Michael Covel

Cuban’s thoughts should make people think.

It seems students are shying away from economics classes. Maybe this is not such a bad thing. Most economists spend their waking hours analyzing data such as “consumer spending” and “durable goods” to make market “predictions”. But how many times do we actually review those predictions to see how well they match what actually happens? So maybe this article means we finally have students saying to themselves, “hey, this stuff doesn’t seem so useful!”

A recent review of my second book seen:

A interesting book to read, the author obviously did a nice job of collecting all the info. In term of the trading methology [sic], I am not too impress with it. It is laughable that someone will trade the market without paying attention to current market condition and fundamental at all. May be that’s why Dennis would often loss 30% or more in one month and he often lost 9 trades out of 10. Sounds to me he got into the sucker rally all the time because he did not know and did not care what’s underneath. I bet if he spend more time studying the general market fundamental, he will do better than that. On the upside, there’s indeed one thing that interested me in this book, and that’s the profolio risk management. Although Dennis is a lazy dude that would not spend time studying the fundamental, but due to his skillful risk management, he managed to make money eventhough he’s wrong 90% of the time, and that’s what I try to learn from this book.

I don’t post this review and critique it because I don’t like critiism. Far from it. What I hate is mindless criticism while pretending to be smart. Reviews like the one above do more good than bad as they show that some people, even when staring at the black and white, the words in print, don’t get it. His 3rd sentence is a classic perfect for framing!

From the wires:

MOSCOW, Aug 26, (Thomson Financial) - Russia is not afraid of a new Cold War taking hold and is ready for “anything,” Russian President Dmitry Medvedev said on Tuesday in a television interview. “We’re not afraid of anything (including) the prospect of a Cold War. Of course we don’t need that … Everything depends on the stance of our partners and the world community and our partners in the West,” Medvedev told the Russia Today channel in comments translated into English.

Good times ahead?

A great term.

Some heavy hitters weigh in on the next bubble.

This is a great example of looking at life through statistics in a way that is digestible.

This excerpt from the wires struck me today:

Shares of mortgage finance companies Freddie Mac and Fannie Mae continued their plunge Wednesday as investors are increasingly convinced that the stocks will drop to zero if the government bails out the troubled companies…Fannie’s stock is down 87 percent so far this year, while Freddie has lost 90 percent of its value.

I have a question: Isn’t dropping 90% close enough to dropping to zero? Do you hang around for the last 10% down as some form of perverse “hanging on for the rebound”?

Why would investors give money to a trader with a 5 year lock up period who places “long” bets on a few firms? I am not sure why, but they apparently do. Billions of bets it seems.

I feel bad for this family (article), but blaming the appraiser is absolute nonsense. Doesn’t anyone take responsibility for their own errors? Ok, you got a faulty appraisal. Did you only trust? No verify? Did you not look around and ask yourself if the appraisal was accurate? No. It is easier to blame the appraiser hiding behind the tree and then let an AP reporter create a tear jerker article. Harsh from me? Or the truth?

So True.

What a system. Makes me long for communism…

Sent in by a reader.

Here is an excerpt from an email newsletter that arrived in my in box:

With the beautiful benefit of hindsight we know what happened to Starbucks - it grew too fast, opened too many stores, and sacrificed its own standards to meet unrealistic targets. The company first claimed that it only had a few hundred stores that it needed to close, and then the few hundred spilled into six hundred. Weak consumer spending will likely push Starbucks to re-examine its store count again, doubling or tripling the store closures. Starbucks percentage of new stores growth in 2007 was only slightly lower than it was in 1999. But in 1999 it had 2,000 stores; in 2007 it was pushing a 10,000 company owned stores mark. Let’s put this in perspective: in 1999 Starbucks opened 447 stores - 1.8 stores per working day; in 2007 that number more than tripled to 1,403 stores a year - 5.5 stores per working day. At this level of growth physical limitations come in: there is only so much real estate that fits a company’s criteria at a certain point in time. Management started sacrificing on the quality of their decisions, compromises were made that were unthinkable several years before. Stores were opened too close to each other or on the wrong side of the street, expensive leases were signed, they even hired baristas that would have fit in better at McDonalds - you get the idea. Unfortunately the present and the future will pay for the decisions of the past: stores will need to be closed, long-term leases terminated, charges taken, corporate costs created in hopes of high growth eliminated, and corporate culture of partnership strained by barista layoffs. Starbucks needs to go on a permanent growth diet (at least in the US), and realize that it has the metabolism of a 37 year old and can digest fewer new stores. By tightening its standards for opening new stores the company will be on the way to recovery, though at slower growth.

Isn’t their chart easier to follow than that explanation? Instead of waiting for management to turn the company around, why not wait for the chart to turn around?

I would tell Chinese investors to just hang in there. This chart is just screaming out to investors to “hold” on and be patient…isn’t it?

A nice piece that breaks it down.

I am sure the pay is good, but these CEO gigs can’t be much fun.

I get where the author is trying to go here, but I am not so sure about the usefulness of such data. From my perspective and cutting to the chase, if any market explodes upward, and let’s assume that market is a staple (i.e. oil, wheat, etc.), then it seems like for the average person (who is of course always constrained with limited time). their best option is to:

1. put on a hedge in the market of concern.

2. trade the market of concern in the direction that market is moving…for potential profit.

As with all trend trading systems, the reversal, the next drawdown, always arrives. July was a bad month for trend following traders. Oil going down either forced exits and or the taking of new short positions (either of which meant a give back in profit). Guess what? This is normal. Many might hear this bit of news and say, “that’s bad news, I will do something else with my money instead.” That would be a mistake. If you approach trading not expecting to have losses, if you approach trading not being able to take a loss…you will lose. That is guaranteed.

The logic baffles me (MP3).

From the wires:

Jerry Webman, chief economist at Oppenheimer Funds Inc., said the swift pullback in stocks after the day’s economic readings illustrates the fragility of investor sentiment. He said the market’s volatility reflects an undercurrent of uncertainty and efforts by some traders to capitalize on shifts in the mood. “We react very strongly to bits of news,” he said. “The whipsaw danger is pretty high here.”

I don’t believe that any analyst can accurately predict when whipsaw danger is highest…whatever than means exactly!

Some recent shots from San Diego shoot for documentary film am producing:

picture 1
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picture 4

More updates soon!

From a reader:

Dennis and Seykota both seem to give the impression that their styles while being interviewed for Market Wizards ‘would become obsolete’ sooner rather than later. Obviously, changes in market efficiencies and inefficiencies lead one to believe that this day has in one way or anotherr come and gone, but there are still fundamentals about trend trading that can definitely be taken from all three books. Have you asked or heard from these type of upper echelon traders in recent years, with regards to the changing technology of the market environment and the affects this has had on the ability to trend trade? One must almost force themselves to be somewhat of a day trader in order to secure winnings and yet, there is always that trend that still develops and carries on for a great amount of time, whether or not the market is chopping.

There are plenty of trend traders trading their trend following methods doing quite well and have been for decades. I am not so sure anything about markets has fundamentally changed. There are still trends caused by the buying and selling among human beings. That seems eternal.

A diatribe on the Fed (MP3).

Oh the joy that comes with being a fundamental analyst! That’s harsh! However, anyone taking an honest look at this chart knows damn well that the trend was straight down already. Whether or not some one analyst said something of consequence is irrelevant with THAT chart.