Monday, October 31, 2005

Happpy Halloween

Tonight I have something extra spooky - the portfolio snapshot - which has shown a rapid deterioration over the past two weeks - mainly due to the two foolhardy shorts of the XLF in addition to the broad decline in gold and the goldminers.

Portfolio snapshot:

Thoughts that immediately come to mind are fear, regret, and loss aversion. After briefly touching the $13,900 mark less than 1 month ago - portfolio has been decimated by excessive speculation in Gold, and the Financials. Got the direction wrong on both and also had timing issues as I was unable to wait for a turn and made too short term of a bet.

The current manueverings which are planned for later next week include putting all of the remaining cash into NCTY prior to earnings. I figure that 25% downside risk is possible on earnings day and a move from 18 into the $13.50 area entirely possible if earnings are to dissapoint. At the same time I think that $30 is possible by the end of the year in the instance of a solid report which is what I am expecting.

So far this year the portfolio started with around $5,000 with a temporary dip into the $4,200 area. An additional $2,000 in capital was also added. By any measure as of today at least (who knows tomorrow....lol) - the portfolio is still up approximately 15% - even after giving back SO MUCH of paper profits. The question is if now is the time to up the ante and make a bigger move even when I am down.

I have decided to do it and it will be interesting to contemplate the significance of this probably too risky manuever around two weeks from now. Another very important tendency I am fighting right now is a desire to reshort XLF again with remaining funds. The problem there is XLF is actually strengthening as we speak and gathering broader and more following in the market. As deceptive and false as I believe this move is and that vindication will be coming shortly, it is not healthy to keep telling yourself that you will be right when the market has proved you wrong with actual price action.

Tonight's post is probably a bit overanalyzing - but it is very important for me to be true to my thought processes and document them in order to hold myself accountable later for the wins and the LOSSES.

That is it for tonight - there are going to be some newsworthy items out later this week including the fed discussion tomorrow afternoon - so I will be posting again soon. :)

Regards,

BG

Saturday, October 29, 2005

World of Warcraft Gets Some Press in Barrons

Nice article on Vivendi which makes several references to World of Warcraft. Luckily NCTY (The9) is not mentioned - maybe I will still get my entry point? We'll see.......

Here are some choice snippets (any emphasis is mine):

"Though a much smaller piece of the empire, VU Games has been transformed from a loss-riddled operation to a profitable one thanks to World of Warcraft, which is expected to generate around $250 million in cash this year as game geeks around the world pay an average of between $15-$25 a month to spend an average of 25 hours a week on the role-playing game. Given its success with World of Warcraft and its strong growth prospects, industry analysts say VU Games is worth $2 billion to $3 billion and should receive a much higher implied multiple than its current three times cash flow. In contrast, Electronic Arts (ERTS), a major games developer, trades at about 20 times cash flow. About three years ago, the games division was on the block for about $600 million and no one wanted to buy it. Now it would fetch a much higher price though it's not for sale. "World of Warcraft has turned out to be a bonanza beyond all belief and it could get better," says Cumberland's Wallach."

"The Internet is already a key to our operations right now," he continues. "Take World of Warcraft as an example. There would be no World of Warcraft without broadband Internet access. For TV applications, or for games applications, or music downloads or other interactive applications, the development of broadband Internet is the key to our future growth. Broadband Internet today is in less than 35% to 40% of U.S. homes. It is less in many European countries and much, much less in nondeveloped countries. So we will grow as the penetration of broadband Internet and mobile Internet grows."

I have said it before and I am going to reiterate now so that everyone including the "experts" on the Chinese internet sector can hear it - the most intriguing part of NCTY is the fact that there should be little distortion in NCTY earnings over the coming 2 years by other games. If WOW succeeds in China, so will NCTY and its stock price.

I think this is a good bet to make and I think that NCTY is at an attractive valuation now - and may become more attractively valued over the coming weeks prior to 11/10 earnings - especially if we take into account - the broader market.

I have read numerous commentaries to the extent with NCTY - such as "wait and see" or "they need more than one game" or "Chinese gamers might not like WOW as it is too western." All cultures that I have ever come into contact with - and those include - Chinese, Korean, USA(whatever that means), White, Black, Hispanic, European - have loved Blizzard games. WOW looks to be no exception to this.

So now we can wait and see - but don't say that I never brought this up. I was pounding the table on SNDK and I am pounding the table on this one now.

Regards,

BG

Friday, October 28, 2005

A Special Trick or Treat

(Portfolio specific notes) - Today marked a 5 month low in the portfolio for me. I have really gotten nailed on the XLF short and I am not sure if it will come back within my time horizon. All I can say - is thank god that I left 50% of cash in the portfolio when I decided to do my gold speculation or I might have been wiped out. I have noticed in general that I tend to be early in things. I was early in buying SNDK and left early (although I understood the bullish story), I was short early in homebuilders and left too early (but apparently understood the fundamentals relationship). I was early in gold and left, but then shouldn't have gone back or......should have held original positions ( I don't claim to understand what is going on there - too much static).

General article:

Anyways this is the basic point - I think that the performance of the financials is important here, not just for my own portfolio but also as a tell for the rest of the market. I do not understand the present action in the financials, but I do think that I understand the historical relationship between a flattening yield curve and/or rising interest rates - and the performance of the financials. Right now many traders/investors are fleeing to the "stability" of the financials. I think that is a false perception. Let me qualify that - I think investors see attractive dividend yields and relatively non-volatile stock prices over the past 3 years (in the XLF) and think that is one area of the market where they can find safety.

However, my thinking is that confidence is built on a shaky foundation. Mainly on unsustainable growth/extension of credit to debtors at the margin and shaky collateral values that back this credit - mainly in the form of paper "equity" in real property subject to significant mortgage debts - often at variable rates, etc. As this boom cycle ends (we are really just beginning the end I believe) - I think we will enter a debt liquidation cycle that dwarfs what we saw during the S&L period of the late 1980s. Anyways.....I am getting ahead of myself - we have seen very few cracks in the armor of the financials - while the market as a whole has seemed quite shaky. Up 100 points, down 100 points, up, down, up, down. I think that if/when the financials finally fold the market will be able to find a real bottom. Whether that bottom is at 9800, 9200, or 8000 on the DJIA - I don't know. Remember that XLF is nearings all time highs as we speak - closing today at $30.31 and heading higher towards its $30.79 peak. So maybe the better question is where does it top. Lets instead study the divergence which is significant.

The basic charts that I have assembled study the short term divergence of the financials sector of the market (mainly - Brokers and Banks) v. their historical trends/correlations with both housing sector and also treasuries pricing. I think some significant divergences have formed over the course of the past five years in both, but that divergence has been corrected within the month-to-month time frame and certainly on the yearly timeframe. This statistical sampling may be insignificant as it spans less than 5 years for both. Still here are some of the charts and graphs which show where we are at.

First, we will look at what the yield curve is doing currently. Today longer term yields stabilized, but the yields on the 2-10 year maturities continued to rise - flattening the yield curve:

Here is the longer term correlation between the treasuries prices and the financials pricing:

Here is the shorter term divergence between the financials and the treasuries:

Now lets consider all of this in light of the housing bubble - first by looking at this interesting snippet from MadMoney radio show. This commentary is luckily not from Jim Cramer. Instead this is some short interview highlights from the mutual fund manager of the CGMRX real estate mutual fund. The manager makes some great points which are included below:

Now lets examine some interesting charts comparing the housing index v. the banking index. The housing index is more volatile than the banking. Longer term chart:

Shorter term performance:
It is tougher to make a comparison on the housing side as the price action has been so much more volatile. Still - I believe that is exactly the point as the inflated property prices which have driven the growth of the housing sector of the market are basically the shaky collateral for the stable and steady rise of the financials. I think it is only a matter of time before the cracks in the foundation become evident.

