Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EDT, Tuesday, September 29, 2009: Best recent
purchases: American Express, Apple, AT&T, BYD (Warren Buffett's car company),
EWA (Australia EFT), EWZ (Brazil EFT), Google. Worst recent buys have been gold
-- GLD and FSAGX -- and two "swine flu" gambles -- BCRX and SVA.
Cassidy argues Rational Irrationality. He argues logically that Wall
Street gets sucked in. The cost to not being in -- even though you know it's
a bubble -- are too high for your career. This is a long piece from the latest
New Yorker magazine. It's really worth reading. I've bolded bits:
The real reason that capitalism is so crash-prone.
by John Cassidy
n June 10, 2000,
Queen Elizabeth II opened the high-tech Millennium Bridge, which traverses
the River Thames from the Tate Modern to St. Pauls Cathedral. Thousands
of people lined up to walk across the new structure, which consisted of a
narrow aluminum footbridge surrounded by steel balustrades projecting out
at obtuse angles. Within minutes of the official opening, the footway started
to tilt and sway alarmingly, forcing some of the pedestrians to cling to the
side rails. Some reported feeling seasick. The authorities shut the bridge,
claiming that too many people were using it. The next day, the bridge reopened
with strict limits on the number of pedestrians, but it began to shake again.
Two days after it had opened, with the source of the wobble still a mystery,
the bridge was closed for an indefinite period.
Some commentators suspected the bridges foundations, others an unusual
air pattern. The real problem was that the designers of the bridge, who included
the architect Sir Norman Foster and the engineering firm Ove Arup, had not
taken into account how the footway would react to all the pedestrians walking
on it. When a person walks, lifting and dropping each foot in turn, he or
she produces a slight sideways force. If hundreds of people are walking in
a confined space, and some happen to walk in step, they can generate enough
lateral momentum to move a footbridgejust a little. Once the footway
starts swaying, however subtly, more and more pedestrians adjust their gait
to get comfortable, stepping to and fro in synch. As a positive-feedback loop
develops between the bridges swing and the pedestrians stride,
the sideways forces can increase dramatically and the bridge can lurch violently.
The investigating engineers termed this process synchronous lateral
excitation, and came up with a mathematical formula to describe it.
What does all this have to do with financial markets? Quite a lot, as the
Princeton economist Hyun Song Shin pointed out in a prescient 2005 paper.
Most of the time, financial markets are pretty calm, trading is orderly, and
participants can buy and sell in large quantities. Whenever a crisis hits,
however, the biggest playersbanks, investment banks, hedge fundsrush
to reduce their exposure, buyers disappear, and liquidity dries up. Where
previously there were diverse views, now there is unanimity: everybodys
moving in lockstep. The pedestrians on the bridge are like banks adjusting
their stance and the movements of the bridge itself are like price changes,
Shin wrote. And the process is self-reinforcing: once liquidity falls below
a certain threshold, all the elements that formed a virtuous circle
to promote stability now will conspire to undermine it. The financial
markets can become highly unstable.
This is essentially what happened in the lead-up to the Great Crunch. The
trigger was, of course, the market for subprime-mortgage bondsbonds
backed by the monthly payments from pools of loans that had been made to poor
and middle-income home buyers. In August, 2007, with house prices falling
and mortgage delinquencies rising, the market for subprime securities froze.
By itself, this shouldnt have caused too many problems: the entire stock
of outstanding subprime mortgages was about a trillion dollars, a figure dwarfed
by nearly twelve trillion dollars in total outstanding mortgages, not to mention
the eighteen-trillion-dollar value of the stock market. But then banks, which
couldnt estimate how much exposure other firms had to losses, started
to pull back credit lines and hoard their capitaland they did so en
masse, confirming Shins point about the market imposing uniformity.
An immediate collapse was averted when the European Central Bank and the Fed
announced that they would pump more money into the financial system. Still,
the global economic crisis didnt ease up until early this year, and
by then governments had committed an estimated nine trillion dollars to propping
up the system.
