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goldminingXpert (29.76)

A Puzzle Piece Falls Into Place...

Recs

43

June 01, 2009 – Comments (81) | RELATED TICKERS: BAC , JPM , DOG

If you, like me, were wondering why the bank stocks were being propped up at obscene heights (the valuations of BAC and GS in particular are unfathomable to a drug-free mind) well look no farther as we have an answer:

[U]*FED SAYS BANKS MUST TAP EQUITY MARKET BEFORE REPAYING[/U]
By Craig Torres
June 1 (Bloomberg) -- The 19 largest U.S. banks will have
to demonstrate they can sell new shares before they are allowed
to repay their government stakes, the Federal Reserve Board said
today.
The companies “must successfully demonstrate access to
public equity markets
,” the Fed said in a statement released
today in Washington. Bank holding companies that want to repay
Treasury funds also “must demonstrate an ability to access the
long-term debt markets without reliance on the Federal Deposit
Insurance Corporation’s Temporary Liquidity Guarantee Program.”
Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan
Stanley have applied to refund a combined $45 billion of
government investments, a step that would mark the biggest
reimbursement to taxpayers since the $700 billion bank bailout
program began in October.
Banks will have to demonstrate how they will meet funding
requirements and obligations to counterparties while reducing
reliance on government capital and the debt guarantees, the Fed
also said today. An announcement on the “initial set” of redemption approvals will come during the week of June 8, the central bank said. 

-------------------

This couldn't have been achieved with banks trading at their true valuations. Instead, it was necessary to push up the value of bank shares so that the new equity could be dumped to suckers at the top. This benefits everyone (gov gets its money back, banks get new capital at unreasonable good prices and so on) except YOU, the sucker, buying GS at 140 or BAC at 12. You see, the gov, the banks and the hedgies all know the true value of these banks is 30-80% below where they are currently trading.

Why are insiders getting out of stocks as fast as possible (according to the WSJ, insider selling is running at almost 10x the rate of insider buying)? They know that the final element of this bear market rally is the massive dilution. Once the banks get their sucker money, they can survive (hopefully) as the next leg of the housing collapse unfolds. As JPM sells shares of itself at twice their value today, they can stash the cash to hedge against inevitable losses as their MBS portfolio continues to get nuked.

If this were such a great new bull market, why are companies diluting their shares en masse? If companies really were undervalued, they'd be buying back their own shares! Companies dilute because they know they are overpriced. Learn something from the insiders--they're selling--why aren't you?

81 Comments – Post Your Own

#1) On June 01, 2009 at 6:17 PM, XMFSinchiruna (27.97) wrote:

Excellent post, gmX!

They're just going to keep sticking it to the shareholders until they can't take anymore. This is tragic.

Don't Get Mauled by Tyrannosaurus Terex

Returning to the Well Until the Well Runs Dry

Now, a new wave of share dilution is being offered up as compensation for that patience, as companies from Bank of America (NYSE: BAC) to Anadarko Petroleum (NYSE: APC) try to rally enthused investors to raise capital through equity offerings. Of all the injuries investors have sustained at the hands of corporate excess, however, the triple play of share dilution at DryShips (Nasdaq: DRYS) may finally mark the limit of Fools' patience with controversial CEO George Economou.

 

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#2) On June 01, 2009 at 6:34 PM, AdirondackFund (< 20) wrote:

Yup.  Nice pick on the news.

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#3) On June 01, 2009 at 6:44 PM, Alex1963 (28.90) wrote:

If I may make a political observation?

I was encouraged to see them decline the Tarp repayment from one perspective-imagine how bad it would look if they took back the money and then banks eneded up tanking again soon? For exactly the reasons you have stated here. It would have been easy for Geithener (and Obama) to say "See we told you we'd get the money back" to score short term political points. It's gratifying to see what I view as some adherence to a long term plan and it's priniciples not just political expedience. 

I do agree the part of the whole idea was to allow accounting mark to market changes in order for this to happen. But I don't see it being as awful as you perhaps do. I see it as having cushioned the landing and maybe having something to salvage as a result instead of a smoking ruined hulk of a former banking industry.

Great post. I saw this same story. I hope someone does answer your question because I have no alternative opinion to offer on the insider selling.

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#4) On June 01, 2009 at 6:51 PM, AdirondackFund (< 20) wrote:

Lots of short covering at Caps today, including Gmx.  All I could think to do today was to find anything and everything to short....and not just at Caps.

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#5) On June 01, 2009 at 6:56 PM, goldminingXpert (29.76) wrote:

The problem is, if we don't get back under 930 soon, we go to 1,000 (next big resistance) I'm not willing to get short here. I'd rather wait until we get back under 930 (only 10 points down) rather than sit on 60 points of pain as the S&P goes for 1,000. I get short again either under 930 or at 1,000--not at 940.

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#6) On June 01, 2009 at 7:09 PM, starbucks4ever (98.98) wrote:

"Companies dilute because they know they are overpriced."

When they are underpriced, they dilute because they need cash to operate. When they are overpriced, they buy back to enrich the management. Look at what the company is doing, and do the opposite. 

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#7) On June 01, 2009 at 7:29 PM, AdirondackFund (< 20) wrote:

Oh.  You need to learn how to play backgammon.  On the 4th Floor of the NYSE is the 'member's lounge' and at every table is a backgammon board, and a Longggggg bar which stretches the length of the room above the 'garage'.  Maybe you understand what I am saying?  The members scattershot their positions and then trade out and reduce cost per share.  That's the backgammon part.  Do you play backgammon Gmx?  The idea is to get your pieces off the 'board' faster than the other guy.

