Economy, Stock Market and Trading Ideas

Reverse Split: Why doesn't it work

2009-07-09T10:13:00.000-07:00

A reverse split in stock means reduction in the number of stock floating in the market. At the same time, due to reverse split, its par value or earning value increases but the market value of the total number of share remain same.

Now lets look at some of recent stocks which have gone through reverse split process and how it has fared in the market. Let me start with recent one I can recall is Sun Microsystem (JAVA). Before reverse spliting in Nov of 2008, the stock was trading around 5.60$. Once the 1:4 reverse split was done, the stock price shoot up to 20$ something but slowly it felt back to 5-6$ range again, thus rendering attempted effect of the reverse split.

What happened is that the stock holder were the one to lose money on it. Else the market value fall back, number of share fall back.

Lets look AIG. Recently, the stock market hammered AIG so much so that they had to take 100s of billion dollar from US govt. Still the end result was negative. The stock price kept on falling back. It went to below $ value before coming around 1.5$. Now the smart people at AIG plus the US govt did reverse split in the ratio of 1:20. So 20 share whose worth was about 30$ lost 10$ on the opening of the market after reverse split. The stock is keep falling back to new low everyday.

Who is losing money here. Its the stock holder.

There are many more site example of reverse split with few sucess and rest failure for the investor. There are many reason why company do reverse split. The reason are known to them only. One thing I can understand is that they take advantage of good time and offer millions and millions of share to people and when time goes but, they do the reverse split, just ripping of the investor.

This time, the govt seems to be a partner in this crime. Whether they accept it or not but they have played in hand with big coorporation and looted small investor like you and me.

AIG and its Reverse Split frustration on the stock holder

2009-07-01T12:06:00.000-07:00

AIG and its Reverse Split frustration on the stock holder

Seeing that AIG has reverse split it stock for 20:1 ratio, may investor have already lost 30% since yesterday. And they are really upset about this whole fked up thing. Even the govt did not helped the investor (The Govt is forgetting that these investor are also tax payer and they are top 20% tax payer in US. Now this is called ripping off.

Here' some of my favorite comment posted by supposedly stock holder. I am in no way responsible for these comments. (Sorry)

"I am new to this...I want to know,
I bought at 1.40, and now reverse split (20/1) how much do i have?
and is it good or bad? sell or hold?

Please help.. thanks "

This guy is totally lost in some wonderland. Dude you lost. Get a life and understand.

"Etrade does not allow you to short it. Some scammer on the board told
me Scott trade can do it while sending me his referral code. I don't
trust this loser. I believe this stock will definitely go under $2
again. It is a Zombie company already. If you find a way to short
it, please let me know. I will really appreciate it."

This has to be Cramer student. Not sure how he is going to do it but he is bend upon to short AIG. Good Luck Joe

"Why would institutions buy a stock that is 80% owned by the
government? I did own 3,000 shares and now own a whopping 150 and
lost 1/2 my money. If it doesn't go up tomorrow I will take my losses
and sell. My gut tells me this stock is going to tank. Only reason
people bought before is because it was so cheap. I just don't see
people paying $18-20 a share to own this stock. That's my opinion
anyway and I sure hope I am wrong! If anyone feels the opposite I'd
love to hear why you think otherwise."

The most sensible guy on the board. Still he is losing money.

Bob say "One idea i have been going over on why gov dropped the money in AIG
when it did is this:
gov. invested in it at the time so to prevent it from effecting a
global economy with its crash. In essence the gov. bought the world
some time to reorganize and plan a future without AIG. This time has
been used by AIG to stabilize and sell its core profitable businesses
while slowly converge to a leftover non-functional company. This
would reduce its impact on the world economy upon its collapse. So
they will work hard to pay back as much as possible of the loan, but
when they tank, the gov. will step in and say "Well, we knew it
wouldn't last, BUT we were able to mitigate its effect and are in a
better position because of it" - no one can say a thing after that.
Hope this made some sense, and I hope I am wrong on this
assumption .... "

Yeah Blame everything on govt.

And the best

" can't believe AIG just Ripped me off, 20:1 reverse split!!!!!!!!
Are you kidding me?????
I hate when companies pull the 'ol "reverse split" scam.
Now my share count is down and the stock will fall back to a buck
twenty.
What a disappointing day "

AIG: Options

2009-07-01T08:57:00.000-07:00

After reverse splitin, it seems that AIG is not going to come out of trouble land. Its has been tring hard to adjust in these time of fear and recession. However, after investor approved the 1:20 reverse split, AIG was down to 13-14 $ during premarket to only open at 19-20 $ mark.

However, the option where issue before this split, are going to remain same, i.e., instead of 100 share now, the exercised option will get 5 share of AIG.