A number of explanations have been proposed for the great boom and bust, most
of which focus on greed, overconfidence, and downright stupidity on the part
of mortgage lenders, investment bankers, and Wall Street C.E.O.s. According
to a common narrative, we have lived through a textbook instance of the madness
of crowds. If this were all there was to it, we could rest more comfortably:
greed can be controlled, with some difficulty, admittedly; overconfidence
gets punctured; even stupid people can be educated. Unfortunately, the real
causes of the crisis are much scarier and less amenable to reform: they have
to do with the inner logic of an economy like ours. The root problem is what
might be termed rational irrationalitybehavior that, on
the individual level, is perfectly reasonable but that, when aggregated in
the marketplace, produces calamity.
onsider the freeze that started in August of 2007. Each bank was adopting
a prudent course by turning away questionable borrowers and holding on to
its capital. But the results were mutually ruinous: once credit stopped flowing,
many financial firmsthe banks includedwere forced to sell off
assets in order to raise cash. This round of selling caused stocks, bonds,
and other assets to decline in value, which generated a new round of losses.
A similar feedback loop was at work during the boom stage of the cycle, when
many mortgage companies extended home loans to low- and middle-income applicants
who couldnt afford to repay them. In hindsight, that looks like reckless
lending. It didnt at the time. In most cases, lenders had no intention
of holding on to the mortgages they issued. After taking a generous fee for
originating the loans, they planned to sell them to Wall Street banks, such
as Merrill Lynch and Goldman Sachs, which were in the business of pooling
mortgages and using the monthly payments they generated to issue mortgage
bonds. When a borrower whose home loan has been securitized in
this way defaults on his payments, it is the buyer of the mortgage bond who
suffers a loss, not the issuer of the mortgage.
This was the climate that produced business successes like New Century Financial
Corporation, of Orange County, which originated $51.6 billion in subprime
mortgages in 2006, making it the second-largest subprime lender in the United
States, and which filed for Chapter 11 on April 2, 2007. More than forty per
cent of the loans it issued were stated-income loans, also known as liar loans,
which didnt require applicants to provide documentation of their supposed
earnings. Michael J. Missal, a bankruptcy-court examiner who carried out a
detailed inquiry into New Centurys business, quoted a chief credit officer
who said that the company had no standard for loan quality. Some
employees queried its lax approach to lending, without effect. Senior managements
primary concern was that the loans it originated could be sold to Wall Street.
As long as investors were eager to buy subprime securities, with few questions
asked, expanding credit recklessly was a highly rewarding strategy.
When the subprime-mortgage
market faltered, the business model of giving loans to all comers no longer
made sense. Nobody wanted mortgage-backed securities any longer; nobody wanted
to buy the underlying mortgages. Some of the Wall Street firms that had financed
New Centurys operations, such as Goldman Sachs and Citigroup, made margin
calls. Federal investigators began looking into New Centurys accounts,
and the company rapidly became one of the first major casualties of the subprime
crisis. Then again, New Centurys executives were hardly the only ones
who failed to predict the subprime crash; Alan Greenspan and Ben Bernanke
didnt, either. Sharp-dealing companies like New Century may have been
reprehensible. But they werent simply irrational.
The same logic applies to the decisions made by Wall Street C.E.O.s like Citigroups
Charles Prince and Merrill Lynchs Stanley ONeal. Theyve
been roundly denounced for leading their companies into the mortgage business,
where they suffered heavy losses. In the midst of a credit bubble, though,
somebody running a big financial institution seldom has the option of sitting
it out. What boosts a firms stock price, and the bosss standing,
is a rapid expansion in revenues and market share. Privately, he may harbor
reservations about a particular business line, such as subprime securitization.
But, once his peers have entered the field, and are making money, his firm
has little choice except to join them. C.E.O.s certainly dont have much
personal incentive to exercise caution. Most of them receive compensation
packages loaded with stock options, which reward them for delivering extraordinary
growth rather than for maintaining product quality and protecting their firms
Princes experience at Citigroup provides an illuminating case study.
