Comments for Trading and Investing

Comment on What’s happening with the big banks? by reblace

reblace — Mon, 06 Aug 2007 17:48:44 +0000

Great post. On friday, I was actually trying to put together a similar post on “What’s happening to Goldman Sachs” but didnt have time to finish it.

Its amazing to me how the banks allowed themselves to fall into this trap. I definitely think that GS will bounce in the short term, but I’m not confident in any recovery back to its highs from earlier this year. I could see a recovery back up to around $195. For the most part, I think these banks are done for the year.

Comment on Thinking about historical P/E ratios by Trading and Investing » Value traps

Trading and Investing » Value traps — Wed, 20 Jun 2007 23:06:04 +0000

[...] the fact that the US stock market is at one of its highest P/E levels in history, the real danger here is in the artificially high company earnings that underly the inflated [...]

Comment on P/E Ratios - who cares? by Trading and Investing » Stocks not to sell to your mother

Trading and Investing » Stocks not to sell to your mother — Mon, 11 Jun 2007 06:58:24 +0000

[...] Who cares about P/E ratios? I certainly do. In my view, a P/E ratio higher than 30 can only be justified by a small minority [...]

Comment on More about housing: price to rent ratios by Trading and Investing » CME Housing Futures

Trading and Investing » CME Housing Futures — Wed, 25 Apr 2007 19:09:35 +0000

[...] There is a reasonable argument, maybe, that prices are just rising to a new plateau - that this price appreciation was long overdue. Or maybe we’re just in a new housing paradigm (where prices grow at over 5% per year indefinitely??). The problem is that rents have not been keeping up (see my December 2006 post on Price to Rent Ratios). If housing really has become scarce relative to the population, then shouldn’t we see rents increasing as well? Rents are rising for sure, but nowhere *near* the speed of home prices in the last 5 years. [...]

Comment on Thinking of shorting RIMM.. by reblace

reblace — Sat, 31 Mar 2007 15:26:42 +0000

RIMM was stuck in a lawsuit with a rival company called NTP, which had filed a number of patents regarding email via wireless connection. Now, email via wireless connection is not that revolutionary an idea, so RIMM fought the patents and eventually proved that they had not infringed on most of the patents in question. Sometime in 2006, they came to a point where despite their success fighting the case, they were forced to settle or be shut down (I dont knot the details). They settled for something like $600 M.

Anyhow, thats probably why you see that big upturn after 1Q 2006.

Also… no offense, but you guys tend to look at whats happening and say “That doesnt make any sense! That shouldn’t be happening.” Rather than wondering why it is happening. Perhaps this is normal and acceptable for market behaviour. Maybe investors are acting rationally. Not everyone is investing with a 10yr timeline.

GOOG and RIMM are both service oriented businesses, perhaps that is one reason they seem to defy logic.

Comment on Thinking of shorting RIMM.. by dbthaw

dbthaw — Sat, 31 Mar 2007 05:02:52 +0000

I completely agree… and I think the same thing about Google (GOOG). Their P/E is absurd (44.87) for a stock with a price of $458.16. They may have a lower beta, but they haven’t been publicly traded long enough for me to consider their beta to be worth much as an indicator.

Don’t get me wrong, I think they’re a fantastic company. And I’ve been rambling for years that they’re due for a massive price correction. Yet it keeps going up.

So, to answer your question - I think I’d hold off on put options. Why? Because the only thing I’m willing to assert with any confidence is that investors are reactionary and irrational. They’ll put insane amounts into a stock with a P/E over 100, then pull out when it drops 2%. Sometimes I think *Congress* is more levelheaded than the average U.S. investor.

That said, I’ll be thrilled if you prove me wrong because it will finally give some weight to my argument.

Comment on Thinking big picture by ttsmyf

ttsmyf — Sun, 14 Jan 2007 18:40:55 +0000

Please uncover the best part of the Home Values trace!

I’m the author of the Real Dow chart, from
http://homepage.mac.com/ttsmyf/
In the above, I avoid opinion and urge people to do their own informed thinking. But for those who will fall short re. the latter, I opine that the first Q to ask yourself is:
What do you reckon the financial services industry and the financial news media think of you when the Real Dow severe roller-coaster on 3.5 decade time scale is kept out-of-sight???

Comment on NYTimes: Gambling Against the Dollar by Trading and Investing » Caution: dollar devaluation in progress

Trading and Investing » Caution: dollar devaluation in progress — Sat, 02 Dec 2006 17:24:21 +0000

[...] There are many factors contributing to the dollar decline. The first of which is our massive trade deficit (see http://blog.reblace.com/?p=26), which is now almost 6% of total US GDP. The second is our low interest rates. 30-year US Treasury bonds earn a measly 4.54%. The third is our outstanding budget promises, including an unfunded social security system, a massive war in Iraq, and a new medicare prescription drug bill that we just can’t pay for. [...]

Comment on Finally time to comment on Google by dbthaw

dbthaw — Sun, 26 Nov 2006 11:34:46 +0000

I completely agree. If the stock market weren’t so irrational, I’d short Google.

And I don’t own any shares of it, despite knowing how good a company it is.

If I *did* own any, I’d drop them like a hot coal, or at least set an auto-sell into my brokerage account if the price dipped below $480 or so.

Oh, and Defo’s stuff about P/E mattering - right on track. My father can give you a lengthy (but informed) analysis of why Wall Street is sometimes completely irrational.

Comment on Thoughts on CAPM by dbthaw

dbthaw — Fri, 27 Oct 2006 03:20:05 +0000

Defo’s (at least to some extent) definitely correct about this. I can’t remember off the top of my head where exactly this comes from, but one of the best quotes my father ever gave me about investing is “buy whenever the market is high and buy whenever the market is low.”

You always want to be able to purchase - for an example of Defo’s theory playing out, if you bought United Technologies (UTX) the day the markets reopened after Sept. 11, 2001 - you would have made an insane killing.

As for what to keep money in right now… there are a couple of income funds out there that have been consistenly producing dividends every month/quarter/year (whatever their cycle is, but I recommend month) for decades. That’s one suggestion.

As for cash - ugh. Currency is tricky if you buy the inflation argument. Debt is great to hold (as opposed to pay off) under this scheme, but looking at current rates really only student loans are going to have low enough interest rates for an individual to advantage this sector (Defo, correct me if there’s another type of debt you can think of).

Hard assets - if you can figure out what the next commodity component in major energy production will be, I’d go with that. I’m not a physicist or chemist, so I can’t speak to it. Food staples? Construction basics?