Will this reverse split help AIG to come out their troubled past, onlt time will tell. A

Steve Job and his transplant: Why media are frowning over it

2009-06-29T02:58:00.000-07:00

Get life and move on! Atleast Steve Job life is much worth than most of these media guys who are cribbing about his liver transplant and saying that money talk. Oh come on you losers!!! Yes money talk and he did the right thing by going to Memphis to get his liver transplant.

“It’s a money-grab,” Wiesner said in a telephone interview. “Someone has to say this isn’t right. We need to maximize the utility of these livers and save the most lives we can.” Ah here is another frowning crack pot (in my view). Did you say "Someone has to say this isn't right?" So when did you become social watchdog of the society. I am pretty much sure that if you were in the same situation as Job, you would grab the first flight to the destination. Ofcourse you won't go in your own jet otherwise people would critize you. Get a life and buy APPL share if you missed the boat.

Ah there are other social watchdog. I should control my emotion for the moment.

Earning for June 26, 2009

2009-06-26T02:56:00.000-07:00

The following company are going to report earning today. I am going a small brief what to expect from these company from various sources, I research.

1. AZZ Incorporated AZZ for Google source click HERE and for Yahoo click HERE

The estimated earning for AZZ is around 0.67 cents and you can expect surprise expection upto 100%.

2. Gerber Scientific GRB for Google source click HERE and for Yahoo click HERE

The estimated earning for GRB is expected around 0.01 cents with 60% surprise expection.

3. KB Home KBH for Google source click HERE and for Yahoo click HERE

The estimated earning for KBH is about ($0.67) with surprise 80%

4. Shaw Communications SJR for Google source click HERE and for Yahoo click HERE

The estimated earning for SJR is expected to be around 0.27 cents with surprise expection upto 100%

Factor to consider before investing: Keep emotion out of the way.

2009-06-24T20:59:00.000-07:00

Individual investors don't has to many tools to evaluate when it comes to investments. Most of the time, their investment is based on emotion sentiments rather than pure valuation. Take a look for example investment in well known company such GE. We all know that GE has been there for so long and assume that it will be there for a while. Combining stock price hammering in the recent time add further incentives in buying the stock. Agreed that 80 percent you will be right and will call a right decision. What if we can add some more information in further strengthening our belief that the investment we make are safe. With this idea in mind, Lets explore some of things we should consider while investing.

The first and foremost thing is the company standing in the market. Lets for example take GE. GE is leader in most of the segment. They are present everywhere, from home to office to finance to transportation to industry. Think for a while any other company which has so large presence in different sector. Based on the fact that GE is someway or the other, has become an integral part of our life. Thus the basic sentiment comes into play, if it is part of my life, I am going to trust the company and invest in it. This is very well thought investment strategy.

The second important thing to consider is the cash flow the company has. In case of start-up company, we don't have any cash reserve but cash-deficit account. But when we come to established companies like GE, we can see how much the company have made profit from the previous investment and how they are utilizing the money in future. Are their investment making a ground for future growth of the company. A quick look at the financial statement will give us an idea.

Another important factor is to consider is free cash flow. Free cash Flow can be calculated as FCFE = net income + depreciation - fixed capital investments - working capital investments +/- net borrowing. You have to take this in consideration with various other factors. A recent articles on thestreet.com [Here] give a better idea for more savvy investor. But for common investor it basically mean that if the company has more cash flow, it signal strong growth.

Another factor to consider is that future growth of the company. For example, is the company investing into those technology which will affect us in future. For example, the Green Power or the renewable source of energy; transportation sector, how we are going to travel in near future, Health sector, etc for a large conglomerate like GE.

Based on various factors some of the above will be able to help a common man to make a wise decision. I am not saying that consider these but take these factors into consideration before you invest. There are more sources to gather before you before you make investment. Use your money wisely.

You can take same view on
Siemens AG SI
Honeywell International Inc. HON
Tyco International Ltd. TYC
The Walt Disney Company DIS
Raytheon Company RTN
Emerson Electric Co. EMR
3M Company MMM

Comments are appreciated.

GE: Is it attractive enough for new entry

2009-06-23T19:33:00.000-07:00

There are many theories and principals about market and stock. I won't go into those theories as I am not expert on most of the method and its elements. But as a layman who don't know much about all those technical issue which affect a stock and how it price are valued, I will try to explain why it worth to consider GE as a good long term play.

1. When we think about our safety of investment (Question like Is my money Safe after events like BearStern, Washington Mutual, General Motors, etc.), the most important factor to small retail investor is safety of their money. No one enter stock market with a tacit understanding about the risk involved in investing money. With these things in my mind, for common man, GE is the most safest stock to invest. Their risk of losing whole money is zero (Consider all failure, Bankruptcy).