A corporate lawyer by profession, he had risen to prominence as the legal
adviser to Citigroups creator, Sandy Weill. After Weill got caught up
in Eliot Spitzers investigation of Wall Street analysts and resigned,
in 2003, Prince took over as C.E.O. He was under pressure to boost Citigroups
investment-banking division, which was widely perceived to be falling behind
its competitors. At the start of 2005, Citigroups board reportedly asked
Prince and his colleagues to develop a growth strategy for the banks
bond business. Robert Rubin, the former Treasury Secretary, who served as
the chairman of the boards executive committee, advised Prince that
the company could take on more risk. We could afford to seek more opportunities
through intelligent risk-taking, Rubin later told the Times. The
key word is intelligent.
Prince could have rejected Rubins advice and told the board that he
didnt think it was a good idea for Citigroup to take on more risk, however
intelligently it was done. But Citigroups stock price hadnt moved
much in five years, and maintaining a cautious approach would have involved
forgoing the kind of growth that some of the firms rivalsUBS and
Bank of Americawere already enjoying. To somebody in Princes position,
the risky choice would have been standing aloof from the subprime craze, not
joining the crowd.
In July, 2007, he intimated as much, in an interview with the Financial Times.
At that stage, three months after New Centurys collapse, the problems
in the subprime market could no longer be ignored. But the private-equity
business, in which Citigroup had become a major presence, was still thriving,
and Blackstone, one of the biggest buyout firms, had just issued stock on
the New York Stock Exchange. Prince conceded that a collapse in the credit
markets could leave Citigroup and other banks exposed to the prospect of large
losses. Despite the danger, he insisted that he had no intention of pulling
back. When the music stops, in terms of liquidity, things will be complicated,
Prince said. But as long as the music is playing, youve got to
get up and dance.
The reference to the game of musical chairs was a remarkably candid description
of the situation in which executives like Prince found themselves, and of
the logic of rational irrationality. Whether Prince knew it or not, he was
channelling John Maynard Keynes, who, in The General Theory of Employment,
Interest, and Money, pointed to the inconvenient fact that there
is no such thing as liquidity of investment for the community as a whole.
Whatever the asset class may bestocks, bonds, real estate, or commoditiesthe
market will seize up if everybody tries to sell at the same time. Financiers
were accordingly obliged to keep a close eye on the mass psychology
of the market, which could change at any moment. Keynes wrote, It
is, so to speak, a game of Snap, of Old Maid, of Musical Chairsa pastime
in which he is victor who says Snap neither too soon nor too late, who passes
the Old Maid to his neighbour before the game is over, who secures a chair
for himself when the music stops.
Keyness jaundiced view of finance reflected his own experience as
an investor and as a director of an insurance company. Every morning, in his
rooms at Kings College, Cambridge, he spent about half an hour in bed
studying the financial pages and various brokerage reports. He compared investing
to newspaper competitions in which the competitors have to pick out
the six prettiest faces from a hundred photographs, the prize being awarded
to the competitor whose choice most nearly corresponds to the average preferences
of the competitors as a whole; so that each competitor has to pick, not those
faces which he himself finds prettiest, but those which he thinks likeliest
to catch the fancy of the other competitors, all of whom are looking at the
problem from the same point of view. If you want to win such a contest,
youd better try to select the outcome on which others will converge,
whatever your personal opinion might be. It is not a case of choosing
those which, to the best of ones judgment, are really the prettiest,
nor even those which average opinion genuinely thinks the prettiest,
Keynes explained. We have reached the third degree, where we devote
our intelligences to anticipating what average opinion expects the average
opinion to be. And there are some, I believe, who practice the fourth, fifth
and higher degrees.