Want another clue?  I used to race sailboats during the winter.  The number of the boat was 46 and the name was 'scat'.  It has something to do with radians and degrees in the Mars-Uranus opposition cycle.   Come on man!  I want to see some thinking going on here.  The middle crossover on the board is the middle of the recent trading range, both in backgammon and in stock trading.  You're being greedy and you are not understanding how many shares need to be placed, first to balance off longs from 3/6 and shorts above mid range.  You calculate the range using Gann numbers...not Fibonnacci, though the Fibonnacci thing looks prettier....it's just not that reliable...and, of course, everybody is there.

Also, try charts on 10 X 10 to the inch graph paper, with each box representing 1/4 point...no pennies please.  BMY rises and falls on long term degree at an 8 1/2 degree angle.  There is also the 'enlightened eye' in these formations, found on your dollar bill.  Create a graph and I will show you the enlightened eye.  This gets the entire movement over many, many decades to the exact day and price before all reversals.  It's kind of handy to know how to do these things.  But you won't find any of this in textbooks, which explains why none of the members bother to attend College.       

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#8) On June 01, 2009 at 7:52 PM, willmaster01 (97.49) wrote:

I do think that inflation is starting to become the big player here.

I think the government and banks definitely screwed the investors here but... They we're taking quite a big risk investing in these co's. I mean they did get some serious 200-400% returns over the last little bit. I was quite the sneaky move but why don't speculating investors deserve to get what is owed. You know it, I know it. These banks should be lower. 

 As for the rest of the market, inflation will start to prop up the other sectors as quarterly results start to look better. It’s the only way the government will be able to even consider paying back this enormous debt. But using inflated dollars...

 -W

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#9) On June 01, 2009 at 8:11 PM, AdirondackFund (< 20) wrote:

Willmaster:  It cannot be inflation with rising interest rates, CDS, MBS, Equity and Bond Market contadictions.  Bonds will collapse, interest rates will rocket and then inflation will rear it's ugly head.  But this will not happen until the deflationary wave is finished.  The Fed is hoping to offset deflation by printing money.  The only problem they will have is that nobody will want their worthless paper.  Certainly not anyone from America. Interest Rates rise because of a short squeeze in Capital.  When Capital becomes scarce, interest rates rise and Bonds get slammed.  It is how it goes....always.  It also explains the intense nervousness of all of these markets simultaneously.  This is something new for me too.  But I will tell you, it is very, very dangerous.   

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#10) On June 01, 2009 at 9:57 PM, AdirondackFund (< 20) wrote:

Some Links

http://finance.yahoo.com/echarts?s=%5ERIFIN#chart1:symbol=^rifin;range=5d;indicator=sma(60,13)+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

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#11) On June 01, 2009 at 10:48 PM, EV38 (99.79) wrote:

How is this not a conspiracy theory? I was about to retract my statement about you spouting conspiracy theories as I mixed up some of what alstry and you said but then I see this blog.

You (or Craig Torres, whoever he is) are taking one action - banks need to recapitalise, and taking another action - bank stocks increasing to what you consider obscene prices (although just a mere portion of what they were 2 years ago) and assuming that these stocks were sold to "suckers" at a "high" price without a lick of evidence.

First off, who are these suckers? The people who are losing their job and house but just so happen to have some spare change lying around to buy Citigroup at $4? Doesn't America have something like 50% of its wealth concentrated in the top 5% of the wealthiest population? So how are the "suckers" able to buy everything up at $4 to all the banks can recapitalise and the big boys get out? Unless the suckers are also the big boys, but apparently that's not it because insider selling is 10x of insider buying.

The logic just does not add up. If there are people who are going to be bagholders on the bank stocks it'll be the big boys more than it'll be John and Jane Nojob.

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#12) On June 01, 2009 at 11:00 PM, JibJabs (94.32) wrote:

"Instead, it was necessary to push up the value of bank shares so that the new equity could be dumped to suckers at the top."

Who pushed them up and how?

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#13) On June 01, 2009 at 11:09 PM, portefeuille (99.56) wrote:

well he likes conspiracy theories:

 

---------------------------------------------------- 

On June 01, 2009 at 8:04 PM, camistocks (90.15) wrote:

Portefeuille - well yeah I was a bit frustrated that my blogs "only" get 15+ recs, while others who are still in college get a much higher rating. Or maybe I just should become a "feeder blogger" who is linking to other blogs not on CAPS and I will receive 15+ recs for doing nothing.  But I guess this is how it's got to be...

Great performance by your players! Personally I have never looked at CAPS as a game but to see if I can outperform the market over the long term. And maybe outperform most players too hehehe! Hey I was the top 10 for a day a year ago but fell back to a score of 2 during the crash in October... Yes it's probably a game... ;-)

 

awalleijr - hey I'm glad I called him a nice guy. Because his tender reply was that I am a "dirty liar". Now just imagine if I had called him a 20 year old college kid...

----------------------------------------------------

click one of the last two links ...

 

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#14) On June 01, 2009 at 11:15 PM, EV38 (99.79) wrote:

Sorry some people don't have the background as to why I care so much about GMX spouting conspiracy theories. Read my blog:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=204229&t=01006636850306521864

 

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#15) On June 02, 2009 at 1:04 AM, AdirondackFund (< 20) wrote:

This is NOT a conspiracy theory.  It is in fact the nature of Nature which is being discussed.  It is the design of the Almighty himself.  Can anyone explain to me why we have Depressions on the 46th degree of a Mars-Uranus Opposition cycle?  Just as easily, can anyone explain to me why the greatest percentage of live births occurs during the Full Moon?  Come on people THINK!  Is it that you hate God so much that you cannot 'see' and marvel at what has been created here?

What are the Elliot Waves other than the mass Primal Scream of Mankind?  Where is the Conspiracy in that?  Does anyone out there know how to read a thermometer to know what the temperature is? 