2. Stock Valuation is another thing to consider. Do you want to invest in company such as Google whose share values range from $100 to more $700 (last 4 year) or company whose share values has been in comfortable range even in recession condition of market. If you have high risk appetite, invest into high return valued share such AAPL, GOOG, GS etc to name a few. But I am sure you wont invest all your 401K or your entire saving into these stock. You would play defensive. GE is the best defensive play in the market.

3. Entery Point is another attractive value for GE share. The market overall has been betten down including GE. But with the pospect of recovery and sell, GE is the best for conservative player.

4. Dividend is another factor to consider. Even after being hit by recession, though GE has reduce dividend pay to 0.10 cents for the stock, the yield is still about 3.5% or .86% per quater. Pretty sure, once the market recover, the dividend will be increase.

5. Future product and growth of GE product. GE is already looking at the future, such as green power (I am going to write another articule), Home-improvement, medical-industry, infrasture, etc, the investment look safe for common investor.

Summary from Google Finance
General Electric Company (GE) is a diversified technology, media and financial services company. Its products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. As of December 31, 2008, GE operated in five segments: Energy Infrastructure, Technology Infrastructure, NBC Universal, Capital Finance and Consumer & Industrial. In January 2009, the Company acquired Interbanca S.p.A., an Italian corporate bank. In April 2008, Oil & Gas completed the acquisition of the Hydril Pressure Controls business from Tenaris. In September 2008, the Company announced the sale of its Japanese consumer finance business to Shinsei Bank. During the year ended December 31, 2008, the Company acquired Whatman plc; Vital Signs, Inc.; Merrill Lynch Capital, and CitiCapital.

If you have question feel free to write. I would more than happy to answer.

Discloser:

I own GE share.

Bull Spread on DRYS option

2009-06-20T22:11:00.000-07:00

Guys, I have been thinking about entering the DRYS once more after I exited out 2 week back. Drys has been hammered in last few trading days and it look like it is ripe to enter next as the option expiration weekend is over.

Every third week, I keep watching that stocks take hammer left and right from the market (mostly big player).Well this is free market, what can I and you do if we don't have money might like them. No worry, there are ways we can beat them in their own game. Its just a matter of time, when we all will become shrewd and smart like them. But till than we have to suffer, if we play with option.

So after watching DRYS last week, it definitely look favorable to enter the market on the bullish side keeping small target in mind like 7$ from the current price. This brings to the point why I am writing this. July 7 strike price is at 0.35 and 8 strike is at 0.15. So we can play this by buying 10 strike of 7 @0.35 and by selling 10 strike of 8 @0.15 each. So the net difference is 10*0.35 - 10*.15 = $200. Now I am expecting Dry to run atleast to 8 (keeping price fluctuation of DRYS in mind).

lets see how it plays.

Playing A stock with Option

2009-06-18T04:33:00.000-07:00

I was recently reading some message board and people where talking about how to play option to their advantage. Since I like to share these kind of information with rest of folks, I decided to share this idea with you all. I have followed Fast Money on CNBC and they have been discussing similar thing in the past. So I decided to share my piece of knowledge with you all.

Lets have a look Bank of America stock. Right now lets say it is trading at 12.50$ per share. So what I do is I buy 1000 share @12.50 = 12500. Now I am going to sell Call Option of strike price of 15.00$ for the month of Nov at @ 1.20. So I sell 10 call option and made 1200$. So my net investment for 1000 share is $12500 - $1200 = $11300.

Now if in Nov, the share Price of BAC is above 15.00 at expiration, I sell my 1000 share @15.00 making $15000. So my net income from 1000 share on BAC is 15000- 11300 = 3700$.

Now if the BAC share don't go above 15.00$ on expiration, I keep all the money by selling call option.

This is like 30% return on Investment (ROI) for the period of three month.

Why do Stock Tank every third week of the month?

2009-06-18T04:22:00.000-07:00

Why do Stock Tank every third week of the month?

There is a reason for this weeks drop and several hedge funds are
making hundreds of millions of it. This week is options expiration
week for Junes options. Last week there was tons of selling of BAC and
C calls that were in the money. It was all a set-up for the novice
investors. Her is how it works. Last week was mostly a positive week
for banks, especially for BAC who got 8 upgrades in three days. The
stocks were rolling and so were the call options for those stocks.
Many retail investors thought the upwards movement was going to
continue into this week and every indications were positive for this
week being an up week. Here is were hedgies came in. They sold tons of
calls that were in the money. To make it easier to understand I will
give you a very simple explanation:

Lets say friday BAC was selling at $13.50 in the afternoon. The $12
june calls were in the money and were selling at $1.50 (i'm not taking
into account time value of options or that one options contract
represents one hundred shares in the underlying stock.) So you have
$10K and think BAC is going to $16 by next friday (which most on the
BAC message board thought). You can buy a little over 700 shares on
the open market and make $1750 if BAC hits $16. Or you can buy $10K
worth of $12 calls for $1.50 each. And if the share price reaches $16
by next friday, you make around $17000 in profit. So if you are
certain BAC is going to $16 and every indication shows you that it is,
why not risk it and make the big hit. These Hedge funds sold those
calls last week like there was no tomorrow. Come monday, they started
to short the hell out of those BAC shares, selling 1 mil blocks at
market. They drove the share price from 13.80 to almost $12. If they
keep it down by friday, option expires worthless and they get to keep
your cash, then slowely cover over the next two weeks. This strategy
is especially effective in the summer time, when the volume is low. It
is easier to manipulate a stock with low volume.
This strategy was used for C and other financial institutions as well.
Savy investors know what's coming during options week and usually cash
out on Friday before it begins, then they pick up the bargains during
the week. You can check the history of every options expirations week,
90% of those weeks end in the red.

So don't worry if you took a lose this week, you will make it back in
the next one.

IMF Bond Sales Could Lift Dollar: No there is other side to this

2009-06-16T14:25:00.000-07:00

The recent BRIC countries summit in Russia have pledge to buy IMF bonds and sell their Dollar to buy these asset. I agree that in short term, dollar values will rise as the extra dollar in circulation will be removed from the market and will be locked up in "Hotel California" as you mentioned.

But are they going to trade in Dollar come sometime? Definitely that is the billion dollar question and that is the reason why they are raising their pitch so high. According to the various sources published around the world and west world in particular, they assume that these countries will keep on trading with dollar.

This is the fundamental question to be asked. The most important question for coming years. So what does BRIC countries plan to do? Definitely, they are looking at longterm goal where their reliance on dollar is going to wane in time. Come 10 year from now, you will see that these countries and may be other countries such as Mexico, Indonesia, malaysia (MIM) would join BRIC countries in their effort to move away from centric dollar.

As a result of these effort, they may launch a supernational currency or they may tradde with their local curriencies which can be pegged against each other for trade.

So what we are going to see is that in future, there will be few buyer for dollar as a result, the dollar will start declining.

Why they are fed up with Dollar? This is the most simple question. The Federal Reserve (US) is keep printing dollar so that they can support US economy without any exit plan to with draw extra dollar pumped in the market.

Whats wrong with OCNF?

2009-06-16T01:23:00.000-07:00

Whats wrong with OCNF?

About OCNF

OceanFreight Inc. is a global provider of shipping transportation services. The Company specializes in transporting drybulk cargoes, including such commodities as iron ore, coal, grain and other materials and crude oil cargoes through the ownership and operation of nine drybulk carriers and four tanker vessels. During the year ended December 31, 2006, the fleet of the Company consisted of eight Panamax and one Capesize drybulk carriers and three Aframax and one Suezmax tanker vessels with a total capacity of 1.2 million dead weight tons (dwt) and an average age of 13.9 years.

What the management is doing?

This is one company which can do much better just like its peer such as Drys, DSX etc. But unfortunately the management are making wrong decision at the wrong time. We have already seen the financial sector making lots of bad loans in the Housing market sector. So how is this related to this company.

Well for the starter, the management just issued some 60 million share around 1.60$ and already diluted the share holder values. The share has been battered left and right in the downturn economy. They collected some 147 million dollar so that they can buy some ship at some point of time. Well why couldn't have the management waited for some more time. Atleast once the BDI index have recovered, they could have negotiated a better price for the share.

And now we getting the news that they plan to offer some 1 billion share sometime, may be in phase manner. But why? I understand that they want to raise some capital to invest in the company. Thats fine but Why can't the management wait for a better time?

So what they are doing with the money they recieved. They are sitting with it and are waiting for the right time to buy a ship.

The less people here about the management, the better for this stock.

Bull Call Spread for Drys

2009-06-10T13:25:00.000-07:00

A bull call spread is when you buy call options on a stock and then short further out of the money call options in order to reduce capital outlay and thus increase reward risk ratio. Since we are expecting a short term gain in the price of DRYS up to about $11, we could put on what is known as a 7.5/11 Bull Call Spread. This means that we buy the $7.50 strike price call options and then Sell to Open as many $11 strike price call options. Since it is a short term move we are expecting, we will not buy options with too far an expiration date but not so near as to not give the stock enough time to move.

Generally, about 3 months out would be nice. For this trade, we shall use the September options.