The beauty-contest analogy helps explain why real-estate developers, condo
flippers, and financial investors continued to invest in the real-estate market
and in the mortgage-securities market, even though many of them may have believed
that home prices had risen too far. Alan Greenspan and other free-market economists
failed to recognize that, during a speculative mania, attempting to surf
the bubble can be a perfectly rational strategy. According to orthodox economics,
professional speculators play a stabilizing role in the financial markets:
whenever prices rise above fundamentals, they step in and sell; whenever prices
fall too far, they step in and buy. But history has demonstrated that much
of the so-called smart money aims at getting in ahead of the crowd,
and that only adds to the mispricing.
Markus Brunnermeier, an economist at Princeton, and Stefan Nagel, an economist
at Stanford, obtained data from S.E.C. filings for fifty-three hedge-fund
managers during the dot-com bubble. In the third quarter of 1999, they discovered,
the funds raised their portfolio weightings in technology stocks from sixteen
to twenty-nine per cent. By March of 2000, when the Nasdaq peaked, the funds
had invested roughly a third of their assets in tech. From an efficient-markets
perspective, these results are puzzling, Brunnermeier and Nagel noted.
Why would some of the most sophisticated investors in the market hold
these overpriced technology stocks? We know that many such investors
had no illusions about the prospects of the financial products they traded.
But their strategy was to capture the upside of the bubble while avoiding
most of the downsideand, with timely selling, many of them succeeded.
markets consist of individuals who react to what others are doing, the theories
of free-market economics are often less illuminating than the Prisoners
Dilemma, an analysis of strategic behavior that game theorists associated
with the RAND Corporation developed during the early nineteen-fifties. Much
of the work done at RAND was initially applied to the logic of nuclear warfare,
but it has proved extremely useful in understanding another explosion-prone
arena: Wall Street.
Imagine that you and another armed man have been arrested and charged with
jointly carrying out a robbery. The two of you are being held and questioned
separately, with no means of communicating. You know that, if you both confess,
each of you will get ten years in jail, whereas if you both deny the crime
you will be charged only with the lesser offense of gun possession, which
carries a sentence of just three years in jail. The best scenario for you
is if you confess and your partner doesnt: youll be rewarded for
your betrayal by being released, and hell get a sentence of fifteen
years. The worst scenario, accordingly, is if you keep quiet and he confesses.
What should you do? The optimal joint result would require the two of you
to keep quiet, so that you both got a light sentence, amounting to a combined
six years of jail time. Any other strategy means more collective jail time.
But you know that youre risking the maximum penalty if you keep quiet,
because your partner could seize a chance for freedom and betray you. And
you know that your partner is bound to be making the same calculation. Hence,
the rational strategy, for both of you, is to confess, and serve ten years
in jail. In the language of game theory, confessing is a dominant strategy,
even though it leads to a disastrous outcome.
In a situation like this, what I do affects your welfare; what you do affects
mine. The same applies in business. When General Motors cuts its prices or
offers interest-free loans, Ford and Chrysler come under pressure to match
G.M.s deals, even if their finances are already stretched. If Merrill
Lynch sets up a hedge fund to invest in collateralized debt obligations, or
some other shiny new kind of security, Morgan Stanley will feel obliged to
launch a similar fund to keep its wealthy clients from defecting. A hedge
fund that eschews an overinflated sector can lag behind its rivals, and lose
its major clients. So you can go bust by avoiding a bubble. As Charles Prince
and others discovered, theres no good way out of this dilemma. Attempts
to act responsibly and achieve a coöperative solution cannot be sustained,
because they leave you vulnerable to exploitation by others. If Citigroup
had sat out the credit boom while its rivals made huge profits, Prince would
probably have been out of a job earlier. The same goes for individual traders
at Wall Street firms. If a trader has one bad quarter, perhaps because he
refused to participate in a bubble, the results can be career-threatening.
As the credit bubble continued, even the credit-rating agencies, which exist
to provide investors with objective advice, got caught up in the same sort
of competitive behavior that had persuaded banks like Citigroup, UBS, and
Merrill Lynch to plunge into the subprime sector. Instead of adopting an arms-length
approach and establishing a uniform set of standards for issuers of mortgage
securities, the big three rating agenciesFitch, Moodys, and Standard
& Poorsworked closely with Wall Street banks, and ended up
giving AAA ratings to financial junk. But under the rating industrys
business model, in which the issuers of securities pay the agencies for rating
them, the agencies are dependent on Wall Street for their revenues.