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#16) On June 02, 2009 at 1:06 AM, kaskoosek (92.46) wrote:

Banks are making gains, by going short federal funds and going long long-term treasury. That is an arbitrage opportunity right there.

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#17) On June 02, 2009 at 1:36 AM, AdirondackFund (< 20) wrote:

Yup, Kask, you're right.  It also creates a volume/price logjam and not everyone will get out whole.  This will result in a crash.  I remember trading 'bullets' on takeover targets in 1999.  I'm retired now, so I don't do this anymore.  But the idea was to build a spread between the takeover candidate (the bride) and the takeoverer (the groom).  The spread was a short on the buyer and a long on the firm being bought.  It was a put/call spread.  It worked great everytime, until one thing happened.  You went to close the position.  Your own 'demand' in unwinding the position would push the price up on one and down on the other narrowing the spread.  The idea, is to take your pieces off the board faster than the other guy.  Some of these trades, particularly at first, were phenomenally successful, and stayed that way until everyone got into the act.  It is how it is.  It is a competitive market and if you don't 'see' it before the other guy, it's probably too late....and, you lose your spread and profit. 

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#18) On June 02, 2009 at 1:59 AM, goldminingXpert (29.76) wrote:

You (or Craig Torres, whoever he is) are taking one action - banks need to recapitalise, and taking another action - bank stocks increasing to what you consider obscene prices (although just a mere portion of what they were 2 years ago) and assuming that these stocks were sold to "suckers" at a "high" price without a lick of evidence.

All the evidence I can read is in the chart. The volume is a distribution pattern across the XLF and most of the individual banks. Along with that, you tend to see banks (particularly JPM) slide to key support levels with nary a bid to be seen and then suddenly, out of the blue, Goldman Sachs starts a riot in the S&P pit and buys the living crap out of the market. Ta-da, key support level that was going down magically supported. This has been happening day in and day out. Whenever you see distribution patterns on the chart combined with OBSCENE amounts of insider selling, it becomes clear as day that somebody is trying to sell some rotten stocks before the worms come crawling out. That's no conspiracy, that's simple fact.

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#19) On June 02, 2009 at 2:35 AM, AdirondackFund (< 20) wrote:

Thank You Gmx.  Now you are focused on the mathematical element and not the emotional element.  That's Trading Maturity.  Trade the facts, not your opinions.  Opinions are like a$$holes....and that's not coming up smelling like roses.  It is vitally important right now to enter the short side without disturbing price.  If you have any money at all, in this market, it's not so easy to slide by unnoticed.  Believe me, whatever is noticed is hunted down and killed in this market.  Yes, it is that bad out there.   

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#20) On June 02, 2009 at 9:18 AM, JakilaTheHun (99.94) wrote:

EV38 is right.  This is conspiracy-theorish. 

It also makes absolutely no sense.  Why is the "true value of banks" 30% - 80% lower than the current values?  Given the leverage and size of most of these financial institutions, it's really almost impossible to know their true value --- except maybe 3-10 years after the fact. 

If defaults are lower than the market anticipates, banks like BAC and STI could be undervalued significantly even at current levels.  If defaults are higher than the market anticipates, banks could be effectively worth $0.  That's the nature of leverage.  Of course, that's a good reason as to why the Feds should force these banks to start having much more stringent capital requirements --- which is what I think Geithner is slowly doing. 

All the same, there's no real basis to say they are "30% - 80% overvalued."  That number was created out of thin air and I could easily say they are "30% - 80% undervalued" and be just as full of BS.  Truth is --- it's difficult to say and markets hate uncertainty --- which is why the stocks got so beaten down to begin with. 

I wouldn't buy BAC at $12, but I did like it at $3.15.  At that price, I felt that risk-reward was favorable enough to go long.  At $12 --- not so much.  Still, it could easily be worth $30 --- it's just that no one really knows. 

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#21) On June 02, 2009 at 9:49 AM, Gemini846 (82.65) wrote:

The people who are losing their job and house but just so happen to have some spare change lying around to buy Citigroup at $4?

Sure they do. In what's left of thier 401k. Two of the funds in my 401k can have up to 15% financials. Funds are often linked to market capitalization so as some zombie companies get propped up they come in the buy range of fund managers on the low end screening for good deals who end up buying.

Of course its all good while the corpses dance if the stocks fall these funds have to dump them like a bad habit.

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#22) On June 02, 2009 at 11:23 AM, TigerPack1 (99.02) wrote:

Next puzzle piece to fall into place...

The powers that be are going to drive gold prices back below $700US an ounce, if not $600US, over the next 6-12 months.

After successfully recapitalizing the banks (which will largely be complete in another month or two), the illusion of prosperity will require that gold bulls be crushed into submission, and with it the prospects for hyperinflation.

If the conspiracy-laden bankers are successful, the Dow will be trading above 11,000-12,000 as "fear" subsides and reason retakes its rightful place.

I started shorting gold assets this morning, by purchasing the DZZ double-short ETF, for the first time in my 25 years of trading and investing.  Every expert, investor and fool (highlighted by all those gold informercials the past year) is now fully committed to long gold exposure as we have reached a zenith in fear for modern times with the global recession of 2007-2009.  There are no more "greater fools" left to keep the gold train moving north, ESPECIALLY if the U.S. Dollar suprises with decent strength vs. other currencies the next 6-12 months.

The Dollar-adjusted price for gold peaked with a spike many months ago, and has not risen at all the last few weeks, as gold price rises in the U.S. have occured totally as the result of a sharply weaker local currency.  Very soon, we may see daily rises in the U.S. Dollar from government(s) intervention and a pick-up in selling of this fear-based asset from every corner of the globe that is clearly overcommitted, to create sizable declines in gold priced in our currency far into the future. 

