In his most recent book, Dark Pools, Scott Patterson details how Thomas Peterffy, one of the pioneers of electronic trading and billionaire founder of Interactive Brokers, questioned the legitimacy of the very system he helped create. And he made this accusation to a conference room filled with the worlds elite traders. What was the result?
Read the excerpt from DARK POOLS
There is almost no reason to be long equities right now–so why have I been a buyer in the last 24 hours?
Stubbornness? Maybe. Stupidity? More likely. Or maybe just a belief that my two main holdings, EXK and VHC, are about to run–and run hard.
As you have doubtless read elsewhere on IBC, the OS signal results with silver miners, especially EXK, are incredibly reliable, and have provided nearly 100% gains when followed.
Yet my EXK purchase from yesterday is now underwater 5%. Despite my faith in the algorithms, I couldn’t help but wonder through the day if maybe this was the exception to the rule, and I vacillated between buying more or selling it all. Eventually I couldn’t stand watching it tick lower throughout the day and I logged off my platform (for a few minutes anyway) and resolved to HOLD FAST.
Yesterday, I did some housekeeping, dumping GMXR, (as fine a POS as I’ve seen) and MGO.TO (a close runner up) taking a 30% and 10% loss respectively for each.
The one saving grace is VHC, now a full position, which is up 5% and is ready to crack, which has lessened the sting of the other losses, somewhat. The real question for me if EXK is down another 5% tomorrow is whether I pull a Fly and double down, or follow the more timid (and sensible) rules of risk management and sell when I am down 7%.
For now, I owe Chuck a big thank-you for the VHC tip, and am looking ahead to similar success with KS
I am flying west tomorrow, and will only be able to catch the first hour of trading, so hopefully Armageddon can wait for me to place sell orders Thursday AM…
In the words of the founder of modern economics, ” But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin”
Given that corporate profits have now hit a record high, while wages have hit a record low, it appears that, according to Adam Smith, America has gone to ruin
Yes, the money supply is shrinking. According to the chart below, the net amount of credit has been reduced to a tune of 6 TRILLION, in the last four years.
What a perfect time to start an austerity program!
The dramatic increase of shale gas drilling has revolutionized gas production in North America…or has it?
For many producers, the price of gas would have to more than double to make their wells profitable. What does this mean for the future of the commodity?
As the dominoes of debt continue to fall, the next casualty of reckless borrowing and fiscal incompetence is the city of Stockton, California (pop 300,000) which has racked up a total debt of $700,000,000 even as the property values have fallen along with the tax income which might have supported this level of indebtedness. Even after massive cuts to the police force (25%), fire department (30%), and 40% of all other employees, they are nowhere close to balancing their budget.
A textbook case of inept leadership combined with unfortunate timing…
http://www.youtube.com/watch?v=GSLqcFxj_nE
Well, not quite. I dumped one name today–MGO.TO and decided to buy a starter in EDR.TO (the TSX version of EXK). The PPT stats on this are quite good, so I dipped a toe.
Also added small to CPST and GMXR
My Current longs include CPST, GMCR, EDR.TO, SVVC, and VHC. The last two make up about 70% of my book and are surging at the close here–each up about 2% today. I am about to open a beer an enjoy the first weekend of summer. I suggest you do the same…
I am normally a peaceful person, but this story makes me want to buy a handgun and do some damage
TIME released an article yesterday, widely reported in other media, that globally, humans are now overweight by a staggering 16.5 million tons, with the U.S. accounting for 34% of the world’s obesity (with only 6% of the population). If you were to extrapolate this rate to the whole world, it would like adding an extra BILLION people to the world. The upshot of the article is this: rising rates of obesity are threatening the world’s food security and environmental resources.
If this were a health blog, I would offer up my own reasons for this epidemic, which would NOT include the lack of exercise or prevalence of fast food eating. The big culprit? Carbs–especially high fructose corn syrup, which is an man-made sweetener found in a huge range of foods, but which the body has great difficulty in metabolizing, which leads to large releases of insulin, which creates insulin resistance over time, which forces the body to produce more insulin to metabolize food–a vicious cycle that promotes obesity.
But this is not a health blog and I will focus on the banking of coin. Specifically, the fat I am thinking of cutting are dead weight stocks, which function like a financial tire around the middle of my account, inhibiting the bankation du coin. The question for me is simple: when to cut the losers?