Before Goldman Sachs, say, issued a hundred million dollars of residential-mortgage
bonds, it would pay an agency like Moodys at least thirty or forty thousand
dollars to issue a credit rating on the deal. As the boom continued, investment
bankers played the agencies off one another, shopping around for a favorable
rating. If one agency didnt think a bond deserved an investment-grade
rating, the business would go to a more generously disposed rival. To stay
in business, and certainly to maintain market share, credit analysts had to
accentuate the positive.
The Prisoners Dilemma is the obverse of Adam Smiths theory of
the invisible hand, in which the free market coördinates the behavior
of self-seeking individuals to the benefit of all. Each businessman intends
only his own gain, Smith wrote in The Wealth of Nations,
and he is in this, as in many other cases, led by an invisible hand
to promote an end which was no part of his intention. But in a market
environment the individual pursuit of self-interest, however rational, can
give way to collective disaster. The invisible hand becomes a fist.
I n February of 2002, the Millennium Bridge was reopened. The engineers at
Ove Arup had figured out how the collective behavior of pedestrians caused
the bridge to sway, and installed dozens of shock absorbersunder the
bridge, around its supporting piers, and at one end of it. The embarrassing
debacle of its début hasnt entirely faded from memory, but there
have been no further problems.
It wont be as easy to deal with the bouts of instability to which our
financial system is prone. But the first step is simply to recognize that
they arent aberrations; they are the inevitable result of individuals
going about their normal business in a relatively unfettered marketplace.
Our system of oversight fails to account for how sensible individual choices
can add up to collective disaster. Rather than blaming the pedestrians for
swarming the footway, governments need to reinforce the foundations of the
structure, by installing more stabilizers. Our system failed in
basic fundamental ways, Treasury Secretary Timothy Geithner acknowledged
earlier this year. To address this will require comprehensive reform.
Not modest repairs at the margin, but new rules of the game.
Despite this radical statement of intent, serious doubts remain over whether
the Obama Administrations proposed regulatory overhaul goes far enough
in dealing with the problem of rational irrationality. Much of what the Administration
has proposed is welcome. It would force issuers of mortgage securities to
keep some of the bonds on their own books, and it would impose new capital
requirements on any financial firm whose combination of size, leverage,
and interconnectedness could pose a threat to financial stability if it failed.
None of these terms have been defined explicitly, however, and it isnt
clear what the new rules will mean for big hedge funds, private-equity firms,
and the finance arms of industrial companies. If there is any wiggle room,
excessive risk-taking and other damaging behavior will simply migrate to the
A proposed central clearinghouse for derivatives transactions is another good
idea that perhaps doesnt go far enough. The clearinghouse plan applies
only to standardized derivatives. Firms like JPMorgan Chase and
Morgan Stanley would still be allowed to trade customized derivatives
with limited public disclosure and no central clearing mechanism. Given the
creativity of the Wall Street financial engineers, it wouldnt take them
long to exploit this loophole.
The Administration has also proposed setting up a Consumer Financial Protection
Agency, to guard individuals against predatory behavior on the part of banks
and other financial firms, but its remit wont extend to vetting complex
securitieslike those notorious collateralized debt obligationsthat
Wall Street firms trade among themselves. Limiting the development of those
securities would stifle innovation, the financial industry contends. But thats
precisely the point. The goal is not to have the most advanced financial
system, but a financial system that is reasonably advanced but robust,
Viral V. Acharya and Matthew Richardson, two economists at N.Y.U.s Stern
School of Business, wrote in a recent paper. Thats no different
from what we seek in other areas of human activity. We dont use the
most advanced aircraft to move millions of people around the world. We use
reasonably advanced aircrafts whose designs have proved to be reliable.