For those not acquainted with my trading in the past, I was deeply long gold for most of this past decade, especially when the average investor and expert had absolutely no interest in the "relic of the past" (as it was called by Wall Street 10 years ago) around $250-$300US an ounce early this decade.

Yes, I am crazy and a contrarian, and sometimes a little early in my calls.  Gold will again have its day in 3-5 years, but its latest run looks to me to be finished and setting investors up for a major failure.

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#23) On June 02, 2009 at 1:41 PM, XMFSinchiruna (27.97) wrote:

EV38

Perhaps you'll consider Meredith Whitney a fairly credible course on the topic:

http://www.examiner.com/x-1760-Baltimore-Investing-Examiner~y2009m5d18-Why-It-Pays-to-Listen-to-Meredith-Whitney

"They were overdone all the way into this rally. What happened was the government - I call this the great government momentum trade - the government enabled the banks to have better than expected, better than even the banks could organically deliver, first-quarter earnings. That looks like it could continue into the second-quarter and the third-quarter. The banks rallied from well below tangible book multiples to almost two times tangible book multiples [...] the underlying core earnings power of these banks is negligible," she says.

 

 

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#24) On June 02, 2009 at 1:43 PM, kdakota630 (29.81) wrote:

Excellent quote, Sinchi!  Thanks!

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#25) On June 02, 2009 at 1:51 PM, XMFSinchiruna (27.97) wrote:

TigerPack

I dare you to keep those short gold positions for 3 years. ;) 

I do think the powers that be will try to slam gold one more time, but given the fundamentals picture for the USD, a smack-down of the scale you allude to is quite impossible in my opinion.

$900 will hold, in my opinion, with $1,000 becoming a new long-term floor for the gold price within the next few months. As I discussed with Jim Rogers last week, it will becomne a very crowded trade (you haven't seen anything yet), whilch will exacerbate volatility immensely, but the crowded nature of the position can not change the fundamental picture for the USD ... nothing can. The dollar's long-term trajectory is etched in stone.

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#26) On June 02, 2009 at 2:00 PM, EV38 (99.79) wrote:

#23, nice link!

But I know you are on the same page with me in this...my reason for going long is not an economic recovery argument but an inflation/avoid the USD argument. Doesn't matter to me if it takes until 2012 for the economy to recover. And if it does, that would be a double whammy...inflation AND economic activity on my commodity plays.

I'm not in the camp of hyperinflation but stagflation...the US certainly has the stag part of that covered now all we need is the inflation. We have all the same ingredients of stagflation of the 70's...oil shock, high debt, slow growth, except one key part of that is missing and that is the controlling effect of high interest rates.

The negative real yield on any dollars and government debt worldwide combined with a disdain for certain sectors of the economy like financials I think will cause a true bubble in commodities like the tech bubble. I would not be surprised if we see companies like Teck Comminco trade at prices like $500+ by 2012.

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#27) On June 02, 2009 at 2:11 PM, XMFSinchiruna (27.97) wrote:

EV38

I am squarely in the stagflation camp as well. But I still see no floor beneath this rally that can keep it propped up. The market MUST absorb the latest indications of just how badly the economy is deteriorating. Stagflation will cause nominal increases in share prices eventually, but not yet, IMO... they first have to overcome the selling pressure from declining income and renewed fear.

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#28) On June 02, 2009 at 2:20 PM, peachberrytea (73.99) wrote:

Along with that, you tend to see banks (particularly JPM) slide to key support levels with nary a bid to be seen and then suddenly, out of the blue, Goldman Sachs starts a riot in the S&P pit and buys the living crap out of the market. Ta-da, key support level that was going down magically supported.

If it's GS an the big boys buying up the shares, then what's their exit strategy, i.e. how do they get out of all the shares they're buying before the prices collapse once again? They ain't gonna drive up the shares just to let it collapse while they're still holding the bag.

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#29) On June 02, 2009 at 2:23 PM, goldminingXpert (29.76) wrote:

well, 401k money came in yesterday so I bet they could sell into that. Mutual funds are, by and large, dumb money and mutual funds have been dipping their toes back into riskier stocks so they're probably getting distributed to as well. The banks are diluting themselves so they clearly aren't trying to hoard each others' stocks.

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#30) On June 02, 2009 at 2:27 PM, automaticaev (58.65) wrote:

I see what your saying about the true valuations of the banks.  when a lot of people invest though they actually are looking at the way they think things will be at a diffrent time and not the way things are now. 

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#31) On June 02, 2009 at 2:29 PM, peachberrytea (73.99) wrote:

hmm clarification on #28.. the assumption is no one else big and stupid enough is there to buy all the large amount of bank shares they're holding, so as soon as they decide they're done with inflating the prices and decide they'll start selling, they'll have no one to sell to, and they're stuck with losses

so in other words they can't exit their positions just by simply "selling", because there's no one big enough to sell to

if the answer is they'll just sell to the "suckers".. well, then the question becomes how do you know there'll be enough suckers, or that they suckers are big enough to buy these shares up

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#32) On June 02, 2009 at 2:32 PM, automaticaev (58.65) wrote:

also you guys just sound like bitter old republicans that are bitter over bailouts.

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#33) On June 02, 2009 at 2:37 PM, peachberrytea (73.99) wrote:

well, 401k money came in yesterday so I bet they could sell into that. Mutual funds are, by and large, dumb money and mutual funds have been dipping their toes back into riskier stocks so they're probably getting distributed to as well. The banks are diluting themselves so they clearly aren't trying to hoard each others' stocks.

would you happen to know a mutual fund that has disclosed a material increase in bank holdings? i'd like to assume that those managers have to know a bit better... or perhaps there's a bit of institutional pressure or "herd think" involved

 overall i think that this rally is bogus.. i just haven't quited wrapped my head around the how it actually works for the ppl who are making the rally happen

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#34) On June 02, 2009 at 2:41 PM, Recover22kplan (40.34) wrote:

Have Big Investors Changed Their Minds About Banks?Published: Tuesday, 2 Jun 2009 | 1:22 PM ET Text Size By: Bob Pisani
Reporter

Financials are again lagging the overall market...and Barclays is one of the main reasons.