I will leave everyone with that dark and ghoulish tale for the Halloween weekend. I hope everybody is planning some hijinks/partying from here on out. I am more than happy to put on my bull costume and join the party - if someone can just put out a convincing argument for me!!! :)

Best regards,

BG

Thursday, October 27, 2005

Another uneventful day

No real conviction today. Financials are still strong and holding up well. The broad market had a down day, especially the Nasdaq. Gold moved a little bit up. Treasuries finally firmed and stop their free fall as the yields which moved huge over the past few days stabilized - here is the chart:

These bond yields will be very important to watch as signalling for the broader equity market. I think we are deep into the Fed tightening cycle and people who control large amounts of money - have got to be worried, as at least on the surface all of the talk by Greenspan and the other Governors has been - "we are concerned about inflation," we are going to continue at a "measured pace." If that language is maintained at least through December (which I expect), we could have 30 year rate above 5% for the first time in many years. I think this signalling of higher borrowing costs throughout the economy, especially housing has got to put the total pinch on here.

As far as the short-short term re: tomorrow - who the hell knows. The next big event that is up is on 11/1 re: the Fed meeting and any type of guidance that the chief plans to give. I still am bearish but that has not served me well over past few months and I am pretty indifferent at this point about what happens over next two months. There is too much uncertainty and too much risk and probably too little compensation for those risks.

I am still looking at NCTY it broke down a little bit more but on really low volume. This stock has such a low trading volume now that it can get batted all over the place. If a decent sell-off does continue, I don't think 15-17 range is out of the question here - here are a couple charts:

1-year:


down-channel:

Managed to butcher those charts pretty good - and volume is extremely meaningless - still I think a trend is evident there and I expect it to continue until some meaningful change occurs - re: either a huge move up in the market, or more probably - earnings report on 11/10. In the meantime - lets hope that we can get in for closer to 15 - than 19. I know there are a lot of people out there who bought big lots in the 25-26 range thinking the breakout was going to happen re: Q2 and are extremely dissapointed - but are still holding the bag...... I think stock could move into 29-30 area before a lot of selling pressure emerges if the Q3 earnings report turns out to be the big shaker everyone has been expecting. If not - we can probably expect to visit the $13-14 area.

Regards,

BG

Wednesday, October 26, 2005

Only a few comments tonight

Portfolio is still gettin worked right now. XLF (S&P 500 financial sector ETF) continued to excel today - and is currently one of the strongest sectors in the market. It is nearing 52-week and all time highs in the $30.79 area and is currently around $30. It is doing this right in the face of sharply rising interest rates and many people, including myself are having trouble putting this puzzle together. Newmont Mines (NEM) had mediocre earnings today and the stock was down a few %. I am not that concerned here as I see their fortune more closely tied with metals prices - if gold continues its ascent (currently quite doubtful), I expect NEM to participate in the rise along with the rest of the miners.

Now back to a new position which could be opened up in the coming days - re: NCTY (The9.com) - they are reporting earnings on 11/10/2005 in the evening. Stock was down a few % today on low volume. I expect low volume to continue as this thing gets banged around prior to earnings. If a time to accumulate this stock does come it may be quite soon (re: within the next week.) This evening Baidu.com (BIDU) another Chinese internet stock got hammered in after hours trading after reporting so-so earnings and I have a feeling this will affect the other stocks in the sector perhaps. An additional sell off in the broad averages would be helpful. The stock is currently right under 19 - around $18.80 and I am hoping to get in with an average cost closer to the $15-17 area. This would be a significant move from here - but I do think it is possible under the right combination of negative news and negative market action.

No new announcements in treasuries other than they continue to sell off and HARD. I don't know how much longer this can keep up without the S&P 500 index and DJIA and Nasdaq too for that matter having some big down days. There is a lot of talk right now and still.......about the winter rally. I have been wrong so far to expect a major sell-off as none have materialized, but I also am skeptical about what the catalyst would be for a major winter rally. Market trades on expectations / anticipation and if companies are giving neutral guidance and reporting great trailing earnings - I think that it may be very tough to raise the bar for 10%+ earnings growth again in 2006 after several strong years fueled by lower interest rates and energy prices for that matter ( re: 2003, 2004, and 2005.)

That wraps it up - we will see what tomorrow brings. I don't remember if I mentioned it last night - but several readers have requested to have a daily list of the posts sent to their e-mail where they can then decide whether or not to pull up the posts of the day. Please e-mail me at bengreen@gmail.com - if you are not currently receiving the posts and are interested.

Regards,

BG

Don't sleep

Don't sleep or you might miss something. The move in treasuries over the past month (let alone few days) is very significant. Interest rates are quickly adjusting and finally taking into account an environment with higher inflation. I don't know where this stops but I can say this much - it does not bode well for either - a) US stock market or b) US property market.

Here is the chart:


Regards,

BG

Tuesday, October 25, 2005

Great Reader Feedback

I have had some good comments recently from a reader that wants me to categorize my thinking and observations more along the lines of longer term v. shorter term. He takes a much longer term approach to investing and although he does believe in stock market cycles and the significance of following the strong sectors - he is much more interested in the money to be made from a secular move in a certain area of the market over many years - re: 1-5+. Good examples would be technology/internet during the 1990s, commodities (so far) through the 2000s, and what the future may bring. He is even ok with more specific recommendations on individual stocks that might be good to dollar cost average into and accumulate over a longer period of time.

I had my genesis as a value investor and understand that mantra of thinking well. It is only recently that I morphed into a greedy neurotic day trader - ;) - so I think I understand that point all too well. I also have some interesting ideas along those lines - and over the coming months may be able to bring some special analysis on the following sectors: drugs(both legal analysis re: mass tort litigation and also revenue analysis - re: medicare prescription drug act. and a compare/contrast with tobacco industry - with special focus on the dividends), chemicals, energy (of course), metals, financials (short side - of course).

I will also stick with some individual stock picks as well. I am getting more and more sucked in re: this Chinese Net stock (NCTY) and am still planning on getting my position sometime over the coming 10 days prior to earnings announcement. I still think I will get a better price - ;( - maybe quite naively - but I will be moving there. I have posted significant analysis in the past - and I am basing this decision on both a psychological side - apparent reasonable prices not reflecting much optimism of company's prospects, as well as good operating performance as World of Warcraft appears to be an enormous hit in China, and the company is delivering - continuing to add server capacity over the previous months.

Portfolio was up negligebly today - but I am feeling a bit stronger in my convictions and we will have to see what tomorrow brings. ;)

Regards,

BG

Treasury Rates Skyrocketing.....

It might be better to rethink that 100% variable rate financing offer that you had been planning on that new home with that great interest rate. Treasuries are getting dumped in overnight trading right now with yields up between 7-10 basis points. If this holds through to tomorrow - this is a very significant development that bears watching closely. I would expect a decent move in the stock market tomorrow - keep an eye on this:

Regards,

BG

Higher and higher we Go

So how high can XLF go where would be a good spot to add to the short after a failure to break above new highs or after a key reversal. Let's take a look at this longer term chart:

With XLF currently at 29.90 I guess the year high of 30.79 is easily within reach. The question is if it could attempt to break out to new high. At this point, I can only watch and wait, it definitely has the MO' on its side at this point. I am just watching for where a significant reversal could take place as I have proven pretty inadept at "calling" tops. ;)

-BG

What the heck?

Gold is actually up quite a bit this morning. Too bad i don't really have any gold positions left.....;)
Actually the only remaining one I have is acting nicely, although I can't say the same for the XLF. I need to take a look at some longer term charts and try to figure out where the XLF could go if it breaks out. I think it could be great to redeploy any gold profits back into the XLF short depending on how high it moves here. Again 11/1 fed meeting should be key.

Regards,

BG

Monday, October 24, 2005

Do You Believe In Magic?