During the Depression, the Glass-Steagall Act was passed in order to separate
the essential utility aspects of the financial systemcustomer deposits,
check clearing, and other payment systemsfrom the casino aspects, such
as investment banking and proprietary trading. That key provision was repealed
in 1999. The Administration has shown no interest in reinstating it, which
means that too big to fail financial supermarkets, like Bank of
America and JPMorgan Chase, will continue to dominate the financial system.
And, since the federal government has now demonstrated that it will do whatever
is necessary to prevent the collapse of the largest financial firms, their
top executives will have an even greater incentive to enter perilous lines
of business. If things turn out well, they will receive big bonuses and the
value of their stock options will increase. If things go wrong, the taxpayer
will be left to pick up some of the tab.
Executive pay is yet another issue that remains to be tackled in any meaningful
way. Even some top bankers have conceded that current Wall Street remuneration
schemes lead to excessive risk-taking. Lloyd Blankfein, the chief executive
of Goldman Sachs, has suggested that traders and senior executives should
receive some of their compensation in deferred payments. A few firms, including
Morgan Stanley and UBS, have already introduced clawback schemes
that allow the firm to rescind some or all of traders bonuses if their
investments turn sour. Without direct government involvement, however, the
effort to reform Wall Street compensation wont survive the next market
upturn. Its another version of the Prisoners Dilemma. Although
Wall Street as a whole has an interest in controlling rampant short-termism
and irresponsible risk-taking, individual firms have an incentive to hire
away star traders from rivals that have introduced pay limits. The compensation
reforms are bound to break down. In this case, as in many others, the only
way to reach a socially desirable outcome is to enforce compliance, and the
only body that can do that is the government.
This doesnt mean that government regulators would be setting the pay
of individual traders and executives. It does mean that the Fed, as the agency
primarily responsible for insuring financial stability, should issue a set
of uniform rules for Wall Street compensation. Firms might be obliged to hold
some, or all, of their traders bonuses in escrow accounts for a period
of some years, or to give executive bonuses in the form of restricted stock
that doesnt vest for five or ten years. (This was similar to one of
Blankfeins suggestions.) In one encouraging sign, officials from the
Fed and the Treasury are reportedly working on the details of Wall Street
pay guidelines that would explicitly aim at preventing the reëmergence
of rationally irrational behavior. You dont want people being
paid for taking too much risk, and you want to make sure that their compensation
is tied to long-term performance, Geithner told the Times recently.
The Great Crunch wasnt just an indictment of Wall Street; it was a failure
of economic analysis. From the late nineteen-nineties onward, the Fed stubbornly
refused to recognize that speculative bubbles encourage the spread of rationally
irrational behavior; convinced that the market was a self-regulating mechanism,
it turned away from its traditional role, which isin the words of a
former Fed chairman, William McChesney Martinto take away the
punch bowl just when the party gets going. A formal renunciation of
the Greenspan doctrine is overdue. The Fed has a congressional mandate to
insure maximum employment and stable prices. Morgan Stanleys Stephen
Roach has suggested that Congress alter that mandate to include the preservation
of financial stability. The addition of a third mandate would mesh with the
Obama Administrations proposal to make the Fed the primary monitor of
systemic risk, and it would also force the central banks governors and
staff to think more critically about the financial system and its role in
the broader economy.
Its a pity that economists outside the Fed cant be legally obliged
to acknowledge their errors. During the past few decades, much economic research
has tended to be motivated by the internal logic, intellectual sunk
capital and esthetic puzzles of established research programmes rather than
by a powerful desire to understand how the economy workslet alone how
the economy works during times of stress and financial instability,
notes Willem Buiter, a professor at the London School of Economics who has
also served on the Bank of Englands Monetary Policy Committee. So
the economics profession was caught unprepared when the crisis struck.
In creating this state of unreadiness, the role of free-market ideology cannot
be ignored. Many leading economists still have a vision of the invisible hand
satisfying wants, equating costs with benefits, and otherwise harmonizing
the interests of the many. In a column that appeared in the Times in May,
the Harvard economist Greg Mankiw, a former chairman of the White House Council
of Economic Advisers and the author of two leading textbooks, conceded that
teachers of freshman economics would now have to mention some issues that
were previously relegated to more advanced courses, such as the role of financial
institutions, the dangers of leverage, and the perils of economic forecasting.