After holding a stake for only 7 months, an investment firm controlled by the Abu Dhabi royal family has sold a huge stake in Barclays...at a handsome profit.

The firm sold 1.3 billion shares, reducing its ownership exposure in Barclays from about 16 percent to about 6 percent, a sale of about 60 percent of its investment.

The good news is that the market has absorbed a huge sale of bank stock at about the same time that it absorbed a big swath of secondary offerings from American Express, Morgan Stanley, and JP Morgan.

 

What Does $1 Trillion Look Like?Companies at Greatest Risk For DefaultThe Highest Paid Chief ExecutivesSurprising Stock Market Indicators

 

The bad news is...weren't the overseas investors supposed to be long-term investors? They've only had the investment 7 months, and now they are out.

Is this a change in attitude on the part of the big investors?

Qatar and Challenger also hold big stakes in Barclay, but the question applies to all big investors in all the mulitnational banks.

Societe Generale, in a note this morning to investors, summed up the sentiment on the Street: "a strategic long-term investor attempting to divest circa 61% of its potential holding...this quickly should not be taken as a positive sign."

Meantime, of the three U.S. banks that raised capital today, only Morgan Stanley is trading above the price of its secondary. 

 

BANK STOCKSAXP24.6424-1.3476-5.19%27,243,233MS29.54-0.35-1.17%38,774,034JPM34.8799-1.2301-3.41%121,238,166BCS18.20-2.30-11.22%10,444,143

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#35) On June 02, 2009 at 2:44 PM, goldminingXpert (29.76) wrote:

also you guys just sound like bitter old republicans that are bitter over bailouts.

I'm a libertarian with anarchist leanings. The Republicrats are no different than the Demicans. I strongly reject your insult to my character that you'd insinuate that I am a "bitter old Republican." I'm also not old. I am bitter, but I'm proud of that.

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#36) On June 02, 2009 at 2:48 PM, automaticaev (58.65) wrote:

Libetarian??  Shouldnt you be yelling into a megaphone then? "9-11 was an inside job, 9-11 was an inside job."

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#37) On June 02, 2009 at 2:50 PM, kdakota630 (29.81) wrote:

automaticaev

He said "libertarian", not "crazy insane person".  Besides, isn't it mostly lefty nuts who believe 9-11 was an inside job?

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#38) On June 02, 2009 at 2:51 PM, DeerHunter73 (72.47) wrote:

I'm a libertarian with anarchist leanings

This explains it all.

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#39) On June 02, 2009 at 2:51 PM, automaticaev (58.65) wrote:

liberals from the far left are the worst.

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#40) On June 02, 2009 at 3:00 PM, goldminingXpert (29.76) wrote:

automaticaev:

"Libetarian??  Shouldnt you be yelling into a megaphone then? "9-11 was an inside job, 9-11 was an inside job."

It's generally wise to think before you hit reply thus you don't end up sounding like a complete idiot. 

 liberals from the far left are the worst.

I'm going to assume that you think libertarian and liberal are related since they share the same root" liber". This is wrong. I am not remotely of the far left. I'm a diehard capitalist.

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#41) On June 02, 2009 at 3:05 PM, portefeuille (99.56) wrote:

have a look at the face of the new anarchists: 1

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#42) On June 02, 2009 at 3:06 PM, portefeuille (99.56) wrote:

just kidding, no need for retaliation ...

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#43) On June 02, 2009 at 3:08 PM, StopLaughing (< 20) wrote:

A perusal of yahoo financial stories suggests the following. GM sales are improving from last month. F is going to actually increase production. Junk bonds are back to where they were before the collapse. Pending home sales are up and Reits seem to have bottomed and jumped.

Not bad for a profit taking day.

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#44) On June 02, 2009 at 3:15 PM, portefeuille (99.56) wrote:

Could you please stop doing this re-starting of calls thing.

There is no need to end your "underperform" call for EDVP.OB and to re-start it the same day, is there.

This artificial "accuracy" is absolutely worthless ...

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#45) On June 02, 2009 at 3:29 PM, goldminingXpert (29.76) wrote:

Portefeuille:

The main reason I re-do picks is to gain additional points. If a stock goes to zero and I only red thumb once, I get 100 points, If a stock goes from 3 to 1.50 I close my pick, I'm +50. Then I start a new pick at 1.50 and get 100 points when it goes to zero. Total +150! This is the way bears can compare with bulls on here. If you pick a stock to outperform at 5 and it goes to 15, you get 200 points, but you only get 66 points if it goes from 15 to 5 and you don't re-call the pick. Thus, reloading on red thumbs is an essential from a scoring perspective.

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#46) On June 02, 2009 at 3:39 PM, portefeuille (99.56) wrote:

that still leaves "accuracy" utterly worthless ...

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#47) On June 02, 2009 at 3:55 PM, kdakota630 (29.81) wrote:

How does it make accuracy worthless?  Two correct calls will weigh more heavily on the accuracy score than just one.

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#48) On June 02, 2009 at 4:04 PM, goldminingXpert (29.76) wrote:

Takes a lot more guts to repick something after it has already sharply fallen. My rethumbing of BAC in the single digits, for instance , took far more guts (and has been inaccurate) than if I just left my red thumb from the 30s open. We all knew BAC was going down, but my red thumb reiterates my claim that its final destination is zero whereas if I left my thumb open from the 30s, you wouldn't know what my intentions were.