Case in point: MGO.TO Migao is a potash supply company which operates in China but is based in Toronto. Fundamentally, the company is strong, PE of 4.7, with a book value of $5.70, more than double the current share price of $2.30. Technically, the chart is fugly:
I bought this around 4 dollars and am currently staring at a 40% loss. Yes, I know I should have sold this long ago. The point is that I didn’t because I believed the fundamentals would outweigh the technicals, and I buried my head in the sand to the actual reality. I mean, how could a profitable company trading below book value continue to keep dropping another 40%? It’s easy in hindsight to see this as flawed logic, but at the time, with the prevailing wisdom that potash prices had stabilized and demand was increasing, it seemed like a safe bet.
I wish I had some kind of great revelation here from this trade, but the fact is we are faced with these decisions as traders all the time, and it is the combination of fear and/or greed and/or stubbornness that can make or break you. Some times it pans out and you are the hero. In this case, I’m closer to a zero. If I were really sure about this one, I would do a Fly and double down here, but, alas, I am but a piker trying to survive until retirement, patiently waiting for a recovery, confident that the long-term term thesis is correct, but not willing to throw any more money down the hole.
I guess that makes me an investor.
Because it’s time to go
http://www.youtube.com/watch?v=sCmtVbNXHqk&feature=related
Harvest remains one of my all-time favorite albums. A true classic that is now, unbelievably, 40 years old!
Where has the time gone?
Good question. For me, the time really has gone, and now it’s time to go.
The movers are coming Sunday, the exit paperwork four days should be done by Wednesday, and then my family and I will depart Shanghai for good.
Did I mention I live in China?
Hard to believe we have been here now for five years. If you asked me 7 years ago before we started our expat life where we would end up, China would have been the LAST place on that list. We lived in a small town of 10,000 at the time–actually we lived OUTSIDE the town. The idea of moving to a city of 21 million was repellant to say the least. At our first job fair, my wife literally tossed the China job offer in the trash (with great force, I might add) so sure was she of never working here, and so we ended up in Kuwait.
Kuwait was definitely…..interesting, but that’s another story for another day. We lasted two years–the dust and heat took its toll, and suddenly Shanghai didn’t seem that bad a place anymore. At the next job fair, we didn’t trash the offer, we signed it. As it turned out, the last 5 years have been good for the family, and much of we thought about China has been proven wrong….well, mostly wrong.
Without getting into too much detail, let me highlight just 2 aspects of Shanghai that make it a bittersweet place to live–and leave.
#1 Air Quality
This is the big one. Yes, the air is a problem–and one that never really goes away. True, Shanghai air is much better than Beijing’s, but that’s hardly a ringing endorsement. While most days you don’t notice it, we did have a few weeks this fall and winter where the AQI was over 400–severely polluted, which means stay indoors as much as possible. When the API is that high, you don’t smell the air, you TASTE it. Long term exposure at those levels–where particles less than 2.5 microns, which no mask can filter out, damage the lung tissue and can enter the bloodstream directly, are definitely toxic.
Well, that all depends on who you talk to. Here in China, the government standards are somewhat more ‘flexible’ than those in the west, leading to a substantial divergence between the ‘official’ version and what the US Embassy (which has its own monitoring device in aBeijing) publishes on their website. In 2010, the Embassy was reprimanded by the Chinese government for describing the air quality in Beijing as ‘Crazy Bad’ and pressured the US to stop making these readings public. Fortunately, these readings remain public today–in fact they have expanded monitoring to Guangdong, and just last month, Shanghai. iTunes now has an app which gives you the data for hundreds of cities, for those who really want to know.
Here’s a screen shot from today:
If you look at the PM10 reading, it reads 525–25 points into a ‘beyond the index’ reading. I have no idea where Jining is, all I know is I don’t want my family anywhere near there. Unfortunately, the 8 million residents of Jining don’t have a choice
#2 The French Concession
When the international settlement was founded, the French–true to fashion–refused to join. Instead, they maintained their own quarter of the city, with a police force, administration, and a separate set of rules. Technically, people could commit crimes in one part of the city, then rush to the safety of the French Concession, and pay off a few people to look the other way. Sort of like a Rick’s Cafe á la Casablanca, only bigger. Not surprisingly, corruption was rampant and it became a haven for gangsters in the 1930’s. But it also developed a style that was distinct from the rest of the city–tree-lined avenues; opulent mansions and apartments, build from the incredible fortunes that people made in Shanghai a century ago.