DRYS's Sep 7.5/11 Bull Call Spread is priced at a debit of $0.90 ($0.95 - $1.85) as of Friday close. See how the short call options help reduce the overall debit of the position? If you had merely bought the call options, you would incur a debit price of $1.85 instead. The maximum profit of $3.50 (11 - 7.5) achievable by the position is when DRYS stock price reaches $11 or higher. At $11, the $7.50 strike price call options would be worth $3.50 while the $11 strike price short call option would be worth nothing. The reward risk ratio is 3.50 : 0.9 or 3.8 : 1. What this says is that for every dollar at risk, you could potentially gain $3.80. This ROI would have been much lower if you had merely bought the Sep $7.50 strike call options or the stock itself. Indeed, the primary aim of the Bull Call Spread is to dramatically increase your ROI.

The main drawback of the Bull Call Spread is that you could lose all the money in that trade if DRYS closes below $7.50 upon Sep expiration. You put at risk any money you have in that trade, nothing more. You would not be required to put in more money than that if things don't work out. This is also the beauty of debit spreads like the Bull Call Spread. Since you could lose no more than the money you have in that position, you could size your position to your preferred risk amount! Yes, if you could lose no more than $500 in a single trade, use no more than $500! Its that easy. With $500, you could buy 5 contracts of Sep $7.50 Call options and short 5 contracts of Sep $11 call options. If DRYS reaches $11 by expiration, the position will be worth $1750! See how you can make a dramatically higher ROI with options trading?

So Basically if you can identify other stocks, you can replicated the same. But be cautious.

Source: http://www.ibtimes.com/articles/20090517/dryships-drys.htm

How does FAZ and FAS ETF work.

2009-06-09T21:20:00.000-07:00

I have always been looking at FAZ and FAS and wondered how does it work. I tried to go Direxion Share website and tried to understand what all those terms mean to a new investor.

The defination of FAS and FAZ as given on Direxion Share website are as follows:
FAS: The Financial Bull 3X Shares seeks daily investment results, before fees and expenses, of 300% of the price performance of the Russell 1000® Financial Services Index ("Financial Index"). There is no guarantee the fund will meet its stated investment objective.

FAZ:The Financial Bear 3X Shares seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the price performance of the Russell 1000® Financial Services Index ("Financial Index"). There is no guarantee the fund will meet its stated investment objective.

Did this helped me to understand the true nature of these ETF? Definately no but it did warn me that you cannot be invested in these for long term. These are short term play, meaning you buy in morning and sell in evening or next day but definately cannot hold for a month or a year. Infact it is never meant for holding purpose. It is a tool to play in this volatile market.

But how does it work. People who are running these ETF definately knows in and out of this kinds of trade. So where does this leave all of us. Nowhere.

But here's my chance to find how really it work.

Rafferty Asset Management, LLC (“Rafferty” or “Adviser”), the investment adviser to the Funds, uses a number of investment techniques in an effort to achieve the stated goal for each fund.

Rafferty creates net “long” positions for the Bull Funds and net “short” positions for the Bear Funds. (Rafferty may create short positions in the Bull Funds and long positions in the Bear Funds even though the net exposure in the Bull Funds will be long and the net exposure in the Bear Funds will be short.)

Funds are invested in indexed as well as non-indexed securities. To meet its objectives, each Fund invests in some combination of financial instruments so that it generates economic exposure consistent with the Fund’s investment objective.

Each Bull and Bear Fund invests significantly in swap agreements, forward contracts, reverse repurchase agreements, options, including futures contracts, options on futures contracts and financial instruments such as options on securities and stock indices options, and caps, floors and collars. Rafferty uses these types of investments to produce economically “leveraged” investment results. Leveraging allows Rafferty to generate a greater positive or negative return than what would be generated on the invested capital without leverage, thus changing small market movements into larger changes in the value of the investments of a Fund.

Credit-Card: Its going to hurt real bad to all the banks

2009-06-09T00:01:00.000-07:00

Most of the Banks like Bank of America (NYSE:BAC), Citi Group (NYSE:C), JPM, etc have issued billions of dollar through credit card during good time. Now that Good time are have been over for more than a year, people have tried hard to pay their minimum bill on time till now, but that is changing soon. They don't have money to survive, forget about paying the credit card bills.

1. Credit card company are sending mails to their customer to pay their bill.

2. They have stopped issuing new card to consumers who are more prone to default.

3. They are decreasing credit limit so that people can withdraw less from the bank.

4. More and More people are losing jobs, so its getting real hard for them to pay the bills.

5. People who previously used to pay the bill from tax-return are now using the money to buy daily surviving things like food.

6. Delinquencies on plastic issued by banks have jumped recently in the last 3-4 month and will be increasing more in the coming days as people are losing job left and right.

That could mean more trouble for card issuers such as Citigroup Inc., Bank of America Corp., American Express Co., Capital One Financial Corp., Discover Financial Services and JPMorgan Chase & Co.