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#49) On June 02, 2009 at 4:09 PM, kdakota630 (29.81) wrote:

I was thinking the exact same thing after I posted my reply, although I think you worded it better than I would've.  Mine probably would've had a lot of "ummm"s and "duh"s in there.

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#50) On June 02, 2009 at 4:34 PM, portefeuille (99.56) wrote:

How does it make accuracy worthless?  Two correct calls will weigh more heavily on the accuracy score than just one.

... because players like goldminingxpert improve their "accuracy" by ending calls that have scored a little over 5 points.

The probability of any call scoring more than 5 points at any time t > "7 days" is around 85%. (I will look that up or calculate it myself, but to get a feeling read this and this).

So a player that randomly chooses his calls and ends them as soon as they reach more than 5 score points (Please do not do that unless you know how to write a script that does it for you.) will have an accuracy of around 85% (again, I will check that) and around 0 score points (since he made random calls).

That is one way to explain why the "caps" game "accuracy" is garbage.

Do a google search to find others described in earlier blogs here.

---------------------------------------------

Suppose we draw a line some distance from the origin of the walk. How many times will the random walk cross the line if permitted to continue walking forever? The following, perhaps surprising theorem is the answer: simple random walk on $\mathbb Z$ (the integers!) will cross every point an infinite number of times. This result has many names: the level-crossing phenomenon, recurrence or the gambler's ruin. The reason for the last name is as follows: if you are a gambler with a finite amount of money playing a fair game against a bank with an infinite amount of money, you will surely lose. The amount of money you have will perform a random walk, and it will almost surely, at some time, reach 0 and the game will be over.

---------------------------------------------

(from the first wikipedia entry mentioned above)

(I know that this is not the way it goes in the stock market but still interesting and, as I said above, it gives you an idea ...)

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#51) On June 02, 2009 at 4:40 PM, kdakota630 (29.81) wrote:

portefeuille

Ahhhhh.  I think what you meant to say in the beginning was that the meaning of accuracy is worthless when people are doing that.

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#52) On June 02, 2009 at 5:22 PM, portefeuille (99.56) wrote:

Takes a lot more guts to repick something after it has already sharply fallen. My rethumbing of BAC in the single digits, for instance , took far more guts (and has been inaccurate) than if I just left my red thumb from the 30s open. We all knew BAC was going down, but my red thumb reiterates my claim that its final destination is zero whereas if I left my thumb open from the 30s, you wouldn't know what my intentions were.

Whatever, but that is not the point.

As long as a computer script can produce thousands of players with more than 80% accuracy, and can produce them with an accuracy of greater than 99% if given around 2 weeks, meaning that he would have to produce less than 10100 players to get 10000 of players making that cut, the "caps" game "accuracy" is a joke. 

Feel free to look at the way some of the "top 100" players have reached their "positions".

click on "Ended (xxx)" then on "Score" to sort by score points.

Here are the results for the player goldminingxpert:

number of ended calls: 1319.

number of ended calls for some score point intervals:

(integer score points are included in the "upper" interval (for example 8.00 is included in the 8-9 interval))

above 13: 383. I could rest my case right here, but it gets even more better ...)

12-13: 60

11-12: 74

10-11: 107

9-10: 89

8-9: 115

7-8: 145

6-7: 151

5-6: 115

4-5: 31 (well he screwed up a few times ...)

below 4: 49.

I rest my case.

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#53) On June 02, 2009 at 5:28 PM, portefeuille (99.56) wrote:

Ahhhhh.  I think what you meant to say in the beginning was that the meaning of accuracy is worthless when people are doing that.

yes. and to a certain extent so are the "affiliated" calls. 

and the "ranks" of those players ...

and a lot of what those players write (not just on climate change!) ...

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#54) On June 02, 2009 at 5:29 PM, goldminingXpert (29.76) wrote:

What exactly does this prove?

I made 383 really good picks. A number of moderately good picks (8-13 range will make you a killing in options since most of these are only open a couple weeks and a 10% move in a stock on a front-month option equals $$$) and then those under 8, admittedly are often closed for accuracy reasons. That leaves 383 big winners, 445 average picks, 411 middling picks (5-8 range) and 80 fails (under 5). I think that's a fine distribution.

 

You are correct in arguing that a computer could generate high "accuracy" but it couldn't generate 9,000 points as well. It's score would actually turn negative as it limited winners prematurely while letting losers run.

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#55) On June 02, 2009 at 5:31 PM, goldminingXpert (29.76) wrote:

198 of your 500 closed picks scored under 13 points as well. I really don't see what the point of your exercise is here, though the numbers are interesting.

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#56) On June 02, 2009 at 5:58 PM, portefeuille (99.56) wrote:

198 of your 500 closed picks scored under 13 points as well. I really don't see what the point of your exercise is here, though the numbers are interesting.

198 / 520 = ca. 0.71

936 / 1319 = ca. 0.38

That leaves 383 big winners, ...

scores of your big winners:

96.91
94.35
88.87
84.41
82.48
80.21
80.17
76.22
75.74
73.49
72.62
71.11
69.28
65.37
64.33
63.54
63.25
62.18
61.99
61.09
58.97
56.04
53.26
52.54
52.40
52.06
51.11
51.08
48.60
47.96
47.33
46.95
46.80
46.65
45.92

...

(remember: number of ended picks: 1319!)

 

scores of some of my ended calls: 

133.42
133.08
132.06
131.02
119.55
118.13
116.50
111.23
110.54
105.90
105.03
100.77
99.87
97.23
96.63
95.07
94.48
83.42
83.00
82.40
81.84
80.16
79.13
76.76
73.54
72.72
70.25
67.31
64.99
64.29
63.61
62.28
61.93
60.68
60.67

(number of ended picks: 520)

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#57) On June 02, 2009 at 6:02 PM, bigpeach (31.51) wrote:

The probability of any call scoring more than 5 points at any time t > "7 days" is around 85%.