Fortunately, much of the French Concession has been preserved, and to walk through it today is like taking a trip back in time–many of the old mansions and buildings have been saved; the trees are still there–larger than ever. And there are hundreds of amazing and affordable restaurants to suit every palate: Mexican, Italian, French, Indian, Lebanese, Korean, and of course, Chinese (actually, there are within China at least half a dozen separate cuisines that demand their own venues). Many of these restaurants are housed in the old mansions that were once home to the nouveau riche of the Orient. And they are AFFORDABLE. For someone like me, who rarely went to restaurants before, we have now become spoiled by the convenience. Last Saturday, for example, we hit no fewer than 5 restaurants in the French Concession and the Bund, part of our farewell tour. I don’t think there is anyplace else that has the range, quality, and affordability of restaurants, and we will miss it dearly.
There is one other thing that I will not miss that pertains directly to investing, and, the whole point of this post
#3 China Standard Time
Shanghai is 12 hours ahead of the East Coast–we live in the future! So that means my trading day starts here at 9:30 PM, (an hour later in winter, no DST). At first I figured this would be a blessing. I could work a full day, and then have hours to prepare for the trade day to open. What I didn’t realize was this: the markets don’t close until after 3 AM, making it difficult to impossible to both trade the full day and be halfway coherent for work the next day. Over the years, this has been exhausting. I inevitably stay up too late, and by the end of the week I am in a chronic state of sleep deprivation, which, as I learned, does little to enhance my work or trading effectiveness. A week from now, I will leave CST and finally move to a more trade-friendly time zone.
Will this improve my trading? Well, it can’t hurt.
As for trading, for the record I made 2 easy trades today:
Sold RGLD for a 30% gain–a small position (wish it wasn’t) and one that might still keep rising, but I’m trying to teach myself to take profits. It’s easy to know when to buy–its knowing when to sell that is the real skill in trading. I still need to work on that. The chart showed it had run well above its 20 day ma, verging at OB levels, so that seemed as good a time as any to sell.
Bought more SVVC. Shares are trading BELOW cash levels, so this seems like a no-brainer. Went to a 3/4 position. Thought about selling some VHC, as I have an oversize position, but decided to stick with it–people wiser than me feel the best is yet to come. We shall see about that.
Oh, almost forgot. In case you were wondering….after the chaos and confusion of Shanghai, we decided to move to someplace more safe and stable….
Europe.
Happy Trading.
In his most recent book, Dark Pools, Scott Patterson details how Thomas Peterffy, one of the pioneers of electronic trading and billionaire founder of Interactive Brokers, questioned the legitimacy of the very system he helped create. And he made this accusation to a conference room filled with the worlds elite traders. What was the result?
Read the excerpt from DARK POOLS
There is almost no reason to be long equities right now–so why have I been a buyer in the last 24 hours?
Stubbornness? Maybe. Stupidity? More likely. Or maybe just a belief that my two main holdings, EXK and VHC, are about to run–and run hard.
As you have doubtless read elsewhere on IBC, the OS signal results with silver miners, especially EXK, are incredibly reliable, and have provided nearly 100% gains when followed.
Yet my EXK purchase from yesterday is now underwater 5%. Despite my faith in the algorithms, I couldn’t help but wonder through the day if maybe this was the exception to the rule, and I vacillated between buying more or selling it all. Eventually I couldn’t stand watching it tick lower throughout the day and I logged off my platform (for a few minutes anyway) and resolved to HOLD FAST.
Yesterday, I did some housekeeping, dumping GMXR, (as fine a POS as I’ve seen) and MGO.TO (a close runner up) taking a 30% and 10% loss respectively for each.
The one saving grace is VHC, now a full position, which is up 5% and is ready to crack, which has lessened the sting of the other losses, somewhat. The real question for me if EXK is down another 5% tomorrow is whether I pull a Fly and double down, or follow the more timid (and sensible) rules of risk management and sell when I am down 7%.
For now, I owe Chuck a big thank-you for the VHC tip, and am looking ahead to similar success with KS
I am flying west tomorrow, and will only be able to catch the first hour of trading, so hopefully Armageddon can wait for me to place sell orders Thursday AM…
In the words of the founder of modern economics, ” But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin”
Given that corporate profits have now hit a record high, while wages have hit a record low, it appears that, according to Adam Smith, America has gone to ruin
Yes, the money supply is shrinking. According to the chart below, the net amount of credit has been reduced to a tune of 6 TRILLION, in the last four years.
What a perfect time to start an austerity program!
The dramatic increase of shale gas drilling has revolutionized gas production in North America…or has it?
For many producers, the price of gas would have to more than double to make their wells profitable. What does this mean for the future of the commodity?