Poking Holes in a Theory on Markets

2009-06-08T02:31:00.000-07:00

For some months now, Jeremy Grantham, a respected market strategist with GMO, an institutional asset management company, has been railing about — of all things — the efficient market hypothesis.

Global Markets

You know what the efficient market hypothesis is, don’t you? It’s a theory that grew out of the University of Chicago’s finance department, and long held sway in academic circles, that the stock market can’t be beaten on any consistent basis because all available information is already built into stock prices. The stock market, in other words, is rational.

In the last decade, the efficient market hypothesis, which had been near dogma since the early 1970s, has taken some serious body blows. First came the rise of the behavioral economists, like Richard H. Thaler at the University of Chicago and Robert J. Shiller at Yale, who convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices — meaning that perhaps the market isn’t quite so efficient after all. Then came a bit more tangible proof: the dot-com bubble, quickly followed by the housing bubble. Quod erat demonstrandum.

These days, you would be hard-pressed to find anybody, even on the University of Chicago campus, who would claim that the market is perfectly efficient. Yet Mr. Grantham, who was a critic of the efficient market hypothesis long before such criticism was in vogue, has hardly been mollified by its decline. In his view, it did a lot of damage in its heyday — damage that we’re still dealing with. How much damage? In Mr. Grantham’s view, the efficient market hypothesis is more or less directly responsible for the financial crisis.

“In their desire for mathematical order and elegant models,” he wrote in his firm’s quarterly letter to clients earlier this year, “the economic establishment played down the role of bad behavior” — not to mention “flat-out bursts of irrationality.”

He continued: “The incredibly inaccurate efficient market theory was believed in totality by many of our financial leaders, and believed in part by almost all. It left our economic and government establishment sitting by confidently, even as a lethally dangerous combination of asset bubbles, lax controls, pernicious incentives and wickedly complicated instruments led to our current plight. ‘Surely, none of this could be happening in a rational, efficient world,’ they seemed to be thinking. And the absolutely worst part of this belief set was that it led to a chronic underestimation of the dangers of asset bubbles breaking.”

(Mr. Grantham concluded: “Well, it’s nice to get that off my chest again!”)

I couldn’t help thinking about Mr. Grantham’s screed as I was reading Justin Fox’s new book, “The Myth of The Rational Market,” an engaging history of what might be called the rise and fall of the efficient market hypothesis.

Mr. Fox is a business columnist for Time magazine (and a former colleague of mine) who has long been interested in academic finance. His thesis, essentially, is that the efficient marketeers were originally on to a good idea. But sealed off in their academic cocoons — and writing papers in their mathematical jargon — they developed an internal logic quite divorced from market realities. It took a new group of young economists, the behavioralists, to nudge the profession back toward reality.

Mr. Fox argues, echoing Mr. Grantham, that the efficient market hypothesis played an outsize role in shaping how the country thought and acted in the last 30-plus years. But Mr. Fox parts company with him by also arguing that the effect wasn’t necessarily all bad. As for the question of whether an academic theory hatched in Chicago led to the financial crisis, suffice it to say that some questions can never be answered definitively. Which isn’t to say they shouldn’t be asked.

“There are no easy ways to beat the market,” Mr. Fox said when I spoke to him a few days ago. If you want to point to the single best thing the efficient market hypothesis taught us, that is the lesson: we can’t beat the market. Indeed, the vast majority of professional money managers can’t beat the market either, at least not on a regular basis.

As Mr. Fox describes it, much of the early academic work that led to the efficient market theory was aimed at simply showing that most predictive stock charts were glorified voodoo — just because a pattern had developed didn’t mean it would continue, or even that it had any real meaning. Dissertations were written showing how 20 randomly chosen stocks outperformed actively managed mutual funds. (Hence the phrase “random walk,” to connote the near impossibility of beating the market regularly.) Mr. Thaler, the Chicago behavioralist, says that evidence on this point — “the no free lunch principle,” he calls it — is clear and convincing.

In time, this insight led to the rise of passive index funds that simply matched the market instead of trying to beat it. Unless you’re Warren Buffett, an index fund is where you should put your money. Even people who don’t follow that advice know they should.

As it turns out, Mr. Grantham was an early advocate of index funds, mainly for unsophisticated investors who have no hope of beating the market. But he also believes that professionals should do better precisely because, as he puts it, “the market is full of major league inefficiencies.”

“There are incredible aberrations,” he told me over lunch not long ago. “The U.S. housing market in 2007. Japan in the 1980s. Nasdaq. In 2000, growth stocks were three times their fair value. We were quoted in The Economist in 2000 saying that the Nasdaq would drop by 75 percent. In an efficient world, you wouldn’t have that in a lifetime. If the market were truly efficient, it would mean that growth stocks had become permanently more valuable.”