And yet despite the enormity of recent events, the principles of economics
are largely unchanged, Mankiw stated. Students still need to learn
about the gains from trade, supply and demand, the efficiency properties of
market outcomes, and so on. These topics will remain the bread-and-butter
of introductory courses.
Note the phrase the efficiency properties of market outcomes.
What does that refer to? Builders constructing homes for which there is no
demand? Mortgage lenders foisting costly subprime loans on the cash-strapped
elderly? Wall Street banks levering up their equity capital by forty to one?
The global economy entering its steepest downturn since the nineteen-thirties?
Of course not. Mankiw was referring to the textbook economics that he and
others have been teaching for decades: the economics of Adam Smith and Milton
Friedman. In the world of such utopian economics, the latest crisis of capitalism
is always a blip.
As memories of September, 2008, fade, many will say that the Great Crunch
wasnt so bad, after all, and skip over the vast government intervention
that prevented a much, much worse outcome. Incentives for excessive risk-taking
will revive, and so will the lobbying power of banks and other financial firms.
The window of opportunity for reform will not be open for long,
Hyun Song Shin wrote recently. Before the political will for reform dissipates,
it is essential to reckon with the financial systems fundamental design
flaws. The next time the structure starts to lurch and sway, it could all
to avoid the STEC Wreck. (Horrible pun.). I will admit to never having
sold a call option on stock I own. I will admit also to being frustrated with
STEC's recent trading. Reader Bruce Mitchell emails an interesting trade:
On your rec STEC (gladly didn't have to say 'stec wreck'!) I still believe.
If you do too, here is a nice play; buy the stock here around $30, sell the
October $32 calls at $1.35. If the stock is over $32 on October 16th, 2 weeks
from Friday, you will have to let your stock go at $32, but get to keep the
$1.35 (per share). This is a return of about 11.17%, but in only 2 1/2 weeks,
so 160% annualized. If the stock is under $32 on Oct. 16th, you get to keep
the stock and the call income, and your new basis is effectively $28.65 ($30
minus 1.35). You can sell whatever calls you want for November or sell the
stock. I personally wouldn't mind a close at $31.75 and will sell the November
$32's again, or maybe the $31's.
speak par excellence: This wonderful piece of gibberish is from Morgan
Stanley Smith Barney's Global Investment Committee Monthly:
global equity rally that has been underway since March has now hit the 60%
mark. Even so, equity valuation remains modest relative to inflation and interest
rates. Investor sentiment suggests skepticism of the rally, often a harbinger
of further gains. We retain our tactical overweight to stocks and alternative/absolute
return investments and remain underweight to bonds and cash. Within global
equities, we are overweight emerging markets, developed-market small caps
and US mid caps, as well as two commoditysensitive markets-Canada and Australia.
We are underweight the remaining developed equity markets: US, Europe and
Japan. Within global bonds, we prefer investment-grade and high yield corporate
bonds over developed-country sovereign debt. We are also underweight short-duration
investment-grade debt. Finally, we are overweight real estate investment trusts
(REITs) and commodities.
Of course, if
they knew what they were doing, they'd be doing it and not giving advice. (I
wonder if that applies to me, also.)
are the Taliban and what do they want? Interesting
analysis from talented analyst Stratfor. Article includes really neat maps on
Afghanistan. Click here.
7 is starting up. And they'll be pushing it
hard. October 22 is general availability (also called GA.) Please don't even
think of installing it until Microsoft releases the first bug fix -- probably
in nine months. Meantime, , I read the computer trade press. They seem hard
pressed to find any real reasons to move to Windows 7 -- acknowledging that,
for most users (especially those running Windows XP), the upgrade to Windows
7 will be hard, long, and frustrating -- and not successful. If you sadly are
running unreliable, slow, irksome Vista (against my advice), then definitely
upgrade to Windows 7, asap. For the rest of us running XP, my philosophy remains:
If your computer works, don't mess with it.