Right in concept, here are some numbers. Using a random walk with no drift (sounds reasonable for a stock's performance relative to an index) and a daily standard deviation of 2%, we get a probability of being right in 7 days of 22%. 21 days (roughly the number of trading days in a month) give a probability of 50%, 63 days (one quarter) is 68%. We can interpret this to mean a person employing a "close as soon as the score is positive" strategy underperforms if their accuracy is less than 68% (under a 2% daily vol assumption).

If we increase daily vol to 5%, which is more likely these days for some of the higher beta picks people like on CAPS, the probability jumps to 81% over a quarter. Obviously if you hold until positive (the strategy of many of the top Fools) this is even higher.

So, if your strategy is to pick at random and close as soon as you have >5 points, your accuracy should be quite high, especially in a high vol environment like the past year. As porte said, you could write a computer script to get an 80% accuracy rating.

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#58) On June 02, 2009 at 6:03 PM, portefeuille (99.56) wrote:

It's score would actually turn negative as it limited winners prematurely while letting losers run.

No it would be around 0 (see my comment #50 above).

The belief that it is a losing strategy to limit "winners prematurely while letting losers run" is a rather naïve one.  

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#59) On June 02, 2009 at 6:05 PM, portefeuille (99.56) wrote:

Thank you bigpeach, you have saved me from doing that!!!

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#60) On June 02, 2009 at 6:07 PM, portefeuille (99.56) wrote:

so we can call our college kid "gm random walking xpert" now ...

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#61) On June 02, 2009 at 6:10 PM, goldminingXpert (29.76) wrote:

Porte:

I don't understand.

If a script closes every positive pick the moment it goes +5 but lets a pick keep running past -5 it will accrue negative points as you get quite a few -10s and 20s and greater while never getting more than +5s.

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#62) On June 02, 2009 at 6:15 PM, portefeuille (99.56) wrote:

Porte:

I don't understand.

If a script closes every positive pick the moment it goes +5 but lets a pick keep running past -5 it will accrue negative points as you get quite a few -10s and 20s and greater while never getting more than +5s.

Please read a little about random walk and look at comment #57 above by bigpeach. A short answer could be something like: the player gathers enough "+5s" to cancel the score points of the "losers".

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#63) On June 02, 2009 at 6:18 PM, portefeuille (99.56) wrote:

... and please do not write about climate change or "investing" in your college paper before you understand what is going on in the really simple setting of the random walk. You really risk being humiliated ...

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#64) On June 02, 2009 at 6:18 PM, bigpeach (31.51) wrote:

No problem, actually enjoyed doing it a bit, but let's not insult. I think I'll save this for reference whenever somebody uses the "I have a high score therefore I'm credible" argument. By the way, just ran my simulator for 300 days (just a big number to model the "hold until positive" strategy that a lot of people use). 91%! Of course that's with a 5% daily vol and one could argue with that assumption.

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#65) On June 02, 2009 at 6:23 PM, goldminingXpert (29.76) wrote:

wow, portefeuille, what's got you down? Don't be so grumpy grumpy. I don't know why you hijacked this post's comments either. This blog had nothing to do with CAPS scoring models or global warming.

Though I'll put up another global warming post soon because there was a fun our view printed in the Colorado Springs (the city I am presently typing in) paper today.

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#66) On June 02, 2009 at 6:23 PM, portefeuille (99.56) wrote:

No problem, actually enjoyed doing it a bit, but let's not insult.

okay, but I was not too mean, was I?

91%!

Why did you tell me? I wanted to guess first. Well, my "feeling" for the random walk was not that far off then ...

Great research. Spread the word.

I think I'll save this for reference whenever somebody uses the "I have a high score therefore I'm credible" argument.

You meant "accuracy" or "rank", didn't you?

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#67) On June 02, 2009 at 6:29 PM, portefeuille (99.56) wrote:

I don't know why you hijacked this post's comments either. This blog had nothing to do with CAPS scoring models or global warming.

I just noted your re-starting of that "underperform" call on EDVP.OB and did not want to send a letter to that college paper, so I posted my comment #44. The rest followed ...

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#68) On June 02, 2009 at 6:37 PM, goldminingXpert (29.76) wrote:

and did not want to send a letter to that college paper,

Please do, actually. As I am the editor of the opinion page, I am the guy that reads all the mail so feel free.

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#69) On June 02, 2009 at 6:41 PM, portefeuille (99.56) wrote:

I already had the feeling the meaning would be lost on you. calm down.

I wrote comment #44 here because that is how "we do it around here" and because a letter from Germany to the Rocky Mountains is somewhat slower ...

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#70) On June 02, 2009 at 7:00 PM, ralphmachio (23.67) wrote:

I love the schoolyard tiff feel to this blog. Thanks for reminding me that you are all just playing games. I suppose I would get some real respect if my score was higher. I suppose the puny cuts at 'conspiracy theorists' should be justifiable, from those legopeople who we anticipate have outlived their usefulness. It's like taking flak from a dinosaur. 

As I recall there were quite a few flat earthers, at one point in history, and those who dared tell the truth were annoyed by those simpletons as well. What evidence did they have for the earth being flat? Just the 'facts' that they were told by their church, and government. 

the 911 story has such large holes, and so many of them, anyone who believes the official story has put their emotions in front of logic, and are ill informed. 

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#71) On June 02, 2009 at 9:23 PM, bigpeach (31.51) wrote:

porte, I meant rank, of which accuracy is far too large a component. Score too is misleading because playing the CAPS game by opening and closing repeatedly would in real life generate trading costs and short term capital gains taxes, which would obviously erode that "score". Plus there is no feature for transaction volume. An obvious flaw. Players are rewarded for making as many picks as possible, rather than making quality picks.