Today market was quite magical. I think that it highlights the battle (well not much of a battle today ;) )that is currently going on regarding underlying economic fundamentals and the uncertainty about the probable growth and market returns over the coming 12 months.

Key issues:

1) Inflation - some people say this is an issue and some don't. As long as Fed keeps talking about it as an excuse to raise rates I think that it is an issue. When they stop and say that its under control and the rate hikes are over I think the market goes through the roof. Obviously we have no edge here.

2) Interest rates - bonds sold off big time today driving long-term yields higher, but at the same time the spread between longer-term and shorter-term interest rates continued narrow. This should continue to put the squeeze on the financials (even though share prices aren't reflecting this)

Personally, I don't believe in Magic.....but maybe that is why I have been losing so much money every day? I mean I must believe in magic by trying to call a "top" in the financials. That is financial suicide. I need to think about this stuff some more as my gut is leading down the wrong-trail again begging me to flip the gold position as it goes up and double down on the financials short but with a slightly longer time horizon and less leverage out to January 2006 instead of the current one which is November 2005 expiration.

Wishful thinking? Probably. It will be interesting to ponder the markets direction though in the meantime. I guess market can go to higher end of trading range anywhere from 10,500 or even to 10,900 as part of the "winter rally." The beginning of a new bull market in stocks is difficult for me to imagine at this point (i.e. something caring the averages into a 12-14K range over next 1 year), but it can't be ruled out I guess as that is a 20% move - I mean back in the late 1990s if market did not return 15%+ year something was wrong.

I had a great e-mail from a reader today regarding sticking to what you know. If you have any edge re: a trusted advisor, you work for the company, you have built your own system for trading a certain sector - why bullshit yourself and try to understand everything. The stock market is enormously complex. Why can anyone beat out 20 MIT and Harvard PHDS running the hottest new hedge fund or mutual fund? What is your edge?

I don't know but it sure is fun when you get it right and painful when you don't. Here is the portfolio snapshot. My new favorite hip hop group is "House of Pain":

Regards,

BG

Hussman Breaks It Down For Everyone

Tried to post this earlier today, but server was down.

I thought this quote from John Hussman at www.hussmanfunds.com was fitting for today:

"I don't talk like this often. In fact, I've been frustrated to watch various investors speculating in short sales and put options and the like over the past couple of years, when valuations have been unfavorable but market action has still been favorable in my opinion. Historically speaking, conditions that would warrant even being neutral toward the market only happen about one-quarter of the time (though more often in recent years because of rich valuations). Conditions that would warrant using short sales and put options in a speculative way (not just to hedge existing market risk) occur even less, and require at least the combination of both unfavorable valuations and unfavorable market action. There have literally been only a few weeks since March 2003 when put options and short sales have been reasonable speculations (again, hedging aside). It's been painful to see certain investors burning through their capital in the attempt to gain from the short side of the market over the past couple of years while the Market Climate has been constructive (if you think I'm referring to you, then yes, I might be referring to you)."

Regards,

BG

XLF and Gold

Gold is inching up some pennies this morning and I am thinking of unloading what I have left - as the continued Fed rate hikes are unlikely to bode well over the next few months for gold prices.

As far as the XLF goes - it is still ramping and I am getting nailed. Will be keeping an eye on this one as I don't see how it can continue to go up right in the face of the rate hikes?

We will see.

Regards,

BG

Friday, October 21, 2005

Now what is the plan......and what is working?

Market has been doing quite a few fakeouts over past few weeks. I remain bearish although I am near throwing in the towel on gold. I have also come up with a potential bearish thesis on gold that my explain some of my pain and the future pain of many others. (Important note: I am still long a small position in Newmont Mines and remain long-term bullish - but I am questioning the probability of a quick rise above $500 level over next 3 months). It will help to get to this idea by first laying out the bullish case again. Gold should excel under any of the following scenarios:

1) Weakening dollar
2) Rising inflation
3) Lower interest rates

The funny thing though - is that all of the above are closely interrelated and affect each other. I think one of the biggest factors at work affecting all of the above is the Fed. The Fed has made a credible commitment to the public and the markets that they are A) aware there is inflation out there and B) are going to be closely monitoring it and removing accomodative monetary policy. This means that they are going to continue to jawbone the market and raise the short term interest rate to back their credibility.

It is very possible with the economy still showing signs of strength that the tightening cycle could continue far into next spring with even 5.5% or 6% being the ceiling. I have also heard calls that we might see 50 basis point hikes in November and December - although I consider that highly unlikely.

The main bearish case for Gold is quite simple actually - Gold excels in an environment where inflation is running faster than the growth of the economy. In other words - where the majority of the growth in the economy is that of paper money and price increases as opposed to real economic growth of output and productivity gains.

We certainly had plenty of this over past 3 years as tons of money were pumped into system by the Fed, however now we have the reverse. Gold recognized this and benefitted from it - rallying from $250 an ounce to $480 an ounce over 5 years - a 100% increase (20% annualized) - that is certainly nothing to scoff it - especially as relative to the stock market.

Now we have a situation however, where the Fed has progressively over the past 12 months - begun to change its stance from an accomodative policy to a restrictive policy - trying to remove liquidity and money from the system and slow the economy, commodity prices, and inflation.

In effect the huge inflation numbers that we are seeing coming out (re: PPI and CPI) may already be priced into the gold market and are currently in the process of being priced into the stock market. As the Fed raises rates we can anticipate that the economy and inflation should slow over the coming 12 months. If market (including gold market) is a forward pricing mechanism - I would expect gold to continue to decline in anticipation of this (note: I do not expect it to fall below $400 an ounce again - but I do think low $400s is possible over next 12 months).

Finally, what the gold market and gold bulls may really be waiting for - is the economic collapse that may follow here. The huge bubble of debt which is the American economy (extremely finance based economy) - should struggle mightily even under moderately higher interest rates - re: 6-8% range as opposed to 3-5%. As the costs of so many borrowers increase, just as their ability to service their debt also decreases - they may lose their job in a finance related area of the economy (take your pick -real estate, lending, stock market, etc.)

To clarify - gold bulls are not waiting for the "economic collapse" per se - they are waiting for the government's regulatory response which will certainly not be immediate, just as they have been slow to recognize that inflation is in fact - out there. If this Fed rate hike cycle kills the stock market and now (property markets) as the cycle in 2000 did - the Fed might once again be quick to pump liquidity back into the system to try and prop things up. At that point - I think our economy would be at its weakest stage - but we would probably finally see the following: 1) collapse of the dollar, 2) inflation begin to rise quickly again, and 3) rising gold prices.

That is one of the reasons, I am not rushing to buy Gold again - although I may have just been faked out by last weeks shellacking and I am waiting to get my mojo back.

Now regarding the XLF short - which I believe we will see working here again soon. Just as inflation numbers are popping out of control, and the Fed is publicly stating repeatedly - that they know it is out there and plan to kill it - longer term interest rates are in great flux. Here is the yield curve chart courtesy of Yahoo:

We see two main things - 1) rising longer term interest rates which are causing increasing mortgage lending rates and changes in underwriting standards (both are important) and 2) a narrowing of the spread between shorter term and longer term interest rates (now less than 100 basis points - at 93!!!!!).

Banks and other financial institutions rely on this spread to make their money. When it is flat or even negative investors become quite negative on the financial sector in general. We would also expect to see less lending volume to consumers at the higher rates. Additionally and maybe most important, as the variable rate mortgages adjust and consumers begin to default on loans - Banks will probably move quickly to shore up their quickly declining capital ratios v. loans outstanding.

Perhaps most at risk here are the portfolio lenders - those financial institutions that did not resell their mortgages in the secondary market to Fannie Mae or Freddie Mac, and instead are counting on profiting from the numerous lower interest rate mortgages that they originated over the past 3 year. They may also be surprised to find that the derivatives they purchased to hedge the interest rate risk - do not work quite in the manner they predicted. It would also seem logical that the mortgage insurers (re: PMI and Radian) would take a hit here.

