Wednesday, July 27, 2011

Book Review: 40 Actionable Trade Setups From Real Market Pros- The StockTwits Edge

This is an unusual book: in a true Twitter spirit, it is crowdsourced from various Twitter/StockTwits members. This "portfolio" approach is both a strength and a weakness: while there is a good variety of approaches described, some of the authors are not natural writers. On the positive side, the chapters are relatively short and any one that is a drag can be skipped over.

After reading the intro, I thought that the book would be a bit more balanced between various investing methods: it is not. Various momentum trading strategies (broadly speaking) are over-represented (probably more than half of the book) while others (options trading, value) get some space but it is pretty far from even. The final part of the book, The Art of Trading, is a catch-all for a few non-specific essays, some of which I found very interesting. Also of note, some chapters are parsimonious with their insights but very generous with pushing certain subscription products; other authors spent a bit too much time discussing their personal backgrounds. Finally, I was very surprised to see that Joe Fahmy was not in the book.

The sections within the book are: trend following, value, day trading, swing trading (longest), options, forex (shortest) and "the art of". I think an "average" investors would benefit from how various market participants think and act, while an "average" trader would find a good number (less than the promised 40) of set-ups for different markets and timeframes.

My favorite chapters- without giving away the store- were:
Value: Michael Bigger looking at CROX/fallen angels; Eddy Elfenbein looking at Aflac/quality
Swing: "ChessNWine" on trading break-outs from bases; Ivanhoff/Stocktwits50 has a thoughtful chapter on momentum
Options: Joe Kunkle has a good multi-factor approach (market sentiment, technicals, fundamentals) combined with spotting unusual options activity
The Art Of: well-known bloggers Greg McDonald and Josh Brown have good pieces, while Charles Kirk has three pages on insights from years of mentoring traders (might well be extended to "long term" investors, many similar issues pop up).

Net-net, there is something for everyone in this book but the slant is towards momentum traders. This is a natural offshoot of Twitter (and the smaller group, StockTwits, which sourced the book) being very trading oriented. May be the next book can be targeted towards "long form" investors.

Full disclosure: I received a free copy of the book from Ivanhoff, one of the editors and authors

Saturday, July 9, 2011

Coffee Stocks: Don't Burn Your Fingers

Anything related to coffee has been hot recently. There are some fundamental reasons for this: bean prices have been dropping, people are drinking more specialty coffee, the k-cup business is becoming big. However, it seems to me that there is a lot of speculative moves: be careful.
GMCR has been one of the best performers of the decade. Their meteoric rise has fueled the search for the next great coffee stock.

Several coffee-centric restaurant stocks have done well over the last year: SBUX, THI and CBOU. Even "fallen angel" KKD is rising nicely.

Things start to get a bit strange when we hit the bean roaster side of the business. Here's PEET, the company that locked horns with GMCR over the legendary DDRX acquisition (DDRX was a fortunate k-cup license holder and was acquired at $35/share after trading in the sub $1-level less than a year prior to that).

And now we are deep in bizarro world. JVA sells coffee to GMCR (as they have been for a while). Somehow this became explosive news recently.

But they are not alone: heavily promoted JAMN and under-the-radar JCOF have also had spectacular runs recently:

Which leads to today, when a small water distributor with a coffee operation just blew up:

Don't burn your fingers.

Sunday, July 3, 2011

Too Long for Twitter, Too Short for Separate Posts, 2nd Edition

"The Recovery", regardless of various statistics, has been a disappointment. One part of the issue is the anemic economic and employment growth (GDP at 2%ish). The big problem that I see is that we no longer have a normal market economy across many sectors, therefore we should not be expecting recovery patterns that are consistent with market economies. As we move closer to North Korea and Cuba via central planners/bailout managers in DC, we are going to be seeing slower and slower growth across the cycle. Until the powergrab reverses (both sides are guilty, as are their fossilized corporate and union patrons), we will have to learn that we are in a recovery because the Treasury Secretary said so in an op-ed called "Welcome to the Recovery". Turbotax Tim misses the subtlety of the principle "if you have to say it..."

Soon we'll reach the 4th anniversary of the first shot in the credit crisis: on August 9th, 2007, BNP Paribas halted withdrawals from three subprime funds. This begs question: was the crisis wasted? Absolutely: the too-big-to-fail banks have gotten bigger and none of the top-level perpetrators are in jail. I am not a lawyer but sure seems plausible to me that the DOJ can and should use RICO to go after the control fraud leaders. There is ample evidence, in my view, of organizations engaged in various types of frauds going back a fair number of years. If this means the closure of the TBTFs then so be it: ring-fence the essential operations and manage the rest. Instead we get a few showtrials of insider traders: not that these are not needed but the failure of Obama's DOJ and its leader, AG Eric Holder, has been stunning.

"The way to crush the bourgeoisie is on the grindstone of taxation and inflation"- Lenin. The Comrade had been targeting the capital owner class but these might also be two possible reasons for the decline in the middle class in the US. There are many others, of course, and the debate is still very much ongoing. However, the middle class has proportionately borne the brunt of taxation (holistic view of taxation here: % of income going to income, SS, medical, sales, property, tolls, excise taxes) and inflation (think of inflation in non-discretionary spending: energy, food, medical care and education). What do we have in DC now? Continuation of taxation (via deficit spending=future taxation) and inflation (explicit inflationary policies). So our reps should really look in the mirror while searching for the culprits.

"Taxing the rich" is a grossly misleading marketing soundbite. Obama makes no difference between stock and flow. Steve Jobs is "rich": billions (stock) in Apple equity (that pays no dividend) and $1 in salary (flow). XYZ MD just finished her residency, started working at $150k (flow) and has a negative net worth of $250k (stock) due to med school loans. Who's rich here? Who's paying higher taxes? Does it confirm that taxing income = taxing the "rich"?

The majority of babies in the US are now non-white. While this is bad news for some people, I think that it will add another angle to the debate regarding the inter-generational wealth confiscation going on from the non-voting minors to the voting seniors. This, of course, presumes that the system has not blown up by then.

Eggs. Yes, eggs. Eggs have been unfairly maligned for a long time. Here are a couple of things. One, the USDA recently reduced the cholesterol estimates by 14% (215 mg to 185 mg per egg), and increased the Vitamin D estimates by 64%. Second, and more interesting, there is a phospholipid in the yolks that prevents cholesterol absorption: some scientists were actually granted a patent on that, so I'd think the evidence is strong.

Saturday, July 2, 2011

Understanding Sovereign Credit Risk

One of the phenomena in sovereign credit is that the spread that certain countries and regions have to pay over the benchmark (such as US Treasurys or German Bunds) persists for many, many years. Surely some of it is factors such as intertia and liquidity. Some of it is simply credit risk: who is a more credit-worhty borrower? Since I like looking for new perspectives, here's a couple of brass music videos, one is from the Balkans (Greece, fmr Yugoslavia, Albania, Bulgaria, etc.), one is from Germany. Whom would you rather lend to? (based on some feedback, I should point out that these are extreme, caricature examples not to be taken literally)