If it works slowly, clean it up. Five easiest ways: Add memory. Uninstall all
software you're not using. Error-check your hard drive. Defragment your hard
drive. Replace your platter hard drive with a solid state drive (SSD) one. If
it still works slowly, start with a clean, new big, fast hard drive and reinstall
Windows XP and your software from scratch.
cheapee: This new cheap Rolls-Royce is called the Ghost.
It costs only
$245,000. The best part of it the car is that the car's soft leather seats are
made from bulls kept away from barbed-wire fences to avoid blemishes
to their hide. You wouldn't want to use female cattle skins. They show stretch
marks. There -- you've learned something today.
friends are too fat and do too little exercise. When
I point to their bulging stomachs, they pat them and talk about "The
Good Life." From a medical web site, called Free
illness results in hundreds of thousands of preventable deaths each year in
the United States and billions of dollars in health care costs. Being obese
causes an increased risk for developing a number of serious and potentially
fatal health problems, including:
+ High Blood pressure, hypertension - One-third of all cases of high blood
pressure are associated with obesity High blood pressure is twice as common
in adults who are obese than in those who are at a healthy weight.
+ High blood
cholesterol - 50% more likely to have elevated blood cholesterol levels.
+ Diabetes Type
2 - non-insulin dependent accounts for nearly 90% of all cases of diabetes.
Researchers estimate that 88 to 97% of type 2 diabetes cases diagnosed in
overweight people are a direct result of obesity
heart failure - obesity increases the risk of congestive heart failure, a
potentially fatal condition in which the heart muscle weakens, progressively
losing the ability to pump blood.
+ Heart disease
- heart attack, congestive heart failure, sudden cardiac death, angina or
chest pain, and abnormal heart rhythm is increased in persons who are overweight
+ Stroke - There
is a link between obesity and stroke; this is particularly the case for people
whose fat is situated predominantly in the abdominal region. Overweight people
are more likely to have high blood cholesterol levels and high blood pressure,
but these associations are not the only explanations for the greater stroke
and gallbladder disorders.
+ Gout - the
condition may develop in people with obesity incidents are remarkably higher,
Gout is strongly associated with obesity.
- Obesity may be a major factor in the development of osteoarthritis, particularly
of the knee and especially in women.
+ Some types
of cancer -such as endometrial, breast, prostate, and colon
+ Poor female
reproductive health - examples would be menstrual irregularities, infertility,
+ Bladder control
problems - such as stress incontinence.
disorders -such as depression, eating disorders, distorted body image, and
low self- esteem.
Catholic men and a Catholic woman were having coffee.
The first Catholic man tells his friends, "My son is a priest,
when he walks into a room, everyone calls him 'Father'."
The second Catholic
man chirps, "My son is a Bishop. When he walks into a room people call
him 'Your Grace'.."
The third Catholic
gent says, "My son is a Cardinal. When he enters a room everyone says 'Your
The fourth Catholic
man then says, "My son is the Pope. When he walks into a room people call
him 'Your Holiness'."
Since the lone
Catholic woman was sipping her coffee in silence, the four men give her a subtle,
She proudly replies,
"I have a daughter, slim, tall, 38D breasts 24" waist and 34"
hips. When she walks into a room, people say, "Oh My God."
New Yorker cartoon:
Italian men pass their handguns down through the family.
Italian Mafia Don is dying. He calls his grandson to his bedside.
" Guido, I wanna you lissina me. I wanna you to take-a my chrome plated
.38 revolver so you will always remember me."
I really don't like guns.
How about you leave me your Rolex watch instead?"
me, boy. Somma day you gonna be runna da business, you gonna have a beautiful
wife, lotsa money, a big-a home and maybe a couple of bambinos. "
you gonna come-a home and maybe finda you wife inna bed with another man ...
gonna do then? Pointa to your watch and say, 'Time's Up'?"
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