Instead we see the homebuilders taking it on the chin FIRST!!! I would think that all of the above has quite a close correlation. We should not have a decline in the demand for housing and a rise in supply of it at same time without also questioning the potential price impact on collateral values (re: homes) and also the quality of the loans that are outstanding on the existing homes.

I expect sometime over the next 6 months that the Financials as a sector are going to have a "come to jesus meeting" with Uncle Al. This is not going to be pretty.....

What is the counterpoint - banks are still reporting excellent trailing earnings and pay healthy dividend yields to investors. Wall street analysts also continue to make bullish forecasts for the financial sector. I have also read recommendations to go long financials such as Fannie Mae, Commerce Bancorp, and CitiBank - even into the beginning of the down cycle (all IMHO of course).

Anyways that is why I decided to remain short the XLF and we will just have to see how this plays out. ;) It will be important to watch the language of the next Fed meeting in November. Hopefully the PPI report scared the bejeesus out of them.

Regards,

BG

Here is what is left of the carnage

Here is current portfolio snapshot of the leftover positions:

Dont pay attention to the RGLD - it is no longer a factor and should be removed by Monday.

-BG

House of pain in the XLF

I did not suffer only in gold. I also ate in the XLF and I have upped the ante here - as I still believe this thing is ready to crumble. (will I got my bearings back??? - not so sure).

Anyways though - here is the p and L:


And here is the entry and exit:


That wraps up this one.....I am going to now try and have a follow up post with analysis of both sides of two key market sectors I am following - Gold and the Financials (XLF).

Regards,

BG

Next on the line - negative in Newmont

The stock that made me so much money over the summer dissapointed (quite predictably though) when the gold price corrected last week. I had made a spec bet in my individual account - also in out-of-the money calls with around $500. These also expired worthless and as a result I have to post the activity report instead of the neater P and L snapshot. Still here are the charts:

P&L (activity report):

Chart (entry and exit):

So once again - this was a greedy trade - buying the out of the money calls. It is small constallation that I would have gotten smoked in the at-the-money or slightly in-the-money calls as well.

Regards,

BG

Where to start.........Royal Gold

This is going to be a multi-part piece on the closed out and losing positions (yes there are that many!). I am going to go over the Royal Gold trade first. At the very end I will take a look at my current evaluation of the gold market after having made so much and later lost EVEN MORE money in it. :)

Anyways here is the profit and loss:

There is no neat p&l statement because the trade was never closed out. Instead the options expired worthless this afternoon and the entire amount was lost - $1047.55.

Here is the entry and exit (make sure to read the subtitles as it is hilarious.........even to me):

My thought pattern here was very simple - Greed. I figured that gold was sure to go to $500 this week. All the right factors were present in my mind - 1) ridiculously high CPI and PPI, 2) bearish stock market, 3) options expiration week, etc. If gold could get into that $490 range even - I figured RGLD would rally to $28 - and I would make 20-30 times my money on those super spec out-of-the-money call options. Instead I got burnt and Sandisk, Apple, and Google went for the moon. ;)

And gold declined about $20 over the course of the week, but rallied strongly to close:

Not much more to say on this one. At one point - I was up about $300 on a ~$1,000 investment. I figured it could be a big hit - maybe make as much as $5K or even $10K on it - instead the gold price collapsed and I lost the whole $1K. I would say the biggest mistake here was not realizing that I already had enough money betting on the gold price rise vis a vis the NEM options. It was also probably a mistake to not close it out on Wednesday during the big rally - even salvaging $300 might have been worth it. But at that point I still had "hope" or should I say - "prayer." :)

The subsequent massacres in the NEM options is pretty similar and will follow up shortly.

Short Update

Options expiration has arrived and many of my trades have ended. I ended up rolling over the XLF trade until November as I still think that segment of the market is vulnerable. I also still have the January 2006 Newmont leaps going. Everything else is finished - including the Royal Gold Options, the October XLF Trade, and also the October NEM trade (individual account). These lost me a lot of money individually and collectively, as I made a really bad call on gold and gold price prediction, in addition to the performance of the XLF.

We will go through each trade, including entry and exit at some point this weekend. Portfolio is bearly keeping head up above $9,500 right now - here is the snapshot:

Regards,

BG

Thursday, October 20, 2005

Sandisk ROCKS

Wow............that is one hell of a quarter. EPS of $0.55 with consensus around $0.35 and a revenue beat of about $100 M taking them to $589M revenue. Great great quarter.

Regardless of how the price of the stock reacts, these guys are delivering. (but I do think that it will be up big tomorrow, either independent of the market or with it).

Regards,

BG

The circle might be complete

I have decided against the Sandisk speculation. Options premiums are still exorbitantly high just hours before the earnings release and I don't see a good risk/reward opportunity here as there will be at least $3.00 time decay in which ever options you pick that are at the money (puts or calls). That means the stock must move at least 5-8% and in your direction just for you to break even. You could buy the in-the-money calls a bit deeper and have a reasonable cost structure and leverage if you are bullish, but the cost is much higher and I also think it is very difficult to game this one now as their is so much spec interest in this stock.

The only game I plan on playing is the NCTY earnings release which is coming up on 11/6. Still keeping an eye on that one but volume has basically dried and it looks like it might sit in 19-20 range until earnings.

Re: the remaining positions - the only one left really other than the longer term spec to january on gold, is the XLF short. That has gotten killed recently, but I have not closed it out yet. I plan on letting this one run until tomorrow and then tomorrow I will either close out for pennies or maybe roll it over until November.

Portfolio is where it was yesterday! - Down.....(but about same value).

Regards,

BG

Wednesday, October 19, 2005

Got WORKED........

Today did not finish well. And it looks like my positions (maybe all of them) are finished. Even the XLF trade has gone against me and I could lose another $1,000 there if I am not careful which would take me down to around $8,200. All I can say is thank god I did not average down in gold and double down on XLF earlier this week. I had enough exposure -actually more than enough - and as it becomes clearer that I read this weeks action incorrectly and last week's too for that matter.

The bulls are getting ready to romp and the bears including myself are being trampled. Market finished up 100+ points today which is an important and significant rebound in my opinion. The only ideas I have left at this minute - other than trying to exit my only remaining position that was left with some pennies.......are Sandisk and The9. I think Sandisk is just too spec for me at this point and I have been burned on spec during last week. If options premiums came down enough by tomorrow afternoon, I might play the game, but the implied volatility is just too high I think and even straddle will not be profitable I think. That leaves The9 - which has moved up about $0.50 from where I sold my 100 shares around $18.50. It is around $19.00. My whole thesis that I could get in cheaper as well before 11/6 may or may not come true. We do have some significant events including the Fed meeting before then - but market is also turning bullish. So basically - I am saying that I am going to wait. Thank god I kept some cash! I just didn't keep enough. Anyways enough crying from me for tonight and hear is the portfolio snapshot (DOUBLE OUCH!):

When everything is said and done I will make sure to be even handed this weekend with entry and exit charts and we will look at where sentiment changed and the major flaws in my analysis / execution.

Regards,

BG

Sandisk!

I spoke too soon and did not check the quote here this morning. Stock is down almost 5% today on UBS downgrade and bad INTC earnings. This is going to be one to watch. The options premiums are getting decimated today. Earnings out tomorrow!......Man this is happening too fast. I might buy between $500 and $1,000 of calls depending on the premiums tomorrow - we will have to see. Stil my luck is going against me right now and it might just be TOO spec. And for too little reward. I will analyze it tomorrow AM after I see where it opens at and give the area where I would buy the calls at, etc.

Regards,

BG

Things are clearing up a bit

I would like to say that I am up today but that is not the case. Portfolio is back in the $10,700 range and I am down almost $3K from the peak. Problem is that I still have gold positions which can go down!

