Archive for July, 2011
You Won’t Believe What Goldman Sachs Is Hiding
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| Written by Jared Levy, Editor, WaveStrength Options Weekly | |||||
| Friday, 29 July 2011 10:19 | |||||
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Like clockwork, the Nasdaq dropped 90 points or 3%. When heavyweights like Goldman Sachs (GS:NYSE) and Morgan Stanley (MS:NYSE) start to invest in something, you can make some “smart money” riding their coattails. These financial superpowers use their connections and power to get an edge on the average investor. But with a little research and some smart investing tactics, we can uncover their buy and sell list… and get in on their secrets. Wait until you hear what they are stockpiling… Goldman Sachs’ New Market VentureOnce in a while, a big firm ventures away from Wall Street to get its hands dirty. When a profit is at stake, nothing is out of reach. Morgan Stanley took a left turn off Wall Street in 2008 when it took over Chicago’s parking meters for the next 75 years. That deal paid the city $1.15 billion up front and has made Morgan Stanley some serious coin. (Many say that Chicago should have asked for closer to $4 billion.) Little does most of Chicago know that those parking meters are now controlled by investment groups in the Middle East. Don’t expect Chicago to change their free parking hours easily. Goldman Sachs’s newest venture is also off the beaten path. Goldman Sachs is getting in the metals market… in a way no one expected. (Don’t forget to sign up for Smart Investing Daily and let me and fellow editor Sara Nunnally simplify the market for you with our easy-to-understand articles.) Gaining Advantage in the Metals MarketWhen you think about Goldman Sachs, you might think of its exclusive money management services or its elite investment professionals. You would not expect to hear the news this “white shoe” firm just bought Read more |
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Earlier this week, I showed you how Wall Street’s fat cats hide their big trades in the option markets. In that article I described some strange yet serious bearish option activity I discovered in the Nasdaq-100 (NDX).Government Debt Solution Will Kill the Economy
Tuesday, 26 July 2011
The government’s poor money management is coming home to roost at the worst time. The “solution” to the U.S. debt problem will be some level of austerity and/or tax increases, both of which are sure to grind the economic recovery to a halt.
A double-dip recession is not just possible… it’s likely.
How bad could it get?
The unemployment rate could surge to 20% and mortgage lending standards may get 400% more difficult — and that’s just the beginning.
If mortgage rates rise (which they will soon) it will become even harder to get a home loan. The minimum down payment for “qualified” mortgages could increase to 20%, removing a large amount of prospective buyers from the marketplace and drive home prices even lower.
U.S. Government “Underemployed”
Because the odds of not paying their bills are much higher, individuals with poor credit must pay higher interest rates if they want a loan. High credit card, loan and mortgage rates keeps these folks locked in a vicious circle.
The government is about to find itself in this same cycle.
Right now the U.S. has a AAA credit score, the equivalent of 850 on the FICO scale (which ranges from 300-850). With that score, the U.S. can borrow money (sell bonds) at the lowest of interest rates. If the U.S. were to lose its “risk free” status and/or default, its borrowing costs would rise substantially.
Worse yet, Washington is bringing in less income now. High unemployment and underemployment mean less tax revenue. Americans are making and spending less than they were just a couple years ago.
Like so many of its citizens, the U.S. government is underemployed. This is where the cycle begins…
The U.S. dollar is the world’s reserve currency, which means our money is at the center of the world’s economy.
Take China for instance; it owns $1.15 trillion of our debt. Imagine Hu Jintao getting a notice of default from the U.S. Treasury Department… the reaction would not be good.
America’s next payment of $30 billion is due on Aug. 15 — and that’s just interest.
Here are our biggest debt holders.
The federal government, like Greece, will have to Read more
Where Wall Street’s Smart Money Hides Out
Friday, 22 July 2011
The masses and major media are making it seem that all is well in the markets. Over the past few weeks the Dow and S&P made strongly bullish moves and the Nasdaq reached 11-year highs.
Even with all this positivity, something is very concerning… and it’s not our government’s battle over our debt.
When I was trading on the floor of the exchange, I paid close attention to large orders trading in the option pits. These orders were coming from heavy hitters such as Goldman Sachs, JPMorgan or another large firm. If they were buying huge quantities of put options (which give them the right to sell a stock at a set price), I would trade along with them or find out why they were bearish.
When a big player like Goldman makes a move, it is for good reason.
The knowledge tucked inside these trades is invaluable, but is next to impossible to find. So I want to show you a little trick.