As Mr. Grantham sees it, if professional investors had been willing to acknowledge these aberrations — and trade on the fact that the market was out of whack — they should have been able to beat the market. But thanks to the efficient market hypothesis, no one was willing to call a bubble a bubble — because, after all, stock prices were rational.

“It helped mold the ‘this time it’s different’ mentality,” he said. Indeed, professional money managers who tried to buck the tide wound up losing their jobs — because everybody else was making money by riding the bubble for all it was worth. Meanwhile, government officials, starting with Alan Greenspan, were unwilling to burst the bubble precisely because they were unwilling to even judge that it was a bubble. “Our default reflex is that the world knows what it is doing, and that is extravagant nonsense,” Mr. Grantham said.

But as much as I’ve admired Mr. Grantham’s writings over the years, I think the truth, in this case, is a little more subtle. Given the long history of bubbles, I suspect this crisis would have taken place with or without the aid of the efficient market hypothesis. People thought “it’s different this time” in the 1920s, long before anyone was writing about efficient markets. And over the course of history, professional money managers have been just as fearful of bucking the trend as they were during the Internet bubble.

Mr. Fox sees it somewhat differently. On the one hand, he says, the efficient market theoreticians always assumed that smart market participants would force stock prices to become rational. How? By doing exactly what they don’t do in real life: take the other side of trades if prices get out of whack. Their ivory tower view reflected an idealized market that simply doesn’t exist.

On the other hand, Mr. Fox says, what was truly pernicious about the efficient market hypothesis is the way it allowed us to put asset prices on a pedestal that they never deserved. Stock options — supposedly based on a rational price — became prevalent in part because higher stock prices were supposed to be the rational reward for good performance.

Or take the modern emphasis on market capitalization. “At some point in the early 1990s (or maybe it was in the late 1980s), market capitalization became accepted as the best measure of a company’s importance,” Mr. Fox wrote me in an e-mail message. “Before then it was usually profits or revenue. I think that’s a classic example of the way efficient market theory seeped into popular discourse and shaped how we perceived the world. It wasn’t entirely stupid — profits and revenue are flawed, limited measures, and market value does tell you something useful about a company. But it was another one of the ways in which asset prices came to rule the world, which eventually turned out to be a bad thing.”

A few days ago, I called Burton G. Malkiel, the Princeton economist, to ask him what he thought of Mr. Grantham’s theories. Mr. Malkiel is the author of “A Random Walk Down Wall Street,” surely one of the greatest popularizers of any academic theory that’s ever been written.

“It’s ridiculous” to blame the financial crisis on the efficient market hypothesis, Mr. Malkiel said. “If you are leveraged 33-1, and you’re holding long-term securities and using short-term indebtedness, and then there’s a run on the bank — which is what happened to Bear Stearns — how can you blame that on efficient market theory?”

But then we started talking about bubbles. “I do think bubbles exist,” he said. “The problem with bubbles is that you cannot recognize them in advance. We now know that stock prices were crazy in March of 2000. We know that condo prices were nuts.”

I thought to myself: if a smart guy like Burton Malkiel had to wait for the Internet bubble to end to realize we had been in one, then maybe Mr. Grantham has a point after all.

This story originally appeared in the The New York Times
By: By JOE NOCERA, The New York Times | 06 Jun 2009

Jim Cramer on DryShip

2009-06-08T01:27:00.000-07:00

According to "Mad Jim", he has found a CEO who can fit on his wall of Shame in the form of George Economou. According to Mad Money fella, George Economou is responsible for bring the share price of DRYS from $120 to %5 "after he massively over-leveraged himself buying Ocean Rig at the height of the oil bubble and diluted his stock about five times over."

Now is Jim Cramer smart or just he is the moaning baby who has lost his investor money by buying DRYS at all time high or is he same good old fella trying to bash someone for his poor decision.

Cramer says: “That’s a pretty good bill of particulars…we will bring this man to justice.”

Well what you Mr. Cramer. I am no fan of George Economou but we think people should take you to court and get justice.

What do you fellas say about this guy?

Source: http://www.cnbc.com/id/31088069/site/14081545
Recommendation: Don't ever listen to him.

ESLR: Whats for future

2009-06-04T23:30:00.000-07:00

Hits:

1. The growth potential of the solar industry as a whole and ESLR in particular with contractual backlog is the selling point (In billions of dollar as of today).

2. The company's cost of debt remained within a relatively narrow range of 8.9% to 10.1% over this multi-year period.

3. ROE is expected to improve partially in 2009 with an all-around development precipitating through by higher online capacity.