The Royal Gold position looks like it was throwin money away and that one is done. As far as the NEM Jan 2006 $50 calls - it looks like those might be too close in term. I am not going to sell those yet, but I think the hope and prayer right now is that the XLF short is going to come through and bail my ass out over the next couple days. Money could then be taken from there and I could purchase some longer term NEM Jan 2007 $50 calls. That would be great if the miners common was back in the $40 range as I could probably pick them up for around $1-$2. I would probably try to take all capital from the XLF trade in there.

Also, the SNDK speculation is lookin less and less likely, but I will let you know on final call there.

Here is the portfolio snapshot: (OUCH!)

Also re: the gold market in general. It looks like it was a bad call to expect it to go straight to $500. I think what is going to happen now is a significant period of consolidation as the Fed keeps raising rates. However, once it becomes clearer that economy is falling apart and the Fed pauses or relaxes, I think gold will go through the roof. That might not happen until next March though, so don't hold your breath!!!

Also, another caveat - if dollar was to collapse before then - it would also be enough to help out gold. However, that is unlikely with Fed raising rates - again, if money market rates in the USA are around 4-5% in two months and the rest of the world has around 2% - certainly the case still in Europe - the demand for dollars should keep up for investors to park their capital in the USA.

Regards,

BG

Tuesday, October 18, 2005

Drowning in a sea of red

Here is the snapshot for closing portfolio values today. Nuff said:

It looks like the Royal Gold speculation of $1K was throwing money away. Highly, highly improbable that it will close in the money by Friday -as only 3 trading days left.

I have said before that I dont know what is going on and I reiterate it again. I don't believe that market is reacting rationally to news about rising inflation. Market should be falling more, metals increasing, interest rates rising. Or is that the view that just fits better with my positions? Probably.............but then what is really happening?

BTW - this Refco thing is going to get messy I think.

-BG

Gettin hammered again this morning

Man I don't understand this two-way feedback mechanism. Today PPI number comes out much higher than expected in both headline number (1.9%) and core number (0.3%). My instant response would be inflation is occurring too fast - so buy gold. Instead though I think this logic is prevailing - inflation is up. That means Fed will keep raising rates which will kill inflation / gold/ commodities, etc. Maybe not, and I am missing something big. Still getting nailed this morning and down another $1,000.

Regards,

BG

Monday, October 17, 2005

Refco Files For Bankruptcy - Get it while its hot

Well now we are really getting somewhere. So Refco goes under. How long did it take? Hmmmmmm..........about a week. So let me get this straight a $5 billion dollar broker goes under in a week........wow.

I think this type of thing is going to start reintroducing the risk premium into equities. If market does not have a severe sell-off including some collateral damage in the XLF I will be shocked. But hey - I thought gold was going to go up last Friday on first read of the CPI number so what the hell do I know???

Here is cut and paste of relevant article:

"AP
Refco Inc. Files for Bankruptcy
Tuesday October 18, 1:15 am ET
By Michael J. Martinez, AP Business Writer

Refco to Sell Core Business for $768 Million, Files for Chapter 11 Bankruptcy Protection NEW YORK (AP) -- Troubled commodities broker Refco Inc. filed for Chapter 11 bankruptcy protection late Monday and said it had reached a preliminary deal to sell its core futures brokerage business to a group of private investors for $768 million.

The consortium of would-be buyers for Refco LLC is led by private buyout firm J.C. Flowers & Co. LLC, which specializes in taking distressed financial companies and either turning them around or selling the pieces to other companies.

As part of the agreement, Refco said it will have the option to retain up to 20 percent of the equity value of the entities being sold.

The company said Mark Winkelman will serve as chairman of Refco LLC. Winkelman was formerly head of J. Aron & Co. and co-head of Goldman Sachs' fixed income division. Jacob Goldfield will serve as vice chairman.

The Flowers-led consortium includes The Enstar Group, Inc., Silver Point Capital, MatlinPatterson Global Advisers LLC, and Texas Pacific Group. Refco said it expects definitive agreements to be reached soon.

The bankruptcy filing does not cover Refco's regulated subsidiaries -- Refco LLC, Refco Overseas Ltd. and Refco Singapore Ltd, and the registered broker dealer Refco Securities LLC.

The bankruptcy and brokerage sale capped a week of stunning disintegration for Refco, which disclosed Oct. 10 that its former CEO, Phillip R. Bennett concealed a $430 million debt from the company's books. Bennett was arrested and charged with securities fraud after repaying the company that amount with interest.

Authorities said the hidden debt was as high as $545 million at one point.

The company last week froze customer accounts in its Refco Capital Markets offshore broker subsidiary until next week, and said Thursday it would liquidate its Refco Securities LLC subsidiary, which trades stocks, bonds and credit products.

While the company has refused to comment beyond its terse press releases, the subsidiary moves speak to an exodus of customers from all parts of Refco, analysts said, leading to a loss of assets and revenue potentially far greater than that caused by Bennett's alleged misconduct.

Shares of Refco, which went public in August, lost more than 70 percent of their value last week and the New York Stock Exchange halted trading in the stock on Thursday.

For Refco, J.C. Flowers & Co. is likely less a white knight and more a repo man. The company, formed in 2000 by former Goldman Sachs Group Inc. investment banker J. Christopher Flowers, has revived the fortunes of some companies, most notably Japan's Shinsei Bank Ltd. Flowers also led the group that purchased Dutch bank NIB Capital NV for $2.5 billion in August, and last month agreed to buy the wholesale unit of insurer Marsh & McClennan Co.

In Refco's case, however, customers are unlikely to return to the company. Commodities traders are likely to have already moved their accounts to other brokerages.

"I think, in this case, the parts of Refco are greater than the whole," said Denise Valentine, senior analyst at financial consulting group Celent. "There's been too much damage to turn it around and revive it."

Commodities and futures trading has become increasingly attractive to major Wall Street firms who have faced a sluggish stock market and low bond yields in the past year. Commodities such as oil, metals and agricultural products have done very well. Merrill Lynch & Co. launched its commodities trading this year, and it's considered a key piece of most investment and banking companies' growth strategies.

For its sale talks, Refco hired the services of Greenhill & Co., another investment bank, in its talks with Flowers. Refco had hired Goldman Sachs, one of its underwriters in its August initial public offering, as its financial adviser during the crisis, but hired Greenhill to avoid any conflict of interest due to Flowers' history as a Goldman employee."

Things are lookin up........maybe?

Portfolio is lookin a bit better this morning. Still takin it up the arse with the XLF short, but I am tempted to add more there, as my favorite commentator/blogger - Bill Cara - has also jumped on board there. (I was actually first on this one though!!!!!)

Anyways - I have basically decided that I have enough exposure right now and don't need anymore volatitlity in the portfolio. Last week I almost lost it on Friday. Now that I have had weekend to feel about it and also since positions have recovered a bit - I am feeling better. Now let's see if this is a false hope - or maybe we will make some real money together???

Here is snapshot:



Still unsure whats goin on with the SNDK call options plan. I will know by Thursday at 12 noon PST though (re: last time to buy options before earnings release!)

Regards,

BG

Friday, October 14, 2005

Portfolio Annihilation Coming Next Week

I got killed today on my gold trades and it looks like it was a big mistake to up positions in them on weakness a few days back. I am so happy that I managed to resist that trap again this morning as it took a lot of discipline from me. This is my first real "trading" loss of the year. And although it is still unrealized I have a good feeling that I could lose "a lot" more money from here if I do not make some changes over the coming week.