Volume Is the Cause, Price Is the Effect
Volume drives price. When there are more buyers than sellers in the marketplace, prices rise. When the sellers are in control, prices fall.
To find what the “smart money” is doing, some investors monitor large trading blocks of stock to see whether it was a buy or sell order. Unfortunately, the boys on Wall Street have tricks up their sleeves that make it hard for us to know what is really going on.
If a Wall Street player were to place a market or limit order (like most of us do through our brokers) to buy an extremely large quantity of shares, the price might go through the roof or vice versa when they want to sell.
That’s because the trade would be visible to everyone in the market.
The “Smart Money” (hedge funds, top traders, insiders) on Wall Street does EVERYTHING it can to hide its orders. Just like Texas Hold’em, the best bluff with a brain wins… and these guys play every second of every day.
Smart traders are always looking for ways to take advantage of less informed investors. The best hide their buy and sell orders so that they can get in and out unnoticed and without influencing the price of the stock too much.
Back in the ’80s and ’90s, markets were extremely inefficient. There were a slew of ways traders could game the system. Remember, computers and the Internet were still new and not widely used.
Trades happened much slower.
I recall being a trader in the Wild West days of the SOES bandits. These day traders would use Read more
American Car Makers — Prepare For the Next Electric Car
Tuesday, 19 July 2011
Rising energy costs and increasing consumption are on all of our minds. In fact, Sara and I recently had a debate about ethanol. We know this is a controversial topic for our readers, so we decided to offer this debate as an online webinar. It will be part of a series of webinars leading up to our 2011 Survival Summit coming to Las Vegas in September. (If you haven’t signed up for the Summit, click here.)
Controversial talks like Sara and I had are a necessity, especially for investors. Take a look at this chart.
A large part of America’s thirst for crude oil comes from cars and trucks. In 2007, there were over 255 million registered cars on U.S. streets. If those vehicles traveled an average of 10,000 miles per year at 20 miles to the gallon, that would burn 127.5 billion gallons or 3 billion barrels of gasoline per year.
Since only 35% of a barrel of crude oil is used to make gasoline, we need 8.5 billion barrels of oil just to meet the needs of passenger vehicles here in the U.S.
The Next Trend: Electric Cars
There is an American car company building 100% electric cars, and it’s not Nissan or Chevy. It’s Read more
Sell Apple Before the July 19 Crash
Tuesday, 12 July 2011
The past few days have shown the first cracks in the market’s newly formed foundation. There are more to come.
Two weeks ago everyone got über-confident and started buying stocks like crazy.
The S&P 500 gained 7% in eight trading days… an amazing feat considering the current state of things. This brought the major averages back above their 50-day moving averages, a bullish sign for shorter-term investors.
The broad market has remained amazingly resilient in the face of poor economic data here in the U.S. as well as geo-political issues and economic catastrophes (like Greece) around the world.
Nonfarm payroll data came in at its worst level in almost two years. And consumer confidence here in the States has been moving steadily lower since February.
And yet, investors still have an appetite for risk. The pros call this the “risk on” trade. Investors are buying stocks ignoring the economic data.
When the risk is on, the stakes are high and companies must deliver results. Earnings season kicked off yesterday with Alcoa (AA:NYSE). If a company doesn’t deliver more than is expected or misses a forecast altogether, crashes (small and large) can occur, especially in skittish markets like the one we are in now. In stocks with elevated P/E ratios like Netflix (NFLX:NASDAQ) and LinkedIn (LNKD:NYSE), this is even more likely to happen.
But would you believe that Apple (AAPL:NASDAQ) could be on the chopping block, too?
Why I Am Scared of Apple
Let me first say that I am a huge fan of Apple. It set the bar for computers and electronics with the Lisa (pre-Macintosh) back in the ’80s. After falling out of favor in the ’90s, the company has reclaimed its role as demigod of the tech sector.
Even with this status, Apple could be dangerous, at least over the next week or two. The Apple iPhone is its top product and accounts for 54% of its share price (forward estimate). But the Apple iPhone is under Read more
The Biggest Scam on Wall Street?
Friday, 08 July 2011
It’s the day the market fell apart. The day the usual became the impossible.
Imagine you purchase an exchange-traded fund or note and the next day it just suddenly stops trading. Would you be scared? Angry? Frustrated?
What if you had a profit and couldn’t collect one cent of it?
As frightening as that sounds, this exact scenario just occurred last Friday in a very heavily traded and popular exchange-traded note (ETN) called the iPath Long Enhanced S&P 500 VIX (VZZ:NYSE), which is a leveraged ETN based on the Volatility Index (VIX).