As the dominoes of debt continue to fall, the next casualty of reckless borrowing and fiscal incompetence is the city of Stockton, California (pop 300,000) which has racked up a total debt of $700,000,000 even as the property values have fallen along with the tax income which might have supported this level of indebtedness. Even after massive cuts to the police force (25%), fire department (30%), and 40% of all other employees, they are nowhere close to balancing their budget.
A textbook case of inept leadership combined with unfortunate timing…
http://www.youtube.com/watch?v=GSLqcFxj_nE
Well, not quite. I dumped one name today–MGO.TO and decided to buy a starter in EDR.TO (the TSX version of EXK). The PPT stats on this are quite good, so I dipped a toe.
Also added small to CPST and GMXR
My Current longs include CPST, GMCR, EDR.TO, SVVC, and VHC. The last two make up about 70% of my book and are surging at the close here–each up about 2% today. I am about to open a beer an enjoy the first weekend of summer. I suggest you do the same…
I am normally a peaceful person, but this story makes me want to buy a handgun and do some damage
TIME released an article yesterday, widely reported in other media, that globally, humans are now overweight by a staggering 16.5 million tons, with the U.S. accounting for 34% of the world’s obesity (with only 6% of the population). If you were to extrapolate this rate to the whole world, it would like adding an extra BILLION people to the world. The upshot of the article is this: rising rates of obesity are threatening the world’s food security and environmental resources.
If this were a health blog, I would offer up my own reasons for this epidemic, which would NOT include the lack of exercise or prevalence of fast food eating. The big culprit? Carbs–especially high fructose corn syrup, which is an man-made sweetener found in a huge range of foods, but which the body has great difficulty in metabolizing, which leads to large releases of insulin, which creates insulin resistance over time, which forces the body to produce more insulin to metabolize food–a vicious cycle that promotes obesity.
But this is not a health blog and I will focus on the banking of coin. Specifically, the fat I am thinking of cutting are dead weight stocks, which function like a financial tire around the middle of my account, inhibiting the bankation du coin. The question for me is simple: when to cut the losers?
Case in point: MGO.TO Migao is a potash supply company which operates in China but is based in Toronto. Fundamentally, the company is strong, PE of 4.7, with a book value of $5.70, more than double the current share price of $2.30. Technically, the chart is fugly:
I bought this around 4 dollars and am currently staring at a 40% loss. Yes, I know I should have sold this long ago. The point is that I didn’t because I believed the fundamentals would outweigh the technicals, and I buried my head in the sand to the actual reality. I mean, how could a profitable company trading below book value continue to keep dropping another 40%? It’s easy in hindsight to see this as flawed logic, but at the time, with the prevailing wisdom that potash prices had stabilized and demand was increasing, it seemed like a safe bet.
I wish I had some kind of great revelation here from this trade, but the fact is we are faced with these decisions as traders all the time, and it is the combination of fear and/or greed and/or stubbornness that can make or break you. Some times it pans out and you are the hero. In this case, I’m closer to a zero. If I were really sure about this one, I would do a Fly and double down here, but, alas, I am but a piker trying to survive until retirement, patiently waiting for a recovery, confident that the long-term term thesis is correct, but not willing to throw any more money down the hole.
I guess that makes me an investor.
Because it’s time to go
http://www.youtube.com/watch?v=sCmtVbNXHqk&feature=related
Harvest remains one of my all-time favorite albums. A true classic that is now, unbelievably, 40 years old!
Where has the time gone?
Good question. For me, the time really has gone, and now it’s time to go.
The movers are coming Sunday, the exit paperwork four days should be done by Wednesday, and then my family and I will depart Shanghai for good.
Did I mention I live in China?
Hard to believe we have been here now for five years. If you asked me 7 years ago before we started our expat life where we would end up, China would have been the LAST place on that list. We lived in a small town of 10,000 at the time–actually we lived OUTSIDE the town. The idea of moving to a city of 21 million was repellant to say the least. At our first job fair, my wife literally tossed the China job offer in the trash (with great force, I might add) so sure was she of never working here, and so we ended up in Kuwait.
Kuwait was definitely…..interesting, but that’s another story for another day. We lasted two years–the dust and heat took its toll, and suddenly Shanghai didn’t seem that bad a place anymore. At the next job fair, we didn’t trash the offer, we signed it. As it turned out, the last 5 years have been good for the family, and much of we thought about China has been proven wrong….well, mostly wrong.