I have another problem as well though - because I still believe in the underlying funamentals of all the trades I have on. I am suffering from what is called, "smartest kid in the class syndrome." Grant you, I have never, ever been the smartest kid in the class - not in elementary, not in junior high, not in high school, not in college, and certainly not in law school. This syndrome has a lot more to do with false confidence in statistics or fundamentals and trying to apply them to a real life investing/trading situation. This can be extremely risky for investors and is death for anyone who fashions themselves - a "trader," because you may average down in a position while concentrating on your numbers or belief that is probably wrong. The stock price movement is what counts. Take Enron for example or better yet Refco (more recent) - you could point to all these statistics about your company that looked OK on paper, but the bottom line is that investors were seeing through what was going on and began to sell the stocks well before the actual numbers caught up. That is also certainly the case today with the homebuilders and energy sectors of the market.

My goal in the below rant is to get some of this out of my system so that I can see my portfolio for what it really is next week and try to distinguish hope from fear over Monday and Tuesday and try to just look at the price action to make the correct call - hold or dump remaining positions at whatever prices I can get.

The biggest hit I have taken in connection with the syndrome is my belief in the weakness of the US economy and political situation at the current juncture. I see several factors affecting the economy negatively - inflation, rising interest rates, huge debt, problems with derivatives and counterparty risk in the financial markets, slowing housing. In this environment I would expect to see 1) the financials sell off and 2) gold prices rise. In fact, and this is probably the scariest thing of this whole post - I actually "got" the numbers I was lookin for. I tied my expectations for most of my portfolio today's CPI number. I convinced myself that any number above 1.0% in the total inflation amount and I would make a killing both in gold and the financials short as it would signal that inflation was out of control and also that interest rates were going up. When I read the 1.2% number early this morning - I was sure that I had done it.

Unfortunately for me, I did not anticipate the correct result of investors. Investors sold gold off hard on the news and actually bid the market up, choosing to ignore the overall inflation number and focus on the core number which was only up 0.1% - this number excludes food and energy. I have posted a few charts from the BLS so that everyone can take a look:

Here is the monthly trend:
Here is the yearly trend:


The distinction that I like to make when analyzing the inflation report - is not between the "core rate" and the overall rate of inflation. I like to look at what are the prices of the mandatory items v. the discretionary items. To me apparel which is the only item in the list that is down meaningfully at all over the past months/years, is a discretionary item. Sure - I buy new clothes a few times a year, but it is not a must item that would get me. On the other hand - food and energy - these are two consumables that I buy every day of the year. I have to drive to work, I have to eat breakfast, lunch, and dinner - and I am always looking to earn more $$$ so that I can handle the costs/purchases of these items.

I also consider recreation to be a discretionary item. It is also one of the items in the list that isn't up that much. I am not going to try and conjure up some new statistic on my own - but I do believe in my own heart that I got the number side of things right. Now below I will discuss some additional tidbits.

I also had a working hedge relationship for a week or so in the price reactions of the XLF v. the Gold stocks. Whenever gold would take off it would increase those options, and whenever XLF would go up it would decrease those options and vice versus. It was a give and take which was working. This relationship broke down today as although interest rates rose across the board (predictably killing gold), the financials actually increased in price decoupling - at least today.

The action is not done yet though. I still have approximately $3K of capital committed to options contracts which expire next Friday - 10/21. I am slightly in the money on one of them - as there is absolutely no time premium left in it (that is the XLF puts). I am out of the money in RGLD and it will require an upward move of at least 8% next week. Now if gold recovers and challenges $480 - I am confident that trade will turn out great. That is a huge assumption though - for all I know gold could collapse and head back to $430 next week because inflation at least as it is considered by the investing public and wallstreet is dead in the water.

Here is the final portfolio snapshot going into the weekend which should serve as a sobering reminder of how not to BET. This was definitely putting everything on RED and I am taking it up the kazoo as a result.

Snapshot:

The above closing prices are what was posted to my account but I believe that XLF is probably closer to $0.80 right now and RGLD closer to 0 - which would tak me down an additional $1,500 - puting actual portfolio value around $9,400...............YEEEEOUCH.


Regards,

BG

Got blown out today..........and KILLED

While if you are speculating you are bound to get it wrong at times. And I got it really wrong here. I had a better (or worse) depending on your position CPI number than imaginable at 1.2% - this was much higher than consensus CPI of 0.9% and works out to around 10% per year.

Still interest rates are falling today and GOLD IS CRASHING. I lost my ass in numerous positions today. Luckily I did retain a fair amount of cash and it looks like I will live to write about it another day. Still I lost at least $1,000 speculating in Royal Gold and around $500 speculating in Newmont (NEM) in my other individual account, plus being down around an additional $500 on Newmont (NEM) in my retirement account.

So what's the solution? BUY MORE! Lol......no really - I do think they are a good buy here, but I also thought that 5 points ago higher - so I need to take a break and succumb to any type of gut reaction here and think about what connection I am missing.

I the statistic that I was expecting - whether an earnings number, economic statistic, etc. comes out as I was expecting/ better than expecte - and it is the reaction to that number that I misread - while then I am not really anticipating anything am I?

More on this later tonight and this weekend. I have a crazy day today - but will definitely hit on this today. Here is the snapshot so everyone can cry with me too:


Regards,

BG

PS I am not going to try and call a bottom in gold here as I obviously don't know WTF is going on. :)

Thursday, October 13, 2005

They are bringing in the big guns here

Now this also goes in the "this scares me department." See below article from www.billcara.com:

October 13, 2005

Refco hires Goldman Sachs, Thurs., Oct. 13, 2005, 11:43 AM

ALERT

CNBC reports that embattled commodities and futures broker Refco Inc (NYSE: RFX halted) has retained Goldman Sachs as its financial advisor. Interestingly Goldman, one of the most credible of Wall Street firms, was a chief underwriter of the recent Refco IPO.

Isn’t that like going from frying pan to the fire?

Actually a better analogy might be that the Wall Street club seems to be huddling together under the same old oak tree on the golf course at the onset of a thunderstorm.

That’s ok by me. Lightning now just has to strike once.

And btw, if this was not Refco, but say a Brazilian wireless telco operator, do you really think the NYSE would have halted trading so much?

Remember, these people are all in the same club. It’s called the Buy Side.

And unfortunately they own the media, if not directly then for certain by virtue of their advertising contracts.

Thank goodness for blogging.

ALERT: Refco has just this minute announced that the major profit-generating subsidiary has been shut down on account of not having the capital needed to continue.

I tell you, lightning is striking here.

Posted by Posted by Bill Cara on October 13, 2005 11:44:31 AM | Category: Cara Today in the Market

So let me get this straight. Refco is one of the largest providers of liquidity in the derivatives markets and they may have to shut down for "a few days" because they don't have enough capital to continue operations. Hmmmmm........

Then they bring in Goldman Sachs, Former SEC head Arthur Levitt, etc. to try and achieve damage control. This is going to be really interesting, except this damage control job isn't just for Refco - it is for the US financial system. If Refco fails the repercussions are going to be felt in the means of higher risk premiums, interest rates, etc. I am not selling my XLF position here. No way...........

Regards,

BG

Dollar Extremely Strong

Dollar is rallying big time this morning and all of my gold positions are getting murdered with gold own about $5 to $468. I am making a fatal flaw here and am averaging down. For some reason I don't see how I can be wrong. I am also expecting tomorrow's CPI number to absolute hell on wheels.

Right now as we speak, readers are finally see me fall victim to the "averaging down" phenomenon and also emotionally based trading. The "I can't be wrong" type scenario. I am adding to a position that is way down now - betting/speculating in effect that the price of gold is going to take off again. So far I have been very wrong.