Shares of IPath Long Enhanced S&P 500 VIXare being removed from the market, not because of bankruptcy or delisting, but because of an obscure, widely unknown clause in the prospectus that forces the shares to be “redeemed” or cashed out when the index trades at a certain value.
In this case $10 was the redemption trigger price. So once iPath Long Enhanced S&P 500 VIX hit that level on Friday, all stockholders (actually note holders in this case) were forced to redeem their shares for $10. Even the ones who sold short at $9.68 were forced to take a loss.
Let me explain… Read more
The Secrets of the Investment ‘System’
Tuesday, 05 July 2011
Last week proved to be an enigma for many professional traders. Many of us believed that a rally of that magnitude, in that period of time, with little positive economic or fundamental data, made about as much sense as running into a brick wall head first and not expecting to injure yourself.
The movements of the financial market last week tested most of our instincts and experience as professionals; I know that’s how I felt.
And after I talked with a good many friends over the weekend, I have to address what I see as the core problem that most investors face.
Psychological Control
You may think the average investor fails because he doesn’t have the inside knowledge or experience that professionals do. But that’s not true. In fact, most average investors have all the tools — more than most of us professional traders.
The fundamental difference between the average investor and the professional trader is how you think about an investment.
For many investors, fear and greed cause frustration and panic. Once these emotions take control, investment plans tend to break down, and investors become a detriment to their own investment portfolios.
Having an “insider” like one of us at Taipan to guide you can certainly help, but you also need to learn who YOU are as an investor and where your sensitivities lie…
Are You Aware of Yourself?
My good friend Mark Douglas, who is highly regarded on Wall Street and was kind enough to write the forward to my book, Your Options Handbook, has written two exceptional works on the mental aspects of trading. This past week, I thought a lot about his most recent work, Trading in the Zone.
The book is extremely detailed and takes you through a series of scenarios that focus on our belief systems. The goal is to be aware of your thought processes and conquer your hidden mental roadblocks to success. (He also explores the many paradoxes in the marketplace — and there are plenty of them!)
Through our friendship, experiences and projects together, I believe we both share this fundamental core belief about investing:
Even though the market can be extremely random in its outcomes, having an edge (which comes from a system, tool or method) combined with a sound and consistent mental approach will ultimately lead to success if executed with continuity and repetition over time.
Basically, if you follow a set of rules or an investment system that has made other people successful, you too should be able to succeed if you “don’t let your brain get in the way.” Be aware and have control over your belief systems. Keep following the rules of your system over and over again.
In his book, Mark makes several compelling statements. Here are two to think about:
- “Learning how to identify an opportunity to buy or sell does NOT mean that you have learned to think like a trader.”
Many investors develop a system to find opportunities and see some success through testing. But once they put it to use in the real market, they fail. Why? Because the system is only half of what makes you a good trader. Perhaps they jumped out of the trade in fear, because the pain of potentially losing all that money scared them.
The solution here is to look back on the trades you made and record your emotions. Why did you exit the trade? Was it your system? Tools (charts)? Did your reasoning change? Or were you “spooked” out of the trade?
Last week, many short sellers (investors going against the market) were spooked in this same way. Maybe they could have benefited from another of Mark’s ideas:
- “If you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible.”
Whatever your plan or system is, you must follow it without fail and realize that deviations from your plan or system creates another layer of randomness in your success. Let me explain what that means. The more you make decisions outside of your plan, method or system, the less you know why a trade was a success or a failure.
First You Need a System
Each of our trading services follows a system, incorporates a method and has a plan that we execute as consistently as possible. If a stock or option meets our criteria, we act. When that stock or option no longer fits our criteria, hits our stop-loss, or if we attain our profit target, we exit.
Just like the greatest teams in sports, there will sometimes be strings of many winning trades and even losing trades, but you cannot let the emotions of trading take you away from your method or belief system.
My colleagues and I strive for consistency. We will teach you that when the market throws a curveball, you must act as though you are the best hitter in baseball and simply execute what you have been trained to do: connect!
Success in the markets is a long-term goal. Don’t panic or make dramatic adjustments in your strategy if you are hitting a dry patch. Adjust one variable at a time and measure your results.
To help develop your system, I encourage you to learn more about what we do at Taipan. Here is a link to our different services.
Editor’s Note: Jared’s WaveStrength Options Weekly service has a system that consistently banks 15%, 20%, even 50% gains for his readers.
It is not a shady get-rich-quick program either. Jared’s faithful subscribers are getting rich with safe, reliable profits. To get his latest advice, click here.
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