Miss:

1. Continious near-term earnings losses due to high start-up costs, significant capital expenditures, oversupply of solar modules, absence of deep pockets unlike its peers and earnings-dilutive stock issuances may present risks to the near-term share price upside potential.

2. From 2003 through 2008, the company had recorded net earnings losses and stockholders suffered from negative annual returns-on-equity (ROE).

Source: http://www.zacks.com/stock/news/20633/Evergreen+Solar+In+Depth

12 Signs for economy to be in Bad Condition

2009-06-03T15:50:00.000-07:00

If you are looking for signs or anything which says that the economy is improving, look for these things. If any one of these signs are missing, the economy is recovering and if not than it is the most common indicators that the economy is bad:

Here's the list:

12. CEO's are now playing miniature golf.

11. I got a pre-declined credit card in the mail.

10. I went to buy a toaster oven and they gave me a bank.

9. Hotwheels and Matchbox car companies are now trading higher than GM in the stock market.

8. Nobama met with small businesses - GE, Pfizer, Chrysler, Citigroup and GM, to discuss the Stimulus Package.

7. McDonalds is selling the 1/4 ouncer.

6 People in Beverly Hills fired their nannies and are learning their children's names.

5. The most highly-paid job is now jury duty.

4. People in Africa are donating money to Americans. Mothers in Ethiopia are telling their kids, "finish your plate; do you know how many kids are starving in America ?"

3. Motel Six won't leave the lights on.

2. The Mafia is laying off judges.

And my most favorite indicator of all.

1. If the bank returns your check marked as "insufficient funds," you have to call them and ask if they meant you or them.

PS: its collection of people thought

ESLR: What can happen to you

2009-06-03T14:57:00.000-07:00

Renewable energy is on the rise. Call it the gas effect or the dollar effect or the national sentiment effect. Everyone is looking for some clean energy which cost less and easy to maintain and last long enough for the memory. Most of the renewable energy company do exactly same. But why investing in ESLR is better than most of the other companies. Here are my few reasons for layman people (not going into technical discussion).

1. Its Cheap compared to other solar stocks such FSLR, STP, SOLF, SPWR etc. Agreed that it is not making profit in the current market but the potential for recent future is huge.

2. It is agreesively investing in different market such as China, Europe, US beside selling it product in many other country.

3. Many of large scale Oil and energy company are trying to go green. Some of the large oil company don't have any green energy in their portfolia. ELSR can suite well into some of these large company if they want to buyout.

4. Once this company show sign of profit or break-even, there is sign that this will go up.

All the best and constructive comments are welcome.

OceanFreight Inc. (Public, NASDAQ:OCNF): Good for long position

2009-05-18T16:02:00.000-07:00

Why OceanFreight along with other dry bulk carrier such as
Diana Shipping Inc. (Public, NYSE:DSX); DryShips Inc.(Public, NASDAQ:DRYS)are a good position to play commodities: they need to be transported.

1. OCNF is at good bargain price compared to other in the sector
2. Decent fleet of ship
3. Recovering economy means raw material to be transported
4. Decent fundamental
5. Good Volume
6. Positive sentiment about this sector and overall positive sentiments.
7. BDI index showing sign of recovery and stabilization.
And negative

1. Lots of new share dumped in the market to cover the debit
2. Few Analysts covering OCNF

Evergreen Solar, Inc. (Public, NASDAQ:ESLR)

2008-06-23T11:18:00.000-07:00

Punch Line about Solar energy

Solar energy is generated by trapping solar light (photons) and converting them into heat and electricity. This is the basic one line defination of solar energy.

Factor pulling back solar industry: High installation cost, no government support for alternative energy, lack of knowledge among people, storage issues, etc.

Factor supporting solar industry: Clean source, long durability, local source, almost zero carbon foot-print, dependable, etc.

Companies involved in Solar Industry market: (ESLR, SPWR , FSLR , LDK , CY , ASTI , DSTI ) are some of the important companies in today market at NYSE.

I am today going to write about ESLR and why I think this company can deliver provided it is being excuated in right approach.

ESLR is based in Marlboro, MA and is involved in solar energy sector. It develops, manufactures and markets solar power products enabled by its String Ribbon technology. The Company’s revenues are primarily derived from the sale of solar modules, which are assemblies of photovoltaic cells that have been electrically interconnected and laminated in a physically durable and weather-tight package.

Following is my understanding on ESLR and is my personal view.

1. ESLR has a very sounding technology to support its growth. It uses ribbon-based string technology which convert solar energy into electricity.
2. They have developing in right market like Europe, North America, and Asia
3. They could be a source for potential takeover (why, you can guess it).
4. Fundamentally they are well established with their technology (althought they are having issue about expanding to the right market and at the right time).

My best bet for the company is that it is fundamentally sounds (I mean financially).