Here is the portfolio snapshot - I am going to be trying to stay away from comp much more today in order to avoid throwing up. ;) Here is pic:

Regards,

BG

Wednesday, October 12, 2005

The Pasting Begins

Looks like I may have been wrong on gold. Like I may have been wrong on a lot of things....... Finally got nailed today in most of my positions. My NEM (newmont) position retraced again almost back to the original buypoint. At that time at midpoint I decided to add an out of the money options spec play for (RGLD) - Royal Gold with about $650 worth of October $25 call options - 25 contracts - purchased at $0.25. Stock is trading around $23 right now but was around 29 earlier in September. I am again banking on something big tomorrow and Friday and felt like I was ready to invest $600 with what I consider better than 50% odds that the stock will be back above $25 by next week based on higher CPI number and unfavorable balance of trade numbers.
It is definitely a gamble and I can tell that I am getting a little outside my framework in order to make spec trades.

The one nice development is that the XLF trade is moving along quite nicely - up about 35% right now in just 2 days. Lets hope this keeps up and see how things consider this week. I have to remember that it is possible that even bad numbers are spun in a "positive way" late this week. Similar to the many headlines I have read that say "natural gas users to suffer this winter." While as 80% of US population gets their heating from natural gas - shouldn't they just come out and say "Americans" to suffer from high natural gas prices this winter. The article suggests that not many people use natural gas - at least in the headline.

Here are the charts of portfolio composition and also the positions sheet. I am down already $300 on the Royal Gold speculation. Maybe tomorrow will bring better news.

Portfolio snapshot:

Portfolio composition:

The biggest question and the hardest time I am having is how much volatility I want to take on during a day to day basis. I am loving having the short position to offset volatility in the long positions as gold is also being sold indiscriminately here - but as I add more spec positions in gold I am definitely adding to my volatility profile. Things should be clearer tomorrow and even clearer on Friday.

Regards,

BG

"This is what I'm worrying about" Department......

This is what I am worried about.........how does this affect consumption in addition to all the interest rate hikes......and the credit card payment increases? 2006 is lookin recession like big-time. Can they get the inflation machine on track in time to make it at least look like we are growing?

"AP
Natural Gas Users to Take Hit This Winter
Wednesday October 12, 10:32 am ET
By H. Josef Hebert, Associated Press Writer


Winter Heating Bills to Be Higher Across U.S.; Natural Gas Users Likely Face Sharpest Increases

WASHINGTON (AP) -- Winter heating bills will be a third to a half higher for most families across the country, with the sharpest increases expected for those who heat with natural gas, the Energy Department forecast Wednesday.


The department said natural gas users can expect to pay an average of $350 more during the upcoming winter compared to last year, an increase of 48 percent. Those who heat their homes with fuel oil will pay $378 more, or 32 percent higher than last winter.

Propane users can expect a percentage jump in their bills similar to those of fuel oil users.

In its winter fuels outlooks report, DOE's Energy Information Administration assumed a normal winter and steady progress in restoring oil and natural gas production and refinery output from the damage inflicted by hurricanes Katrina and Rita.

"Should colder weather prevail, expenditures will be significantly higher," the EIA said.

The agency as well as the natural gas industry said that heating costs could vary widely among regions.

The National Oceanic and Atmospheric Administration offered a bit of cheer Wednesday morning, issuing a long-range winter forecast calling for warmer than normal temperatures in much of the Midwest and Pacific Northwest.

NOAA's National Weather Service said there is a 60 percent chance of warmer than normal weather in the Dakotas, Nebraska, Iowa, Kansas, Missouri, Oklahoma, north Texas, northern New Mexico and southern and eastern Colorado. States adjoining that area, plus Washington, Oregon, Alaska and Hawaii also have a chance of being warmer than usual. Other areas could be warmer or cooler than usual but no area was singled out to be especially cold.

A month ago, the EIA said natural gas prices could jump as much as 71 percent in the Midwest, where four of every five homes are heated by gas. It made no such specific assessment this time, but acknowledged that a colder-than-normal winter in the Midwest would produce significantly higher costs.

The cost of fuel accounts for about 70 percent of the price utilities charge retail residential customers, according to the American Gas Association.

EIA said it expects continued recovery of the energy system in the Gulf region in the coming months. But it said it expects a third of the Gulf's crude oil and a fifth of its natural gas to remain shut-in into December.

It also projected wholesale natural gas prices staying at about $12 per thousand cubic feet through the winter heavy demand period, twice what it cost last winter.

For some low-income families the sharp jumps could mean choosing whether to eat or keep warm, energy experts and advocacy groups fear.

The natural gas utilities warned Tuesday that despite their attempts to contain retail fuel costs, heating bills for gas users this winter will jump 50 percent over last season nationwide. In parts of the Midwest bills could be much higher.

More than half of all U.S. households heat with natural gas. But many of those who rely on electric heat, nearly a third of the country, may also see bills go up because many power plants run on natural gas. And users of fuel oil, more than half the households in New England, are expected to see their costs jump by a third or more over last winter, according to industry and government estimates.

"We have never had prices so high and increase so quickly," said Mark Wolfe, executive director of the National Energy Assistance Directors Association, which represents the state agencies that distribute money to help low-income families pay their fuel bills.

This winter, Wolfe expects more than a million additional applicants for the government program, a 20 percent increase over last year, with not enough money to go around. Congress provided $2.2 billion for the program, known as LIHEAP, last year. Wolfe said $5.1 billion is needed to keep pace this coming winter with the soaring energy costs and expanded demand.

The double punch of the two hurricanes knocked out 20 percent of the nation's natural gas production, severely damaged gas processing facilities along the Gulf Coast and shut down more than a dozen refineries. As a result, natural gas supplies and heating oil are tight as functioning refineries focused on getting enough gasoline onto the market -- and not building up stocks of heating oil.

Heating costs for the average family using fuel oil in the Northeast is projected by the group to be as much as $1,867 for the winter heating season, an increase of $605 over last winter, and $915 more than two years ago.

About half of all households in New England use fuel oil.

In the Midwest, where natural gas heats 79 percent of all homes, according to AGA, the winter heating costs are projected to soar to $1,568 for the season, an increase of $611 over last winter, according to Wolfe.

American Gas Association: http://www.aga.org

Energy Information Administration: http://www.eia.doe.gov

National Energy Assistance' Directors Association: http://www.neada.org"

Tuesday, October 11, 2005

Couple Charts

Going to look at a couple charts tonight as no one else seems to want to............(I follow several different blogs and market commentary services and very few are analyzing the financials short right now, although a few are looking at the long position in gold). I will go ahead and step up to the plate here and see what I can come up with.

Disclaimer: I am an awful chartist / TA guy - just doing this to spice stuff up.

I own the PUTS on XLF (the ETF covering the financial sector). This means that I have negative / bearish outlook on this sector of the market. So far it has moved down a little since I purchased it, but nothing significant. Here is the chart:


Re: above - I see sunnier skies around $27.

I own the CALLS on NEM ( Newmont mines - the gold miner). This means that I have a positive/bullish outlook on this stock. So far it has moved up a little since I purchased it but nothing really big. Here is the chart:

Will it break $50 in this cycle? Doesn't look like it on the chart, but I am optimistic.

Regards,

BG

Head fake or for reals?

I am so far feeling really good about the portfolio rebalancing I did yesterday. The market is already offering some confirming regarding my opinion on the financials and gold. Of course this weeks moves are entirely BS as the report on Friday - 10/14 - the CPI should control the market action for the next 2 weeks entirely and depending on that outcome my results could move either way.

Nevertheless here are some snapshots of the portfolio and its composition. My cash % of portfolio has declined because my positions values have increased since yesterday - still I feel like this is volatility one way or another prior to the big move on Friday and I am willing to experience the pain or gain in meantime awaiting that information.

Here are the pics:


Here is the composition:

Things are certainly getting interesting to say the least, and I cannot remember a time in last three months that I was as eagerly anticipating an event as this friday's numbers. Well let me amend that ........... I was pretty excited about going to McDonalds this morning for breakfast. :) Did you know that they decreased the size of their breakfast sandwiches - what the hell is that? Raise prices and decrease the size? No fair.......