In any case, I'm going to get off GMX's blog and write one on this subject. This is worthwhile information to be able to reference, especially considering how many people on this site follow the advice of the "Top Fools". 

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#72) On June 02, 2009 at 9:31 PM, portefeuille (99.56) wrote:

In any case, I'm going to get off GMX's blog and write one on this subject. This is worthwhile information to be able to reference, especially considering how many people on this site follow the advice of the "Top Fools".

Yes, please do, it is!

as I said above: Great research. Spread the word.

I am participating in the spreading: see this post.

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#73) On June 02, 2009 at 9:32 PM, portefeuille (99.56) wrote:

In any case, I'm going to get off GMX's blog ...

so am I.

 

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#74) On June 02, 2009 at 9:43 PM, StopLaughing (< 20) wrote:

Why does not MF create a game that reflects reality (cap gains and transaction costs)? I do not play caps as it is nonsense and takes valuable time.

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#75) On June 02, 2009 at 11:31 PM, TigerPack1 (99.02) wrote:

bigpeach & portefeuille -

I come up with about 65%-70% accuracy for our random walk locking in gains over 5% quickly.  But your point total won't be great, and your "average gain per pick" will really stink at under 5% per selection (which the fool.com actually calculates for each player).

I have been saying all along, the best design I can dream up for finding the best stock pickers, would be using an equally weighted three tier system, using total points, accuracy and average gain per pick.  Most all of my Favorites have accuracy of 10% or greater per pick.  Those in the Top 50 with accuracy around 5% per pick are either playing games, or just lucky to have called the bear market correctly, in my estimation.  Currently, if you sift through the Top 50 and use a 10%+ break-off per pick, I think you will find the bulls as a group heavily populating the Top of the list.  A reshuffling will take place with the bulls if we get a 10% correction in the summer however.

If my average gain per pick were counted as a whole new ranking category for my total CAPS placement, I would definitely not rush to lock in gains quickly from stocks I like, but let them run a while to pump up this number.

I personally would rather follow a stock picker that makes 100 picks per year that average a 20% gain, with 80% accuracy VS. 500 picks per year gaining 4% per pick and 90% accuracy.  After trading costs and tax payments on all the short-term gains, I wouldn't be left with much profit or time to do other things with my life.

I started a marketocracy.com mutual fund last week, that expenses 2% annually in management fees, and charges 5 cents per share in commission, and requires some diversification to be ranked.  The first week has been a good one, with my 50+ stock picks in the porfolio gaining almost 4% more than the S&P 500, AFTER expenses.  My goal is 10%-20% annual outperformance AFTER expenses, on a regular basis, bull or bear market, fully invested.  I believe you need to pay the website a fee to see my actual picks as a subscriber however.

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#76) On June 02, 2009 at 11:59 PM, portefeuille (99.56) wrote:

Those in the Top 50 with accuracy around 5% per pick ...

I think you meant score points per pick.

If my average gain per pick were counted as a whole new ranking category for my total CAPS placement, I would definitely not rush to lock in gains quickly from stocks I like, but let them run a while to pump up this number.

You could still do that. They would just have to calculate the annualised average pick score (or whatever period they like). There is a problem with annualisation if the "holding period" is too small (see comment #3 here), but that can be "fixed".

I come up with about 65%-70% accuracy for our random walk locking in gains over 5% quickly.

I think (as does bigpeach) that in the setting (for the parameters) that he described you get more than 85%. We should wait for his post (see comment #71 above) or calculate it ourselves or look it up (not really a new problem, I should think).

 

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#77) On June 04, 2009 at 9:53 AM, AdirondackFund (< 20) wrote:

Ok, ok, ok, ok, have it your way.  It's all some convoluted Conspiracy Theory, that you seem never to understand, or be able to predict, or to point to with any evidence whatsoever.  So, now that it's all a Conspiracy Theory, where do you want to put your money today, that is both safe and profitable.  Let me hear your brilliant ideas now.  Where is today's Conspiracy Theory taking place, so I can go there and join the money makers.  Any ideas?  Come on people.  Let's hear where your Conspiracy Theory trading ideas are for today!!!

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#78) On June 04, 2009 at 10:05 AM, AdirondackFund (< 20) wrote:

I sold my Gold about a week ago BECAUSE I THOUGHT GOLD LOOKED TIRED and didn't want to breach it's previous high.  Now, I've been in Gold for THE PAST THREE YEARS, so I have already made my money by betting AGAINST the soundness of our Dollar.

You need to look and plan ahead.  Not complain that 'someone' is out to get you.  They are ALL out to get you.  It is a competitive market.  If you do not like competitive things, then you do not belong in competitive places.  Go find some safe place to hang out, because this place will not suit you.  This place requires a competitive mind and a competitive spirit.  You are not suited for the job at hand. 

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#79) On June 04, 2009 at 6:42 PM, foolsMeThrice (99.61) wrote:

I couldn't agree with you more.  The funny thing is, who's buying right now?  there are certain things to buy, but banks certainly aren't it right now.  If the fed's secret task force is out, then tarp has been effectively received for free at share holder expense.   But if this bloster's the balance sheet, then this should theoretically have no impact on share holders.  The problem results when the cash raised isn't enough to plug the bleeding cash flow.

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#80) On June 04, 2009 at 6:43 PM, foolsMeThrice (99.61) wrote:

And the thing they say about rumors, is sometimes they are true.

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#81) On June 04, 2009 at 6:56 PM, portefeuille (99.56) wrote:

198 / 520 = ca. 0.71

936 / 1319 = ca. 0.38

198 / 520 = ca. 0.38

936 / 1319 = ca. 0.71

 

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