I don't mean to pick on CNBC but every day they seem to come up with something dumber.
Today they are running clips of Gordon Gekko telling Charlie Sheen that fund managers can't beat the S&P 500 because they are sheep, and sheep get slaughtered. While that is very true, these numbnuts use it as the lead-in to tell you to watch their analysts' picks of the day! Do they even understand the clips they are showing you?
There is no worse a group of sheep on the planet than the flock who follow these ridiculous analyst picks. I'm not saying there are no good analysts out there but certainly there are plenty of bad ones and when you get an up or downgrade from an anonymous person hiding under the umbrella of a large brokerage, what makes you think that person is any more competent that the average person in your own office is at their job?
Here's a job listing for a Buy-Side analyst: " Buy side equity analyst for mid to large cap domestic insurance companies with a bottom up fundamental approach • Analyst will cover roughly 30 individual insurance names held in a $3.5 billion fund." What do you need to land this job? 3-5 years experience. 3-5 years? That means some kid who's been out of college for 36 months is qualified to pontificate on the short and mid-term outlook for AIG, a complex multinational insurance institution that has dozens of lines of business and is affected by everything from a bus blowing up in Jerusalem to the wind blowing in the Gulf of Mexico. Baaaaaaaaah! How can you follow these people?
At PSW, the mission is to teach you to trade and trading is not following the herd, as often as not, successful trading means going against them! While I often cite aggregate analyst opinions as good indicators of a stock's sentiment, there's a lot more money to be made going against an up or downgrade than there is chasing it. The important thing is to be able to make your own decisions, do your own research and objectively decide whether you agree or disagree with the call of the day. The up and downgrades often point us to where the action is, but it's up to us to decide what that action is going to be!
Are the analysts corrupt, are they manipulated , are they simply tools of the establishment that are being used to squeeze retail shareholders in and out of positions long after the real money players have already positioned themselves or are they just average Joes trying to do the best job that they can using pretty much the exact same information almost anyone can get off the Internet these days (I threw that last one in to be "fair and balanced")?
Whatever the case, learn to make your own decisions and, if you don't have time for that, get to know a few guys you are willing to trust and follow their picks – not the picks of random jerks who are just trying to get a call out before the deadline so they can make it to the strip club for happy hour (which reminds me, RICK is topping out here). You can follow Cramer (no comment) or you can follow Rhitholtz or you can follow me but it really scares me when new members say: "Please let me know when you are exiting so I can get out too."
Holy Cow people, I do go to the bathroom you know! Right this minute my daughter is standing next to me telling me how mean her sister is being about sharing the goldfish and some days I go out drinking and some days I don't get much sleep and some days I'm just plain off my game and WRONG! I am not a full-time robot analyst…. I am… a human… being! (and anyone who never saw the Elephant Man will have no idea what I'm talking about) You need to learn how to trade, why you are trading and to get comfortable with yourself – following others will never get you ahead in life.
OK, enough pontification, now I'll tell you what to trade!
As expected, the Hang Seng continued it's retrace with another 505-point drop which means we may be about done, perhaps another 500 points to go. Since our FXI and PTR puts are momentum plays, the loss of downward momentum will mean the thrill (volatility) will be gone from our options and we need to decide whether to cover, roll or simply cash out – we'll have to watch today's action closely but don't let me forget by the day's end!
The Nikkei gave up 107 points, barely a blip in a 1,000 point month and the BSE gave up 69 or the 948 points they gained last week alone. Like our markets, a lot of high flyers fell victim to profit taking as traders scrambled to cash in case we have another bad jobs report, which would put a Fed cut back on the table, which would devalue the dollar and jeopardize the carry trade. SNE took a huge 2.4% hit and even TM dropped a point. SNE in particular will be a BUYBUYBUY if we have good jobs numbers (but not too good) as a pullback to $49 today will be a huge gift if the dollar is going to strengthen into the holiday season. Today I like the current $50s as a gamble if we can get them for .90, $1 if our markets are going well.
The chip sector was hit hard in Asia as we had the well-timed MS downgrade of INTC and MU's worried outlook over supplies and pricing. This market fluctuates from oversupply to shortage every 45 days or so, which means it's simply time to take out our WFR and SNDK callers while we wait for some other bozo to upgrade the sector.
Speaking of Bozos, insurgency related deaths were up 55% in Afghanistan for the first 9 months of the year with 5,100 people dead in the country we have "under control." This is a new record, literally blowing away 2006's full-year total of 4,019 senseless deaths. Almost 180 international soldiers have died in Afghanistan so far this year, including 85 Americans, a record pace. About 90 U.S. soldiers died in Afghanistan over the whole of 2006. Afghanistan's security forces have been hit hard, with more than 600 police killed already this year, said Interior Ministry spokesman Zemeri Bashary, a higher figure than the AP count, which shows a total of 600 police and army soldiers killed this year.
Over in Europe, the ECB and the BOE held rates steady at 4% and 5.75% respectively. Trichet will make a statement later, probably following the Fed's lead, that inflation is tame (all of us keeping an eye on oil) and there are more downside than upside risks. If they give indication of a possible cut, this leaves room for the dollar to grow with a US Fed Fund rate at 4.75%, which is just enough premium to make up for the relative weakness in the US economy. Simply put, if you are borrowing Yen at 1% to put it into notes to make the interest spread and your primary risk is currency fluctuation, do you choose to put your cash in Euros, Pounds or Dollars. Remember, this isn't some guy playing with futures, this is a person borrowing $1Bn in Yen, looking to make 3% ($30M) for the year. A 3% relative currency fluctuation can throw them in the red and the Euro and the Pound have been rock steady for years so the Dollar will have it's work cut out but will look very attractive to speculators (hot money) looking for the double boost that can come from better rates AND an improving exchange rate…
There's a huge insider-trading probe going in in Europe over who knew what when with EADS and the Airbus debacle. Many big-name companies like DCX are getting caught up in this as French regulators have been investigating how much executives and board members knew about profit-damaging problems with the A380 superjumbo and midrange A350 airliners when they sold shares or exercised stock options valued at several million dollars during that period. The problems and a profit warning were announced in June 2006, sending EADS shares down 26% in one day. Woo-hoo on those puts!
The top defense being used by the accused is that they sold their options after reading my December 3rd, 2005 article on BA where I said: "Boeing's rival Airbus seems to have blown it with the A380 – it’s just too darn big for US airports without some major restructuring that they just don’t have time to do, even if they did want to spend the money." My call on BA at the time – the Jan ‘08 $60s for $17 – Ka Ching!
We'll be looking to retake the levels we lost yesterday: Dow 14,000, S&P 1,530, Nas 2,725, SOX 500, TRANQ 3,000 (that's a big one!) and Russell 830. Russell 830 is critical as that's our "DisComfort Zone" on the Big Chart. We also have little tolerance for a CAC pullback right when the DJ World Index => is retesting it's July highs – a failure at this level on a global scale and we'll all be singing "It's a small world after all!"
Let's not get complacent but Europe just threw us a huge bone by choosing not to compete with us for Asian investors so let's see what the markets can do with it. Unemployment looms large tomorrow morning and then it's right into the meat of earnings season and the way NTRI was treated this morning, I don't think traders are in any mood for a miss so be very careful out there.
We'll be switching our gambling (non-index) puts from FXI and PTR (sector dependent) to VNO and BXP as there are growing issues in commercial rentals – tune in during chat for those plays.
Happy Thursday,
– Phil