Regards,

BG

Monday, October 10, 2005

Strange Days

Today has been really weird so far. I made some drastic changes in the portfolio and raised the cash I had wanted to on a dime -as several of the smarter guys that I read are doing the same thing. I am at 65% cash right now and may move to 75-80% very soon.

NCTY is taking off but I don't want to deal with this one tanking 20-25% if the broad market decline I am expecting materializes. I also closed out the GoldCorp(GG) and Wachovia(WB) trades at very minute gains. I invested some of the proceeds into October PUTS on the (XLF) - Financial ETF Spyders. This should work as a hedge to the gold position probably.............probably.

Here is snapshot:



Regards,

BG

Sunday, October 09, 2005

High Hopes

I had high hopes this weekend for getting some novel analysis out for everyone to read, but I got way bogged down doing computer networking - trying to set up a VPN between the home and office and it sucked up about 12 hours......minimum.

Anyays - the one commentary I will leave you with is the Sandisk options. I am going to be monitoring the interesting call options over the coming weeks as I have heard that long side of this one is the place to be. I was thinking that maybe expectations are too high and short side would be better, but apparently not. Here is a little break down on the available calls for October.

October Call Table:


Im not planning on buying anything too out of the money or in the money. My goal as everyone knows is too get the maximum leverage at the lowest possible cost and limit my risk by the amount of capital that i commit. Right now the options are still extremely expensive. You are paying up to 5% premum on options that are expiring within 12 days for some of the out of the money and at-the money calls. Now because the only value for both is time value - the option premiums should continue to decay/decline over coming 10 days - unless the stock price was to rise and the options were to become "in the money" and possess some intrinsic value.

If stock were still to be at $52.50 on 10/20 - and I chose to play the trade to the long side as it is looking - I would commit between $500 and $1,000 - and I would look to purchase the $55 calls for preferably $.05 - but I would say maximum of $.50. Anymore than that - and they are just too expensive and I would try some in-the-money call instead - probably the $50s which at that point you could probably get for $2.50 - $2.70 and still have some decent upside potential if solid earnings report comes out.

This is event driven trading and is extremely speculative / risky. I will give update as we approach the date more closely. I may also buy some more Newmont (NEM) October calls in anticipation of the CPI number which is coming out this Friday 10/14 - BTW - the consensus it 0.9% - wow!!!!!

Regards,

BG

Friday, October 07, 2005

Can you make your own luck?

When you are on the right side of the market it feels like you can make your own luck sometimes. That you are controlling events, instead of events controlling you. This is obviously a fallacy. All you have managed to do is align yourself, your thoughts, and your positions with the reality of the stock price movements, for an hour, week, month or as long as your luck has run.

Today I have that lucky feeling.....hit $13K today. Loving it......lets hope we can do some more. This weekend I am going to go into the Sandisk speculation a bit more. Also look for some more commentary about the Euro/Dollar as well as the ADSX research report (maybe.....).

Portfolio snapshot:


Regards,

BG

Thursday, October 06, 2005

Hots Hands Can Get Cold Fast

I have had a hot hand lately - there is little dispute there. Before you know it though things can turn around on you. I am thinking of closing out the Wachovia trade. Even though it is up a little bit, and I feel like my feelings on the financials being major sells is justified - this trade just feels too forced in the short run. I am going to watch it for a few more days and if nothing still happens - I will probably unload prior to the earnings on 10/17. The goal is to raise more cash prior to the CPI release number on Friday 10/14 so that I can have maximum flexibility.

If NCTY is still in the 16s tomorrow, I will probably also buy some more. I know that I said I was going to wait until it got to 15 - but I am just getting too greedy. I see this thing at 20+ in November after Q3 earnings and I want to accumulate as big of a position as I can without having more than 60% of my money in it.

Gold may move up a little bit here, but I am not expecting anything phenomenal. Will my account finally crack the 13K mark? Lucky 13? 13 on Friday.......probably not. But well be watching.

Also - the market has been acting extremely strange lately. Huge sell-off in energy which is happening indiscriminately. I am thinking of picking some Encana (ECA) or Chesapeake (CHK) on a pullback during next few weeks as these stocks are down big and they are two of the largest natural gas producers. And natural gas prices are not expected to go down over the next 6 months......if they do I will be shocked.

Also - I think the retailers may be a great short this winter. I am not sure how to game it. Probably need to wait for whatever Xmas rally would materialize on anticipation of solid sales and then get the PUTS on Best Buy, Gap, etc. - as I think this is going to be one hell of a winter to say the least.

Also - word on the vine is that Sandisk maybe a BUY??? prior to earnings. I have a hard time believing that after the incredible run that it is had - but I am open to everything so we will see where the trading odyssey takes over next few weeks. Can't say that this journey hasn't been gripping so far!

Regards,

BG

Pulte Closed Out

Sold the last of my Pulte (PHM) put options this morning. Its entirely possible that this one could run farther but due to the fact that it involves the short side of the market and an extremely volatile sector, I am happy to be taking something off the table after a 100% profit in 3 days. :)

I am sorry - but having problems with my charting software this morning, so I will just post the profit and loss diagram, as well as the portfolio snapshot. I am raising cash as fast as I can. If the Wachovia PUTS go in my favor in the next week that would be ideal so that I can have maximum cash to exploit any further weakness in Energy? Energy? Where did that come from? I don't know........must have something to do with Natural Gas at historic highs and the 15% uniform correction across the sector that has occurred over the last 5 days.

Anyways here are the pictures.

Pulte P and L:


Portfolio Snapshot - 10/06/2005


I would love to have the entry and exit charts like I said but the charting software is down so I probably won't come back to this one. If there are a lot of requests, I may change my mind, but right now - there are too many things cooking in the kitchen!

A great day to everyone! Time to get down to business.

Regards,

BG

Wednesday, October 05, 2005

Thinkin Crazy - A Three Level Ponzi (Pyramid?) Scheme

My mind has taken me to new and scary places. I have several new speculations on the table which I am going to share with everyone. Nothing has been done yet and nothing will probably be done for at least a week. The ponzi scheme I have in mind has three main phases:

Phase 1: Gold speculation with Newmont (NEM). Double down on the gold call options expiring in October before the CPI is released on 10/14. Large CPI number is expected and when it hits or hits in larger effect gold should ramp again. (Maybe?)

Phase 2: Sandisk (SNDK) speculation. Earnings are released on 10/20/2005. Options expire on 10/21/2005. It should be possible to pick up same month option . If I play it more conservative - nice money might be made with a straddle, where I buy a call options and put options on both sides of the equity price. If the stock stays put I lose my entire investment. However if stock moves big either way I can have a nice profit. My gut is telling me to play it more to the short side though by going long the PUTS. I may be able to buy out-of-the money PUTS that would need at least a 5% move in the common to become in-the-money. Due to the ridiculous implied volatility in this stock it won't pay to buy them earlier. Waiting until the last day the time premium that I am paying will be at its absolute lowest and I may be able to buy the desired PUTS in the $0.05 - $0.50 range. If the down-move in the stock that I am expecting materializes - it should be in at least the 5% range and potentially in the 10-20% range as investors expectations have quickly gotten ahead of themselves, especially with the new factory expenses coming online in full-force this fall.

Phase 3: The9 (NCTY) speculation. Earnings are out on 11/17. Money should be taken out of the Sandisk speculation entirely and plopped into the NCTY trade. Buying maximum amount available

Why is it a Ponzi scheme? The whole process counts on bringing new money in, in order to pyramid the gains through my positions appreciation. If any phase of the speculation fails, I will likely lose the entire investment and be back to the drawing board and poorer whatever amount it was that I commit to the speculation.

Right now I am planning on starting this with around 1K, although 2K would be much preferable. What is the potential goal? 50K. What is the probable result? $0.50. ..............


Regards,

BG