Without getting into too much detail, let me highlight just 2 aspects of Shanghai that make it a bittersweet place to live–and leave.
#1 Air Quality
This is the big one. Yes, the air is a problem–and one that never really goes away. True, Shanghai air is much better than Beijing’s, but that’s hardly a ringing endorsement. While most days you don’t notice it, we did have a few weeks this fall and winter where the AQI was over 400–severely polluted, which means stay indoors as much as possible. When the API is that high, you don’t smell the air, you TASTE it. Long term exposure at those levels–where particles less than 2.5 microns, which no mask can filter out, damage the lung tissue and can enter the bloodstream directly, are definitely toxic.
Well, that all depends on who you talk to. Here in China, the government standards are somewhat more ‘flexible’ than those in the west, leading to a substantial divergence between the ‘official’ version and what the US Embassy (which has its own monitoring device in aBeijing) publishes on their website. In 2010, the Embassy was reprimanded by the Chinese government for describing the air quality in Beijing as ‘Crazy Bad’ and pressured the US to stop making these readings public. Fortunately, these readings remain public today–in fact they have expanded monitoring to Guangdong, and just last month, Shanghai. iTunes now has an app which gives you the data for hundreds of cities, for those who really want to know.
Here’s a screen shot from today:
If you look at the PM10 reading, it reads 525–25 points into a ‘beyond the index’ reading. I have no idea where Jining is, all I know is I don’t want my family anywhere near there. Unfortunately, the 8 million residents of Jining don’t have a choice
#2 The French Concession
When the international settlement was founded, the French–true to fashion–refused to join. Instead, they maintained their own quarter of the city, with a police force, administration, and a separate set of rules. Technically, people could commit crimes in one part of the city, then rush to the safety of the French Concession, and pay off a few people to look the other way. Sort of like a Rick’s Cafe á la Casablanca, only bigger. Not surprisingly, corruption was rampant and it became a haven for gangsters in the 1930’s. But it also developed a style that was distinct from the rest of the city–tree-lined avenues; opulent mansions and apartments, build from the incredible fortunes that people made in Shanghai a century ago.
Fortunately, much of the French Concession has been preserved, and to walk through it today is like taking a trip back in time–many of the old mansions and buildings have been saved; the trees are still there–larger than ever. And there are hundreds of amazing and affordable restaurants to suit every palate: Mexican, Italian, French, Indian, Lebanese, Korean, and of course, Chinese (actually, there are within China at least half a dozen separate cuisines that demand their own venues). Many of these restaurants are housed in the old mansions that were once home to the nouveau riche of the Orient. And they are AFFORDABLE. For someone like me, who rarely went to restaurants before, we have now become spoiled by the convenience. Last Saturday, for example, we hit no fewer than 5 restaurants in the French Concession and the Bund, part of our farewell tour. I don’t think there is anyplace else that has the range, quality, and affordability of restaurants, and we will miss it dearly.
There is one other thing that I will not miss that pertains directly to investing, and, the whole point of this post
#3 China Standard Time
Shanghai is 12 hours ahead of the East Coast–we live in the future! So that means my trading day starts here at 9:30 PM, (an hour later in winter, no DST). At first I figured this would be a blessing. I could work a full day, and then have hours to prepare for the trade day to open. What I didn’t realize was this: the markets don’t close until after 3 AM, making it difficult to impossible to both trade the full day and be halfway coherent for work the next day. Over the years, this has been exhausting. I inevitably stay up too late, and by the end of the week I am in a chronic state of sleep deprivation, which, as I learned, does little to enhance my work or trading effectiveness. A week from now, I will leave CST and finally move to a more trade-friendly time zone.
Will this improve my trading? Well, it can’t hurt.
As for trading, for the record I made 2 easy trades today:
Sold RGLD for a 30% gain–a small position (wish it wasn’t) and one that might still keep rising, but I’m trying to teach myself to take profits. It’s easy to know when to buy–its knowing when to sell that is the real skill in trading. I still need to work on that. The chart showed it had run well above its 20 day ma, verging at OB levels, so that seemed as good a time as any to sell.
Bought more SVVC. Shares are trading BELOW cash levels, so this seems like a no-brainer. Went to a 3/4 position. Thought about selling some VHC, as I have an oversize position, but decided to stick with it–people wiser than me feel the best is yet to come. We shall see about that.
Oh, almost forgot. In case you were wondering….after the chaos and confusion of Shanghai, we decided to move to someplace more safe and stable….
Europe.
Happy Trading.
