is waiting to see how the financial sector was doing in second quarter and is very cautionary. I bet the University of Michigan Consumer Sentiment Index tomorrow will not have a good reading since unemployment rate is still going high. And I feel good holding only cash.

Account Balance Changes: +$259.67

Window Dressing is a Term That I Just Learned

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 10:43:00 -0700

I read a few news that talked about window dressing at quarter end lately. I didn’t know what window dressing was about so I did some research on it and found the following definition on answer.com.

Window dressing is a strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.

Another variation of window dressing is investing in stocks that don’t meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund’s holdings, so clients really have no idea what they are paying for.

Window dressing may make a fund appear more attractive, but you can’t hide poor performance for long.

http://www.answers.com/topic/window-dressing

So is that Bank of America’s up and Patriot Coal’s down today have something to do with window dressing? Probably. If that is case then BAC may come down a bit and PCX should go up a bit after tomorrow. We will see.

Repaying Trap is a Non-Event

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 10:42:00 -0700

Today the government announced some of the big banks that were allowed to repay Trap. I thought the banks would take that as an event to push their price up another step. But it turned out nothing happen. On the day when the government released the stress test results the market was like a wild horse. Today I feel it was like a turtle. Sometimes the market just behaves very calm and logical. It didn’t make sense the way that the market reacted to stress test results then but it made sense to me the way the market reacted to the government’s announcement today. After all we pretty much know which banks are able to repay TRAP.

I wanted to short Bank of America this morning but I wasn’t sure if today was going to be another wild day. I did not dare to do that. Thinking back I should have looked at the volume. If the volume is light then it is not going to be a big day. I wanted to take a long position but I didn’t feel BAC worth that much. After all it was not one of the banks that were able to repay TRAP. It should be categorized as a weaker bank.

Verisign Logo

In searching or a tradable stock I found Verisign. It was involved in a price fixing law suite and its stock price dropped 20% in a couple days. It seems to me that $19 per share is its support line so I got in at $19.07. I am losing money right now.

Verisign half year graph

Frankly I think the law suite has a lot of merits. Verisign owns network solution Inc which monopoly the domain name registration business. I didn’t understand why the market which was installed with anti-monopoly laws could allow a company like network solution Inc operated as monopoly in the first place. If you have an explanation of any kind I would love to hear it. I had the thought back in the DOT COM era that network solution Inc was a monopoly and would be suited. Basically everyone has to purchase domain name from them. I didn’t expect to wait till that long to see a law suite. That is one of the reasons I want to take a shot a VRSN. After all it down 20% and loss $1 Billion market capitalization already

Account Balance Change: -$79.49

Stock Market is a Box of Chocolate You Never Know What You Are Going to Get

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 10:41:00 -0700

Stock market is just as life. It is a box of Chocolate you never know what you are going to get. It makes you feel surprising, fulfilling, stock market is a box of chocolateexciting and happy at some time and makes you feel lost, sad, miserable and angry at another time. Its ups and downs are like the ups and downs in life. The differences are you can experience it all in a few days with the stock market.

Right after I created a “learn from the past” category for my trading. I made another mistake following one of those lessons I learned: Trading Out of Discipline and not Knowing How to Stop Caused Big Lost. Well I didn’t completely follow the lesson though. I still trade out of my discipline but I did KOWN HOW TO STOP and I stopped it too early.

As you know in my previous post I Had a Short Squeeze First Time in My Life I lost on a trade that I should have make money on. CCO is currently trading at $5.18. I shorted it 2000 shares at $5.60 but covered it too early at $5.87. I would have made $800 on that trade if I don’t follow my lesson learned. But I was holding other position and because of that I was a little bit scare.

After a few months of trading my account balance is not going anywhere. It was up to around $43,000 before I started this Blog from around $30,000 in a little more than a month and now it went back to where it was before I start day trading.

What do you think my balance is going to be down the road say half a year or 3 years from now? Going to zero? Going to double, triple? Take a guess here if you like and there may be interesting finding by the time when we look back.

I Had a Short Squeeze First Time in My Life

noreply@blogger.com (Stock Traders) — Tue, 28 Jul 2009 10:41:00 -0700

Wonder what is short squeeze? I just had one and made the most laughable mistake in my entire trading life. Yesterday I shorted 2000 my account balance falling off a cliffshares of (CCO) Clear Channel Outdoor Holdings at $5.62 after it jump 56%. $5.62 was close to yesterday’s height but I covered it this morning close to today’s height at $5.87. What a stupid decision. Now CCO is trading at $5.09. A typical short squeeze.

Bank of the Ozarks another issue I bought yesterday is going against me droped another 2.5% after dropping 6% yesterday. But I feel much easier to hold on to a long position so I am going to keep it there. Still think it is a bank that is much healthier than its bigger peers. Let me know if you have different thoughts

Big loss again today dropping $1,150 at the momment. My account balance is falling off the cliff

At market close

Account Balance Change: -$689.99